After a disaster, people hear that they can "write off" the damage. Sometimes they can. Often the deduction is much smaller than the loss, and sometimes it is zero. The difference comes down to what kind of disaster it was, how much insurance paid, and which floor applies.
The rules also changed recently, more than once. Here is how the casualty loss deduction for personal property works now, in plain English.
Rule one: it has to be a declared disaster
IRC Section 165(c)(3) allows individuals to deduct losses of personal-use property from "fire, storm, shipwreck, or other casualty, or from theft." But Section 165(h)(5) narrows that sharply. For taxable years beginning after December 31, 2017, a personal casualty loss is allowed "only to the extent it is attributable to a Federally declared disaster" or, under the current text, a State declared disaster.
The State declared disaster language was added by Public Law 119-21 for taxable years beginning after December 31, 2025. Section 165(h)(5)(C) defines it as a natural catastrophe or, regardless of cause, a fire, flood or explosion that the governor of the state and the Secretary of the Treasury determine is severe enough to warrant applying these rules.
A house fire that is not part of a declared disaster generally does not produce a deduction for personal property, except to offset personal casualty gains under Section 165(h)(5)(B). That surprises people. Check the declaration before you count on a deduction.
Rule two: measure the loss correctly
IRS Publication 547 lays out the steps:
- Determine your adjusted basis in the property before the casualty. For most people, that is what you paid plus improvements.
- Determine the decrease in fair market value caused by the casualty.
- Take the smaller of those two amounts, and subtract any insurance or other reimbursement you received or expect to receive.
Treasury Regulation Section 1.165-7(b) is the source of the "lesser of" rule. It is why a destroyed couch you bought for $700 is not a $1,000 loss just because a new one costs $1,000.
Insurance comes first
Section 165(h)(4)(E) says a loss covered by insurance is taken into account "only if the individual files a timely insurance claim." You cannot skip the claim to protect your premiums and deduct the loss instead. File the claim.
Safe harbors that make measurement easier
Measuring the drop in value of a damaged home is hard, and the IRS knows it. Rev. Proc. 2018-08 provides safe harbor methods, and says the IRS "will not challenge" the decrease in value if you qualify for and use one. For personal-use residential property in a federally declared disaster, options include an insurance company's loss report, a binding contract with a licensed contractor for repairs, and an appraisal prepared to obtain a federal disaster loan. For personal belongings in a federally declared disaster, the replacement cost safe harbor values an item at a percentage of today's replacement cost based on how long you owned it: 90% after one year, down 10% a year to 10% for nine years or more. Rev. Proc. 2018-08 excludes vehicles, boats, mobile homes, trailers, aircraft and antiques from that table. Any safe harbor requires you to reduce the loss by the value of no-cost repairs, such as volunteer rebuilding.
Rule three: apply the floors
The ordinary floors
Section 165(h)(1) allows each casualty loss only to the extent it exceeds $100. Section 165(h)(2) then allows net personal casualty losses only to the extent they exceed 10% of your adjusted gross income. For an ordinary declared disaster, that 10% floor eliminates most or all of the deduction for many households. You also generally have to itemize.
Qualified disaster losses get better treatment
Congress has repeatedly carved out better rules for major disasters. The current version is in Section 165(h)(6), added by Public Law 119-108 in 2026 and effective for taxable years beginning after December 31, 2024. It applies to "qualified disaster-related personal casualty losses," meaning losses in an area where the President declared a major disaster under section 401 of the Stafford Act, if the incident period began on or after December 28, 2019, and before January 1, 2027.
For those losses:
- The per-casualty floor is $500 instead of $100, under Section 165(h)(1).
- The qualified net disaster loss is not reduced by the 10% of adjusted gross income floor, under Section 165(h)(6)(A).
- You can claim the qualified net disaster loss even if you take the standard deduction. Section 63(b)(8) lists it among the deductions allowed to non-itemizers.
That is a big difference. Under the ordinary rules, someone with $80,000 of adjusted gross income loses the first $8,100 of a disaster loss to the floors. Under the qualified disaster rules, the floor is $500, and the deduction is available without itemizing. The Form 4684 instructions call the non-itemizer piece "increased standard deduction reporting." Because this law is new, check the current Form 4684 instructions on IRS.gov for how to report it on your return year.
Where it goes on the return
Casualty losses are figured on Form 4684, Casualties and Thefts. If the loss is attributable to a federally declared disaster, the instructions ask you to enter the FEMA disaster declaration number, in the format shown in the instructions (for example, "DR-" followed by the number). Get that number from the FEMA declaration or the IRS news release for your disaster.
Timing choices
A federally declared disaster loss may be claimed in the year of the disaster or, by election under Section 165(i), on the prior year's return. The prior-year election can produce a refund months sooner, which matters when you are paying contractors. I cover the deadlines and mechanics in the prior-year disaster loss election.
If insurance later pays more than you expected, the recovery may be income in the year received. If insurance pays more than your basis, you may have a gain rather than a loss, and different rules apply. See insurance payouts after a disaster.
Documentation wins these cases
Every number on Form 4684 has to be supportable: basis, value before, value after, insurance received. After a disaster, the records you need may have been destroyed along with the house. Start rebuilding them right away, with photos, purchase records, bank statements and contractor estimates. The IRS's own tips are summarized in replacing tax records after a disaster.
A worked example
A family's home is damaged in a hurricane that is a federally declared major disaster with an incident period in 2026. Their adjusted basis in the home is $250,000. Using the insurance safe harbor, the decrease in value is $90,000. Insurance pays $60,000. The loss before floors is $30,000, the smaller of basis or decrease in value, minus insurance.
If it qualifies under Section 165(h)(6), they subtract the $500 floor and can claim $29,500 as a qualified net disaster loss, even if they take the standard deduction. Under the ordinary rules, with adjusted gross income of $100,000, they would subtract $100 and then $10,000, leaving $19,900, and only if they itemized. The rules you fall under change the answer by thousands.
The bottom line
Personal casualty losses are deductible only when they come from a declared disaster. Measure the loss as the smaller of basis or decrease in value, subtract insurance, and apply the right floor. If your disaster qualifies under the newer major disaster rules, the floor is $500, the 10% haircut disappears, and you do not have to itemize.
The storm decided what you lost. The paperwork decides what you get back.
Frequently asked questions
Can I deduct storm or fire damage to my home?
Only if the loss is attributable to a federally declared disaster or, for tax years beginning after 2025, a state declared disaster, under IRC 165(h)(5). Losses outside a declared disaster generally are deductible only to offset personal casualty gains. You must also subtract insurance and apply the floors.
How is the amount of a casualty loss figured?
Take the smaller of your adjusted basis or the decrease in fair market value caused by the casualty, then subtract insurance or other reimbursement. Rev. Proc. 2018-08 offers safe harbor methods, such as insurance reports and contractor contracts, for measuring the decrease in value.
Do I have to itemize to deduct a disaster loss?
For ordinary declared disasters, yes, and the 10% of AGI floor applies. For qualified disaster-related losses under IRC 165(h)(6), from major disasters with incident periods beginning December 28, 2019 through 2026, the net loss can be claimed with the standard deduction and is not reduced by the 10% floor.
Do I have to file an insurance claim to deduct the loss?
If the property is insured, yes. IRC 165(h)(4)(E) allows a loss covered by insurance to be taken into account only if you file a timely insurance claim. Any reimbursement you receive or expect to receive reduces the deductible loss.
This guide is general information, not legal advice. Tax law changes and every case turns on its own facts.