Can I deduct Casualty or Theft Losses on my tax return?

Losing personal or business property due to a casualty, i.e. fire, flood, hurricane, or theft or other similar event is devastating, but some casualty or theft losses can be recouped through income tax breaks on your tax return.

If you have a casualty or theft loss, you may be entitled to a casualty or theft loss tax deduction on your tax return. A casualty loss is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual in nature. It can also be a government-ordered demolition or relocation of a home that's unsafe because of a disaster.

Other examples of casualty losses include car accidents, fires, and vandalism. If your property is covered by insurance, you cannot deduct on your tax return a casualty or theft loss unless you file a timely insurance claim for reimbursement. If insured, a claim must be filed even if no reimbursement is expected.

Some casualty or theft losses are not tax deductible on your IRS tax return, such as the ones below:

	Accidental loss of a ring from your finger;
	A fire set on purpose by the owner;
	A well that goes dry;
	Carpet beetle damage;
	China plates broken by a pet;
	Damages to property caused by excavations on adjoining property;
	Damages for personal injuries or property damage to others caused by your negligence;
	Damage to a crop caused by plant diseases, insects, or fungi;
	Damage from rust or corroding of the understructure of a house;
	Damage to property from a government construction project;
	Damages to property from drought in an area where a dry spell is normal and usual;
	Dry rot;
	Engine damage caused by failing to use anti-freeze;
	Expenses to move to, and rent for, temporary quarters;
	Eye glasses or a watch dropped on the ground;
	Injuries from tripping over a wire;
	Legal expenses for defending a suit regarding your negligent operation of your personal automobile;
	Legal expenses to recover personal property wrongfully seized by the police;
	Loss of an ill lawyers earnings;
	Loss of a valuable dog that strayed;
	Loss of a private liquor stock in an improper police seizure;
	Loss of a contingent interest in property because of the unexpected death of a child;
	Loss of jointly held property taken by the other joint tenant;
	Loss of luggage aboard a ship;
	Loss of personal property while in storage or transit;
	Losses from natural phenomena;
	Loss of trees from diseases;
	Money paid to a public library for a book you damaged;
	Moth damage;
	Sudden drop in the value of securities;
	Termite damage;
	Temporary fluctuations in value;

People who suffer a casualty or theft loss may be able to deduct on their tax return the casualty or theft loss when they itemize tax deductions on their tax return. The amount of total casualty or theft losses that exceed 10% of adjusted gross income (AGI), after subtracting the $100 floor for each occurrence, maybe deducted on your tax return. It's basically a three step process:

	Calculate the decrease in the property's fair market value, that is the difference between the property's value immediately before and immediately after the casualty loss. Compare this with the adjusted basis of the property. Use the lower of these two amounts;
	Reduce this amount by any insurance or other reimbursements you receive or expect to receive;
	Reduce this figure twice, first by $100, and then by 10% of adjusted gross income. What's left, if anything, is tax deductible as a casualty or theft loss on your tax return.

Casualty or Theft Loss Tax Deduction Rules

These tax rules apply to a casualty or theft loss of nonbusiness property.
	$100 Rule	10% Rule
Definition of Rule	You must reduce each casualty or theft loss by $100 when figuring your tax deduction. Apply this rule after you reduce your loss by any reimbursement.	You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Apply this rule after you reduce each loss by any reimbursement and by $100 (the $100 Rule).
Single Event	Apply this rule only once, even if many pieces of property are affected.	Apply this rule only once, even if many pieces of property are affected.
More Than One Event	Apply this rule to the loss from each event.	Apply the rule to the total of all your losses from all events.
More Than One Person With loss from the same event (other than a married couple filing jointly.)	Apply the rule separately to each person.	Apply the rule separately to each person.
Married Couple with loss from the same event:	Apply this rule as if you were one person. Apply this rule separately to each spouse.	Apply this rule as if you were one person. Apply this rule separately to each spouse.
Filing joint IRS tax return Filing separate IRS tax return
More Than One Owner (other than a married couple filing jointly.)	Apply this rule separately to each owner of jointly owned property.	Apply this rule separately to each owner of jointly owned property.

If the casualty loss results from a natural disaster and the President declares your area a disaster area, the casualty loss may be deducted on your tax return within the above limits on this year's tax return or on an amended tax return claiming the casualty loss for last tax year. If a casualty loss was suffered because of a disaster in a designated disaster area, consider amending last year's tax return.

To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your tax return. A nonbusiness casualty or theft loss may be claimed only if you itemize tax deductions on Form 1040, Schedule A.

Related tax information about Casualty or Theft Losses

Tax Directory Topics:
Declared Disaster Areas
Involuntary Conversions
Itemized Tax Deductions Directory

IRS publications about Casualty or Theft Losses:
If your loss took place in a declared disaster area, please refer to Tax Topic 515, Disaster Area Losses (Including Flood Losses). For additional information, refer to Form 4684,

or Tax Topic 507, Casualty Losses, or IRS Publication 547,

Casualties, Disasters, and Thefts (Business and Nonbusiness). If many items are involved, also refer to IRS Publication 584,

Nonbusiness Disaster, Casualty, and Theft Workbook, and IRS Publication 334,

Tax Guide for Small Business. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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