It is no longer possible for the 2018-2025 fiscal years to claim accidental loss and personal property theft as itemized deductions unless your claim is declared as a federally declared disaster. You will continue to use Form 4684 to calculate losses and report them on Form 1040, Schedule A.
For fiscal years before 2018 and after 2025, you can only deduct non-refundable or refundable casualty losses through insurance or other means. You will need to deduct $100 from any casualty loss of personal property. The total of your casualty and theft losses on personal property must be greater than 10% of your Adjusted Gross Income (AGI), as only the amount above this limit is deductible.
The following rules apply for years before 2018 and after 2025.
What is Casualty Loss?
A casualty loss is the damage, destruction, or loss of property resulting from any of these identifiable events:
Sudden event: rapid, rather than progressive or gradual
Unexpected event: usually unexpected and unintentional
Unusual event: this is not a daily event
What is the deduction for casualty loss?
Deductible casualty losses can occur as a result of events such as:
Car accident
Earthquake
Fires
Floods
Loss on deposits when a bank or other financial institution becomes insolvent or goes bankrupt. If you suffered this type of loss, you could deduct it as one of the following: casualty loss, ordinary loss, and non-business bad debt.
Mine collapses
Sonic Booms
Storms, such as hurricanes and tornadoes
Terrorist attack
The government ordered the demolition or removal of a house whose use is unsafe due to a disaster. A disaster is an event that has taken place in an area that the president declares eligible for federal aid.
Vandalism
Volcanic eruptions
Wrecks
Any of these casualties can be claimed as a deduction for damages using IRS Form 4684. However, once the decision is made, it cannot be changed without the IRS's approval.
What does not count as casualty loss deduction?
A casualty loss cannot be deducted if the damage or destruction is caused by one of the following reasons:
A fire you set or paid for someone to set it
Accidentally broken objects, such as glass or porcelain, under normal conditions
Car accident, if caused by negligence or willful action. The same applies if someone on your behalf caused the accident.
Damage caused by termites or moths
Damage or destruction of trees, shrubs, or other plants by fungus, disease, insects, worms, or the like. However, a sudden destruction due to unexpected or unusual infestation can result in a casualty loss.
Damages are caused by a family pet unless the accident conditions are met.
Progressive damage if the damage results from a cause of constant operation or a normal process, such as Constant weakening of a building due to the wind and normal weather conditions, damage, and deterioration to a broken water heater. However, damage to carpets and curtains caused by the water heater explosion can be considered casualties.
Property losses caused by drought. To deduct it, you must have experienced a drought loss in one of the following cases: trade or business, such as agriculture, a transaction entered into for profit.
Failure to file an insurance claim
If your property is covered by insurance, you must file a timely insurance claim for your loss. Otherwise, the loss cannot be deducted as a casualty or theft. However, the uninsured portion of the loss, such as a deductible, is not subject to this rule.
What is theft?
Theft is the unlawful withdrawal and taking of money or property to deprive the owner. The taking of property must be: Illegal according to the law of the state in which it took place and done with criminal intent.
Theft includes the withdrawal of money or property by:
Blackmail
Burglary
Embezzlement
Extortion
Fraud or false declaration
Kidnapping for ransom
Larceny
Robbery
Theft can be claimed via Form 4684.
Calculation and Proof of Casualty Loss - Form 4684
Use the instructions on Form 4684 to report gains and losses from casualties and thefts. Attach Form 4684 to your income tax return.
How to calculate your deduction amount
To calculate the deduction for casualty or theft damage, first, calculate the amount of the loss. Then follow these instructions to complete Form 4684:
Calculate the appropriate basis on the property before the casualty or theft.
Calculate the reduction in fair market value (FMV) of the asset resulting from the casualty or theft.
From the smaller of the amounts in Steps 1 and 2, subtract insurance or any other reimbursement you have received or expect to receive.
You will need proof that a casualty caused your loss. So keep the log and other evidence showing the type of casualty that hit your area and the extent of the damage it caused.
To prove the value of your loss, you must have:
Assessments before and after the casualty loss of the property concerned
Purchase receipts for the affected property
Receipts for improvements to the affected property
If these documents have been damaged or stolen, the IRS says you can use "other satisfactory evidence to support you (your case)."
Deducting a casualty loss in a disaster area declared by the president
If your loss is part of a disaster declared by the president, you can deduct the loss on your prior-year return. If you have already filed a prior-year return, you can file an amended statement to claim the deduction.
Claiming an Eligible Disaster Loss on your prior-year return:
May result in reduced taxes for that year
Often generates or increases a cash refund
This can allow you to receive your money months in advance than if you wait to claim your loss on your current year return.
The amount you can deduct
The amount you receive includes the total:
Insurance payment
Reimbursement used to pay a mortgage or other lien on the damaged, destroyed, or stolen property
The value of the good received minus the expenses incurred during the reimbursement request
Casualty loss or thefts of business or income-generating assets
It is no longer possible to claim various itemized deductions. As a result, losses due to casualty and theft of assets used in providing services as an employee cannot be deducted or applied in the netting process to offset gains.
There may be a casualty or theft loss of property used in a business, such as a vehicle or a rental property. If so:
It is not necessary to reduce the amount of the loss by the $100 deduction.
10% of AGI rules do not apply.
To calculate the amount of the loss, subtract these items from the property's adjusted basis: salvage rule and insurance proceeds or other reimbursements.
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