By Sanford I. Millar of MillarLaw A Professional Corporation On Tuesday, April 22, 2025

Purpose
This blog outlines the tax consequences of a casualty loss, focusing on eligibility, calculations, limitations, and reporting requirements for affected individuals or businesses.

Definition of a Casualty Loss
A casualty loss involves the damage, destruction, or loss of property due to sudden, unexpected, or unusual events such as natural disasters (e.g., hurricanes, floods, earthquakes) or unforeseen accidents.

Tax Considerations

1. Eligibility for Deductions
   1. Personal-Use Property: Deductions are limited to losses caused by federally declared disasters (2018–2025).
   1. Business or Income-Producing Property: Losses are generally deductible regardless of federal disaster status.
   1. Timing: If the casualty loss is attributable to a federally declared disaster, taxpayers may elect to deduct the loss in the prior tax year to potentially expedite tax relief.
2. Calculating the Deduction
   1. Personal-Use Property: The deductible amount is the lesser of:
      1. Adjusted basis of the property, or
      1. Decrease in fair market value due to the casualty.
   1. Business/Income-Producing Property: For complete destruction, the deduction is the adjusted basis minus salvage value or insurance reimbursements.
3. Insurance Reimbursements
   1. Any received reimbursements reduce the deductible loss amount.
4. Limitations for Personal Casualty Losses
   1. A $100 per-loss reduction applies, and total losses are deductible only to the extent they exceed 10% of adjusted gross income (AGI).
   1. Qualified Disaster Losses: These are exempt from the 10% AGI threshold, though subject to a $500 reduction per casualty.
5. Reporting Requirements
   1. Use IRS Form 4684 (“Casualties and Thefts”) to report losses when filing a federal income tax return.

Key Insights for Special Situations

• Qualified Disaster Losses: Enhanced provisions simplify the deduction process for losses tied to federally declared disasters.
• Business Property: Distinct rules apply, providing broader deductibility options compared to personal-use property.

Conclusion
Properly assessing and reporting a casualty loss is vital for ensuring compliance and maximizing available deductions. Consultation with IRS Publication 547 or a tax professional is recommended for tailored advice.  We at MillarLaw have over fifty (50) years experience advising clientin tax matters.  We would be happy to assist you resolve your casualty loss or other tax question; just give us a call.  (310) 556-3007 (O)