The treatment of a casualty on the tax return depends on the tax year in which the loss occurs, and there are special provisions for certain federally declared disasters in 2016 and 2017. See here for more information on these special provision for a Qualified Disaster Loss that occurred in 2016 and 2017.
Are losses not related to a disaster deductible?
The short answer is NO. The Tax Cuts and Jobs Act of 2017 limited a taxpayer's ability to deduct a casualty loss for any personal casualty and theft loss. Prior to 2018, casualty and theft losses to the home, household items, and vehicles could generally be deducted when the loss was not associated with a federally declared disaster. However, starting in 2018, in order to claim a casualty loss, the loss must have been due to a federal declared disaster as determined by the Federal Emergency Management Agency (FEMA).
Claiming a FEMA-declared disaster
A casualty loss is claimed on Form 4684, Casualties and Thefts, and is reported on Schedule A as an itemized deduction. The taxpayer must report the appropriate FEMA disaster declaration number for the ZIP Code for the property affected by the disaster in order to claim a casualty loss. Currently only FEMA codes with starting with either DR or EM qualify. The list of federally declared disaster designation numbers is available at fema.gov/disaster.
If the property is covered by insurance, the taxpayer must file a timely insurance claim for reimbursement of the loss, otherwise they can't deduct the loss as a casualty or theft loss. However, the part of the loss that isn't covered by insurance is still deductible. A casualty loss can result from the damage, destruction, or loss of property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration.
Related expenses, such as expenses for the treatment of personal injuries or for the rental of a car, aren't deductible as casualty or theft losses.
Have the Form 4684 instructions handy to refer to for help in completing the form.
To enter a casualty or theft loss in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- 2021 and fwd: Deductions > Itemized Deductions
2020 and prior: Itemized Deductions
- Casualty/Theft Loss (4684)
- New - Select "Form 4684 - Casualty/Theft"
- Enter a description of the casualty, the date of the loss, the FEMA Disaster Declaration Number and the date of the disaster designation. If the special provisions for a Qualified Disaster Loss apply (see the Form 4684 instructions here for more information), click the "Qualified Disaster Loss Rules Apply" check box. Click Ok when finished.
- Select the appropriate section for the loss, based on whether or not the property is used for business purposes, and enter the information requested about the loss. Both sections may need to be completed for property used for both personal and business purposes, e.g., a personal residence that is partially rented out.
- Section A - Personal Property - Use Section A to determine the casualty or theft gains and losses for property that isn't used in a trade or business or for income-producing purposes, as well as the portion of of the taxpayer's home used for business if they used the simplified method on Form 8829, Expenses for Business Use of Your Home.
- Section B - Business Property - Use Section B to determine the casualty or theft gains and losses for property that is used in a trade or business or for income-producing purposes.
Casualty or theft losses of personal use property are deductible only to the extent that the amount of the loss from each separate casualty or theft is more than $100 and the total amount of all losses (as so reduced) during the year is more than 10% of AGI.
Note: This is a guide on entering casualty and theft losses into the TaxSlayer Pro program. This is not intended as tax advice.