Casualty Loss Deductions Under OBBBA

If you’ve ever suffered damage or theft from an event like a flood, fire, or burglary, you may wonder if you can claim a tax deduction for your loss.

Unfortunately, the rules for personal casualty and theft loss deductions remain very restrictive, even after the recently enacted One Big Beautiful Bill Act (OBBBA).

Current Rules (2018–2025)

Through 2025, you can deduct personal casualty or theft losses only if they stem from a federally declared disaster. This means the president must formally declare the event severe enough to warrant federal assistance. Even then, two key unfavorable reductions apply:

1. You must reduce the uninsured loss by $100.

2. Then you must reduce the remaining loss by 10 percent of your adjusted gross income (AGI).

Only what’s left can be claimed as an itemized deduction on your return. If you don’t itemize, you get nothing. These rules often wipe out smaller claims.

OBBBA’s Small Win

The OBBBA made the federally declared disaster requirement permanent but added one modest improvement. Starting in 2026, you can deduct losses from state-declared disasters—events recognized by your state’s governor as severe enough to qualify. While this doesn’t help today, it broadens relief beginning in 2026.

Other Important Points

If you have casualty gains (insurance proceeds exceeding the tax basis of damaged property), you may offset those gains with personal casualty losses, regardless of whether the event was federally or state-declared.

Special timing rules allow you to claim losses from federally declared disasters in the year before the loss occurred, sometimes producing a better tax result. This rule, however, does not apply to state-declared disasters.

Business casualty or theft losses follow different rules. They are fully deductible, with no $100 reduction, no 10 percent of AGI rule, and no disaster declaration requirement. Your next step? Check out our Proactive Tax Strategy & Planning for Business Owners. While you're there, take the 2-minute Tax Strategy Assessment and get some free tax strategy ideas.

We provide these articles as general information and not individualized tax advice.  They do not constitute a client relationship with you, and any information provided here should be applied at your own risk.