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How to Claim a Casualty or Theft Deduction


Verify that the loss is personal and not business-related.


Verify that the loss is from a casualty or a theft. A casualty is a sudden, unexpected and unusual event causing the loss or damage of property. A theft is an illegal taking of money or property.


Determine the amount of loss. To do this, calculate the adjusted basis of the property (which is usually the cost plus improvements minus depreciation) and calculate the decrease in fair market value of the property (which is usually done by an appraisal). The smaller of the adjusted basis or the decrease in fair market value is your loss.


Subtract from your loss any reimbursement from insurance or a disaster fund. Do not subtract any personal gift anyone has given you to help you out.


Subtract $100 from your loss for any single event. You may have multiple losses from a single event, but subtract only $100 per event.


Subtract 10 percent of your adjusted gross income from the total of all losses from casualties or thefts.


Fill out Form 4684 and Schedule A with this information.

Tips and Warnings

  • When a financial institution becomes insolvent or bankrupt, you may suffer a loss on deposit. This loss can be treated as a casualty loss. However, it may be better to treat it as a nonbusiness bad debt, which is a capital loss reported on Schedule D. You can also treat it as a Miscellaneous Deduction Subject to the 2 percent limit on your Schedule A. Talk to a professional about which course is more advantageous for you.
  • If your income is less than your deductible loss, you may have a Net Operating Loss (NOL). This can be used to reduce your tax liability in later years or could be used to get a refund on taxes you have paid in the past few years. See a good tax professional if you think you have an NOL.
  • A casualty loss cannot be due to the action of a family pet, a car accident due to your willful negligence, or a fire you willfully set or paid someone to set.
  • A theft is not a simple disappearance of unknown cause. If you mislaid or lost something, it is not a theft. However, if the disappearance is due to a sudden, unexpected and unusual event, it can be a casualty loss.
  • Because of the limitations, a casualty loss usually has to be substantial, and the higher your income, the more substantial it has to be for you to take the deduction. You also have to be able to itemize to benefit from the casualty-loss deduction.

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