The 2018 Tax Cuts and Jobs Act has suspended the itemized deduction for personal casualties and theft losses for tax years 2018 through 2025.
The taxpayer, however, can still claim personal casualty losses which occur in a presidentially declared disaster area and are a direct result of the disaster, according to the new law.
For Prior Years, you can deduct losses from fire, storm, flood, shipwreck, or other casualty. You can also deduct losses from thefts such as larceny, embezzlement, and robbery. You can even deduct the loss of deposits because of the insolvency or bankruptcy of a financial institution such as a bank or a credit union.
If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Otherwise, you cannot deduct the loss. However, the part of the loss that is not covered by insurance would still be deductible.
If you incurred expenses for proving that you had a property loss, you would enter those expenses as a Miscellaneous Deduction subject to the 2% rule. Examples of these costs would be appraisal fees and photographs used to establish and validate the amount of your loss. DO NOT enter these expenses as a casualty or loss item on Form 4684.
What CANNOT be deducted?
You cannot deduct any of the following:
- Costs for protection against future casualties
- Money or property that was misplaced or lost
- Breakage of china, glassware, furniture, and similar items under normal conditions
- Progressive damage to property (buildings, clothes, trees, etc.) caused by termites, moths, other insects, or disease
What about Insurance or other reimbursements?
If the amount you receive in insurance or other reimbursement is more than the cost or other basis of the property, you have a gain. If you have a gain, you may have to pay tax on it, or you may be able to postpone the gain.
Do not report the gain on damaged, destroyed, or stolen property if you receive property that is similar or related to it in service or use. Your basis in the new property is the same as your basis in the old property.
For more information on reporting a gain from the reimbursement of a casualty or theft loss, please reference the IRS instructions for Form 4684.
If you did have any qualifying casualties or theft losses during the tax year, you can enter these under:
- Federal Section
- Enter Myself
- Itemized Deductions
- Less Common Deductions
- Casualties and Losses (Form 4684)