What is the Casualty Loss Tax Deduction?
Every year, severe storms, flooding, wildfires and other disasters affect millions of taxpayers. Many experience casualty losses from damage to their homes or personal property. The One Big Beautiful Bill Act (OBBBA), signed into law last year, generally made permanent the Tax Cuts and Jobs Act (TCJA) limitation on the personal casualty loss tax deduction. But it also expanded the deduction in one way.
What Is Deductible?
For losses incurred from 2018 through 2025, the TCJA generally restricted deductions for personal casualty losses to those due to federally declared disasters. This is the rule that applies to your 2025 income tax return due April 15, 2026.
The OBBBA permanently requires disasters for casualty loss deductions and starting January 1, 2026, expands eligibility to include certain state-declared disasters for the 2026 tax year. Wisconsin residents affected by the August Severe storms of 2025 in Milwaukee, Washington, and Waukesha counties may claim a casualty loss deduction on their 2025 tax year (normally due April 15th, 2026), but due to the disaster, the filing deadline was extended to October 15, 2026. The August storms were declared federal disasters.
There’s an exception to the general rule, however: If you have personal casualty gains because your insurance proceeds exceed the tax basis of the damaged or destroyed property, you can deduct personal casualty losses that aren’t due to a declared disaster up to the amount of your personal casualty gains.
Additional limits
Even when the cause of a personal casualty loss qualifies you for the deduction, additional limits apply. First, your deduction for the loss from the declared disaster is reduced by any insurance proceeds received. For those disasters that received FEMA assistance those amounts are treated like insurance proceeds and will reduce the deductible loss on your tax return. If insurance covered your entire loss, you can’t claim a casualty loss deduction for that loss. If insurance didn’t cover your entire loss, then $100 (per casualty event) must be subtracted from the uncovered amount.
Finally, a 10% of adjusted gross income (AGI) floor applies. So you can deduct only the uncovered loss (reduced by $100 per casualty event) that exceeds 10% of your AGI for the year you claim the loss deduction. If, say, your 2025 AGI is $100,000 and your casualty loss (after subtracting insurance proceeds and $100 per event) is $11,000, you can deduct only $1,000 on your 2025 return.
Also keep in mind that you must itemize deductions to claim the casualty loss deduction. Since 2018, fewer people have itemized because the TCJA significantly increased the standard deduction amounts — and the OBBBA has increased them further. For 2025, they’re $15,750 for single filers, $23,625 for heads of households, and $31,500 for married couples filing jointly. For 2026, they’re $16,100, $24,150 and $32,200, respectively. So even if you qualify for a casualty deduction under the rules and limits, you might not get any tax benefit because you don’t have enough total itemized deductions to exceed your standard deduction.
Have questions?
The rules for personal casualty loss deductions are complex, so contact a Wegner CPAs tax advisor for more information. We can help you determine whether you qualify for — and will benefit from — this deduction on your 2025 income tax return.
For more tax guidance, visit our 2025 Tax Hub.
