8714 / What limitations apply to the amount a taxpayer is able to claim as a casualty or theft loss deduction?

Editor’s Note: Under the 2017 tax reform legislation, individuals are no longer entitled to deduct casualty and theft loss expenses as itemized deductions for 2018-2025 (when those losses are not related to property used in a trade or business). An exception exists for losses that occur in federally declared disaster areas.¹

Casualty and theft losses are deductible whether the loss relates to property held by the taxpayer (i) for use in a trade or business, (ii) for investment purposes or (iii) for use that is purely personal.² However, if the property involved is not held for a business or profit-generating purpose, the amount of the deduction is limited as follows:

(1)  each loss is reduced by $100 and any insurance proceeds received (prior to 2010, the $100 limitation was $500);³ and

(2)  the aggregate of such adjusted losses is deductible only to the extent that it exceeds 10 percent of adjusted gross income.⁴