8717 / Is a business-related casualty loss treated differently than a personal casualty loss?

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

If a taxpayer sustains a casualty loss with respect to property used in the taxpayer’s trade or business, the taxpayer will not be subject to the $100 floor or 10 percent of adjusted gross income limitations described in Q 8714. The taxpayer who sustains a casualty loss in connection with a trade or business can take the deduction as a business deduction.

A taxpayer who uses property and sustains a casualty or theft loss in performing services as an employee can deduct the casualty or theft loss as a miscellaneous itemized deduction subject to the 2 percent limit on these deductions (see Q 8528).² However, all miscellaneous itemized deductions subject to the 2 percent floor were suspended for 2018-2025. If the property subject to the loss was investment-type property held for profit, the deduction will not be subject to the 2 percent limit on miscellaneous itemized deductions.³ This kind of investment-type property includes stocks, notes, bonds, gold, silver, vacant lots, and works of art.⁴