8719 / What special rules apply to taxpayers who suffer casualty losses within a federally-declared disaster area?

Editor’s Note: The 2017 tax reform legislation suspended the generally available deduction for casualty and theft losses for 2018-2025, with the exception of losses sustained in a federally declared disaster zone. See Q 8720 for a discussion of the special relief created for victims of qualified 2016 disasters.

Editor’s Note: On December 12, 2024, President Biden signed the Federal Disaster Tax Relief Act of 2023 into law.  The law provides relief for qualified disaster-related casualty losses.  To assist taxpayers in the wake of extreme weather events that occurred between January 1, 2020, and January 11, 2025, the law eliminates the rule that personal casualty losses must exceed 10% of the taxpayer's adjusted gross income before becoming deductible.  Under the law, each separate casualty loss can be deducted if the value exceeds a $500 floor.  Taxpayers can also claim these qualified disaster deductions above-the-line, meaning that they will not be required to itemize in order to take advantage of the deduction.  The law covers a range of disasters, including Hurricanes Milton and Helene, the wildfires in California and Hawaii, and Hurricane Ian, which hit in 2022.  The FEMA website contains a full list of disasters that qualify.

In recognition of the fact that taxpayers who sustain casualty losses as a result of disasters often have an immediate need for relief, the IRC contains provisions that accelerate the recognition of tax benefits to which disaster victims are entitled.