What is a casualty loss, exactly?
A casualty loss is a tax concept under Internal Revenue Code §165. In general, it refers to a loss from damage, destruction, or loss of property caused by a sudden, unexpected, or unusual event. Whether that loss is deductible depends on the type of property, the tax year, the applicable disaster rules, basis, reimbursement, and other facts.
Why does federally declared disaster status matter so much?
Because for tax years 2018 through 2025, personal casualty losses of individuals were generally deductible only if attributable to a federally declared disaster, subject to limited exceptions. That is why disaster status is not a side issue – it is often central to deductibility and planning.
How does insurance affect the analysis?
Insurance and other reimbursements generally reduce the deductible loss, and a taxpayer ordinarily has not sustained a loss to the extent there is a reasonable prospect of recovery. This is one reason open, delayed, or disputed insurance claims matter so much to the timing and amount of the analysis.
What makes a disaster-related loss more favorable than a general personal casualty loss?
Depending on the facts and the governing disaster category, a disaster-related loss may be eligible for more favorable treatment, such as prior-year election options under IRC §165(i) and, for certain qualified disaster losses, relief from the normal 10%-of-AGI reduction and the ability to claim the deduction without itemizing.
Can I amend a prior tax return?
Potentially, yes. Depending on the facts, timing, and the applicable disaster rules, a taxpayer may be able to amend a prior return or elect to claim certain federally declared disaster losses on the preceding year’s return.
What changed under the OBBB / OBBBA?
The IRS stated in March 2026 that under The One Big Beautiful Bill Act (P.L. 119-21), the deduction for certain personal casualty losses was made permanent and, beginning in 2026, expanded beyond federally declared disasters to include certain state-declared disasters, provided the other requirements of IRC §165 are satisfied.
Do you prepare tax returns?
No. Our role is to prepare the analysis and documentation package for the client’s CPA or tax preparer to review and file.
How long does the process take?
Timelines vary based on document availability, insurance status, appraisal timing, and the complexity of the matter. A more complete file generally allows the process to move more efficiently.
Is this really a legitimate tax position?
Yes – when properly analyzed and documented. Casualty loss reporting is grounded in the Internal Revenue Code, IRS guidance, FEMA and other disaster determinations where relevant, and the supporting factual record.
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