Per Event and AGI Limitations
Generally, for an individual’s casualty or theft loss of personal-use property that is attributable to a federally declared disaster:
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Reduce the disaster amount by $100 for each event (Note: Sometimes that amount is increased for certain disasters).
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After combining all personal disaster occurrences for the year, reduce the total by 10% of adjusted gross income.
Qualified Disasters
According to Chief Counsel Advice 202002014 and IRC Sec 165(h)(2)(A) as revised in the Disaster Tax Relief Act of 2020, for casualty or theft losses of personal-use property by individuals as a result of a Qualified Disaster:
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Reduce the disaster amount by $500 per casualty, and
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No reduction by a percentage of AGI is required.
A qualified disaster loss is an individual’s casualty or theft loss of personal-use property that is attributable to a major disaster declared by the President under section 401 of the Stafford Act in 2016, as well as from Hurricane Harvey, Tropical Storm Harvey, Hurricanes Irma and Maria, or from the California wildfires in 2017 and January 2018. The TCJA expanded qualified disaster loss to include an individual’s casualty and theft of personal-use property that is attributable to a major disaster that was declared before February 19, 2020, by the President under section 401 of the Stafford Act and that occurred in 2018 and before December 21, 2019, and continued no later than January 19, 2020. However, this change does not include those losses attributable to California wildfires in January 2018 (which received special relief in 2018). See page 07.11.09 for the definition of a qualified disaster area under the Disaster Tax Relief Act of 2020. For date-specific declarations related to these disasters see https://www.irs.gov/newsroom/tax-relief-indisaster-situations.
Example - Personal Casualty Loss Computation - Andy's car (which cost $5,000) was totaled in 2022 when it was crushed by a tree during a tornado in an area that was federally declared a disaster area (but not a qualified disaster). The fair market value at the time of the accident was $3,500. Andy had no collision insurance and his AGI for the year was $25,000.
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Loss (decrease in FMV) $3,500
Less $100 per event) -100
Minus 10% of AGI -2,500
Casualty loss deduction $900
If Andy doesn't itemize his deductions, he cannot deduct the $900 loss. If the damage to the car had occurred in a qualified disaster, the deductible loss would have been $3,000 ($3,500 - $500) and Andy could have claimed the loss even if he used the standard deduction, in which case the deductible loss goes from Form 4684 to Schedule A, line 16 and Andy's standard deduction amount is also entered on line 16. The two amounts are totaled and entered on Form 1040, line 12 (2021).