Unexpected, Identifiable Event
A casualty loss occurs when there is property damage from a sudden, unanticipated event, NOT FROM GRADUAL, PROGRESSIVE DAMAGE. The following are examples of qualifying events but keep in mind that for years 2018-2025 no federal deduction for personal casualty losses is allowed except for those attributable to federally declared disasters:
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Acts of Nature like hurricanes, tornadoes, floods, storms, and volcanic eruptions.
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Shipwrecks, sonic booms.
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Vandalism.
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Fires (except if set by the taxpayer). Smog, but only if caused by a sudden event, e.g., the escape of highly unusual toxic fumes that cause damage to paint on a taxpayer’s home, auto, etc. (Rev Rul 71560).
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Insolvency of a bank: Taxpayers can elect to treat lost deposits as EITHER casualties OR bad debts. The election is not available to the insolvent bank officers, owners (owning 1% or more), or certain relatives of these owners., The loss may be recognized in the year it can be reasonably estimated, OR it can be claimed in a later year when it is determined no recovery is possible.
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Car and other accidents (but not if due to willful negligence of taxpayer or if due to breakage under normal conditions).
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Theft, including burglary, embezzlement, and other unlawful acts. Merely losing property is not considered theft; but if the disappearance of the property accompanies an unexpected event, a casualty could result.
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Damage from insects or drought will normally NOT qualify., But IRS says that a sudden, unexpected, or unusual infestation by beetles or other insects may result in a casualty loss. (Pub. 547, 2021 edition, page 4)
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Terrorist attacks.