Resources
- IRS Publication 547: Casualties, Disasters, and Thefts
- Tax Topic 515: Casualty, Disaster, and Theft Losses (including Federally Declared Disaster Areas)
- 2014 Form 4684, Casualties and Thefts
- Instructions for 2014 Form 4684
Why YOU Should Care
If you suffer loss from casualty, theft, or disaster, you may be able to deduct the loss on your tax return.
First, some definitions:
Casualty – The IRS defines casualty loss as “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.” This means that gradual deterioration of an asset – such as the wear and tear that occurs with normal use – would not qualify as casualty.
Theft – Theft is the removal of your property from your possession against your will. This removal must have been illegal under your state law, but you do not need to show a conviction to claim the loss. This does not cover items that you have misplaced.
In general, the loss incurred must be unexpected to be deductible. Destruction done by a family pet or loss that you caused through willful or negligent acts (e.g., starting a fire, accidentally dropping a vase) are not deductible losses.
Proof of Loss
In order to claim the loss on your tax return, you must retain documentation to prove the loss occurred.
For a casualty loss, you must prove:
- When the casualty occurred,
- That the loss was a direct result of the casualty (e.g., that the damage to your house was a result of the fire, etc),
- That you owned the property when the casualty occurred, and
- Whether there is a claim for reimbursement – for instance, from an insurance company – and whether a recovery is reasonably expected.
For a theft loss, you must prove:
- When you discovered your property was missing,
- That your property was stolen,
- That you owned the property at the time of the theft, and
- Whether there is a claim for reimbursement – for instance, from an insurance company – and whether a recovery is reasonably expected.
Amount of Loss
The amount of the loss you can claim is the smaller of:
- Your adjusted basis in the property before the event, or
- The decrease in fair market value of the property due to the casualty or theft loss.
Once you have that amount, subtract $100.
In order to deduct the loss on your tax return, this amount (adjusted basis or fair market value adjustment minus $100) must exceed 10% of your adjusted gross income for the year. Form 4684 will walk you through this calculation. The result flows through to your Schedule A, the schedule where you list your Itemized Deductions. If you are not itemizing deductions for the year, you will not be able to claim a casualty or loss deduction.
Note: If the reimbursement you receive from insurance or other means exceeds the adjusted basis of your lost property, you will have a gain on the casualty or theft event. Talk to your tax adviser.
