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declared disaster includes (a) a major disaster declaration, or (b) an
emergency declaration under the Stafford Act.
Federal casualty loss. A federal casualty loss is an individual’s
casualty or theft loss of personal-use property that is attributable to a
federally declared disaster. The casualty loss must occur in a state
receiving a federal disaster declaration. If you suffered a federal casualty
loss, you are eligible to claim a casualty loss deduction. If you suffered a
casualty or theft loss of personal-use property that was not attributable to
a federally declared disaster, it is not a federal casualty loss, and you
may not claim a casualty loss deduction unless the exception applies.
See the
Caution under Losses You Can Deduct, later.
Disaster loss. A disaster loss is a loss that is attributable to a federally
declared disaster and that occurs in an area eligible for assistance
pursuant to the Presidential declaration. The disaster loss must occur in
a county eligible for public or individual assistance (or both). Disaster
losses are not limited to individual personal-use property and may be
claimed for individual business or income-producing property and by
corporations, S corporations, and partnerships. If you suffered a disaster
loss, you are eligible to claim a casualty loss deduction and to elect to
claim the loss in the preceding tax year. See
Disaster Losses, later.
Qualified disaster loss. A qualified disaster loss also includes 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;
•
Hurricane Harvey;
•
Tropical Storm Harvey;
•
Hurricane Irma;
•
Hurricane Maria;
•
The California wildfires in 2017 and January 2018;
•
A major disaster that was declared 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
(except those attributable to the California wildfires in January 2018
that received prior relief); and
•
A major disaster that was declared by the President during the
period between January 1, 2020, and February 25, 2021. Also, this
disaster must have an incident period that began on or after
December 28, 2019, and on or before December 27, 2020.
However, this change does not include those losses attributable to
any major disaster which has been declared only by reason of
COVID-19 and must have ended no later than January 26, 2021.
The definition of a qualified disaster loss does not extend to any
major disaster that has been declared only by reason of COVID-19
(because the incident period for COVID-19 extended beyond
January 26, 2021). Thus, given that the incident period for
COVID-19 generally ran from January 20, 2020 to May 11, 2023, a
loss due to COVID-19 is not a qualified disaster loss.
If you suffered a qualified disaster loss, you are eligible to claim a
casualty loss deduction, to elect to claim the loss in the preceding tax
year, and to deduct the loss without itemizing other deductions on
Schedule A (Form 1040). See Qualified disaster losses and Increased
standard deduction reporting, later.
See also IRS.gov/DisasterTaxRelief for date-specific declarations
associated with these disasters and for more information.
Losses You Can Deduct
For tax years 2018 through 2025, if you are an individual, losses of
personal-use property from fire, storm, shipwreck, or other casualty, or
theft are deductible only if the loss is attributable to a federally declared
disaster (federal casualty loss). See Pub. 547 for more information.
If the event causing you to suffer a personal casualty loss occurred
before January 1, 2018, but the casualty loss was not sustained until
January 1, 2018, or later, the casualty loss is not deductible. See When
To Deduct a Loss, later, for more information on when a casualty loss is
sustained.
An exception to the rule limiting the deduction for personal
casualty and theft losses to federal casualty losses applies
where you have personal casualty gains to the extent the losses
don’t exceed your gains.
If your property is covered by insurance, and your loss is otherwise
deductible, you should file a timely insurance claim for reimbursement of
your loss. If you don't file a timely insurance claim, you can't deduct the
full unrecovered amount as a casualty or theft loss and only the part of
the loss that isn't covered by your insurance policy is deductible.
Related expenses. The related expenses you have due to a casualty or
theft, such as expenses for the treatment of personal injuries or for the
rental of a car, aren't deductible as casualty or theft losses.
Costs for protection against future casualties aren't deductible but
should be capitalized as permanent improvements. An example would
be the cost of a levee to stop flooding.
Losses You Can't Deduct
•
Money or property misplaced or lost.
•
Breakage of china, glassware, furniture, and similar items under
normal conditions.
•
Progressive damage to property (buildings, clothes, trees, etc.)
caused by termites, moths, other insects, or disease.
•
A decline in market value of stock, caused by disclosure of
accounting or other illegal misconduct by the officers or directors of
the corporation that issues the stock, that was acquired on the open
market for investment. You may be able to deduct it as a capital loss
on Schedule D (Form 1040) if the stock is sold or exchanged or
becomes completely worthless. See chapter 4 of Pub. 550,
Investment Income and Expenses.
Note. Victims of fraudulent investment schemes can claim a theft loss
deduction if certain conditions apply. See Losses From Ponzi-Type
Investment Schemes, later, for more information.
Gain on Reimbursement
If the amount you receive in insurance or other reimbursement is more
than the cost or other basis of the property, you have a gain. If you have a
gain, you may have to pay tax on it, or you may be able to postpone the
gain.
Don't report the gain on damaged, destroyed, or stolen property if you
receive property that is similar or related to it in service or use. Your basis
in the new property is the same as your basis in the old property.
Any tangible replacement property held for use in a trade or business
is treated as similar or related in service or use to property held for use in
a trade or business or for investment if:
•
The property you are replacing was damaged or destroyed in a
disaster, and
•
The area in which the property was damaged or destroyed was
declared by the President of the United States to warrant federal
assistance because of that disaster.
Generally, you must recognize the gain if you receive unlike property
or money as reimbursement. But you can generally choose to postpone
all or part of the gain if, within 2 years of the end of the first tax year in
which any part of the gain is realized, you purchase:
•
Property similar or related in service or use to the damaged,
destroyed, or stolen property; or
•
A controlling interest (at least 80%) in a corporation owning such
property.
To postpone all of the gain, the cost of the replacement property must
be equal to or more than the reimbursement you received for your
property. If the cost of the replacement property is less than the
reimbursement received, you must recognize the gain to the extent the
reimbursement exceeds the cost of the replacement property.
If the replacement property or stock is acquired from a related
person, gain generally can't be postponed by:
•
Corporations (other than S corporations);
•
Partnerships in which more than 50% of the capital or profits interest
is owned by corporations (other than S corporations); or
•
All other taxpayers, unless the aggregate realized gains on the
involuntarily converted property are $100,000 or less for the tax
year. This rule applies to partnerships and S corporations at both
the entity and partner or shareholder level.
For details on how to postpone the gain, see Pub. 547.
If your main home was located in a disaster area and that home or
any of its contents were damaged or destroyed due to the disaster,
special rules apply. See Gains Realized on Homes in Disaster Areas,
later.
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Instructions for Form 4684 (2023)