January 19, 2024
The Casualty and Theft Loss Deduction
The Internal Revenue Code has let some taxpayers deduct
under the Robert T. Stafford Disaster Relief and Emergency
unreimbursed losses caused by recent disasters and thefts
Assistance Act (P.L. 100-707, as amended), and it occurs in
from their income subject to the income tax. Congress
the disaster area identified in that declaration.
temporarily limited the casualty and theft loss deduction as
part of the 2017 tax law (P.L. 115-97; popularly known as
Qualified Disaster Losses
the Tax Cuts and Jobs Act or TCJA) to losses resulting
Congress has passed legislation declaring certain losses to
from federally declared disasters for tax years 2018-2025.
be “qualified disaster-related personal casualty losses.”
Among other recently proposed legislative changes, H.R.
Taxpayers with qualified disaster losses can claim a more
7024, the Tax Relief for American Families and Workers
generous casualty and theft loss deduction than others.
Act of 2024, announced by Senator Ron Wyden and
They can deduct qualified disaster losses even if they also
Representative Jason Smith, would expand this deduction
claim the standard deduction. Their per-event limitation is
retroactively.
generally $500 instead of $100, and they are not limited to
deducting losses that exceed 10% of their AGI in sum.
The deduction offers financial relief to some taxpayers who
suffer unexpected monetary damage; in doing so, it reduces
This designation generally applies either to specific
federal revenue. It also subsidizes uninsured losses without
disasters or to any federally declared disasters incurred
offering similar benefits to insured losses or loss-mitigation
during a specific period. Among others, the disasters in this
expenses, potentially distorting taxpayers’ incentives to
category have included
insure themselves for losses or spend money on disaster
• federally declared disasters in 2016 or 2017;
loss mitigation expenses. This In Focus discusses the
structure of the deduction—both before and after the
• federally declared disasters that began in 2018 and
changes that began in 2018—and analyzes its potential
impact on the federal budget and taxpayers’
before December 21, 2019, and continued no later than
January 19, 2020; and
decisionmaking.
Overview
• federally declared disasters (besides those declared
solely because of the COVID-19 pandemic) that were
Prior to 2018, households who itemized their deductions
declared between January 1, 2020, and February 25,
could deduct their unreimbursed net personal losses that
“
2021, and occurred between December 28, 2019, and
arise from fire, storm, shipwreck, or other casualty, or
December 27, 2020.
from theft” from their income. From 2018 through 2025,
the TCJA provides that the deduction is limited to losses
Legislative History
that result from federally declared disasters.
The Revenue Act of 1913 (P.L. 63-16), which created the
modern federal income tax, also created the modern
Under permanent law, taxpayers can only deduct such
deduction for casualty losses, without distinction between
losses to the extent each loss exceeds $100, and their total
business-related and nonbusiness-related losses. Theft
exceeds 10% of the taxpayer’s adjusted gross income
losses were eligible by 1916.
(AGI). The damaged item does not need to be repaired or
replaced for the taxpayer to claim the deduction. Taxpayers
The Revenue Act of 1964 (P.L. 88-272) placed a $100-per-
can claim this deduction regardless of their income, and
event floor on the deduction, corresponding to the $100
there is no cap on the size of the deduction a taxpayer can
deductible provision common in property insurance
claim. Those whose deductions exceed their taxable income
coverage at that time. The limitation to losses that, in sum,
can carry the deduction forward to subsequent tax years.
exceed 10% of the taxpayer’s AGI was created by the Tax
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248).
The restriction of eligibility for unreimbursed losses means
that only losses that insurance does not compensate qualify.
Congress has at times expanded the deduction in response
Additionally, it applies only to personal losses—losses on
to specific disasters. The Katrina Emergency Tax Relief
business property are subject to different rules.
Act of 2005 (P.L. 109-73) eliminated the per-casualty and
AGI floors for deductible losses arising from the
Taxpayers must generally claim the deduction in the year in
consequences of Hurricane Katrina. Congress removed the
which they discover the loss, even if that differs from the
floors for losses arising from several other disasters in
year in which the loss occurred. However, under permanent
subsequent years. The Emergency Economic Stabilization
law, taxpayers can generally choose to take the loss in the
Act of 2008 (P.L. 110-343) expanded the deduction
year prior to the casualty if it results from a federally
similarly for all federally declared disasters occurring in
declared disaster, meaning one declared by the President
2008 and 2009, but imposed a $500 per-casualty limitation
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link to page 2 The Casualty and Theft Loss Deduction
and let taxpayers claim the deduction in addition to the
Households Claiming
Average Claim
standard deduction. Subsequent legislation offered similar

tax benefits to those impacted by other disasters.
2015-2017
113,325
$26,921
The TCJA limited the deduction to casualties and thefts
2018-2020
14,528
$38,940
resulting from federally declared disasters from 2018
Source: IRS Statistics of Income and CRS analysis.
through 2025. It also raised the standard deduction for tax
Notes: Data are averaged by three-year period to account for the
years 2018 through 2025, meaning fewer taxpayers would
annual variation in claims for the casualty and theft loss deduction.
claim any given itemized deduction.
Use of the deduction has always fluctuated meaningfully
Analysis
from year to year. This may be because disasters happen
sporadically, Congress often expands the deduction in the
General
wake of specific disasters, and taxpayers can carry any
The casualty and theft loss deduction provides financial
unused deduction forward and backward.
assistance to some taxpayers who suffer substantial
casualties. It shifts part of the loss from the property owner
In early 2017, before passage of the TCJA, the Joint
to the federal government, and thus serves as a form of
Committee on Taxation estimated that this deduction would
government coinsurance.
cost the federal government roughly $400 million in lost
revenue annually from FY2016 to FY2019, and $500
Economists have theorized that when uninsured losses are
million in FY2020. Its most recent estimates put the
deductible but insurance premiums are not, it may make
deduction’s cost at $100 million annually from FY2022 to
more financial sense for taxpayers to risk incurring a loss
FY2025, before rising to $500 million in FY2026, during
(for which they can claim a tax benefit) than to pay for
which the changes made by the TCJA will expire.
insurance (for which they cannot). If so, this could
Recent Legislative Activity
discourage taxpayers from purchasing insurance. A similar
principle could apply to the cost of mitigation activities to
Lawmakers have introduced several proposed reforms to
prevent losses, which are not currently deductible (although
the casualty and theft loss deduction in the 118th Congress.
other subsidies may be available). There has not been
Under H.R. 7024, the Tax Relief for American Families and
substantial research into whether the casualty and theft loss
Workers Act of 2024, qualified disaster losses would
deduction has these effects.
include disasters that occurred between December 28, 2019,
and the date of the bill’s enactment, and were declared
No distinction is made between losses on items considered
within 60 days of enactment. This change is identical to that
basic to maintaining the taxpayer’s household and
included in H.R. 5863, the Federal Disaster Tax Relief Act
livelihood versus discretionary personal consumption. As
of 2023.
with all deductions, a dollar of deductible casualty or theft
losses is worth more to taxpayers in higher-income tax
Similarly, H.R. 5343, the Federal Disaster Responsibility
brackets because of their higher marginal tax rates.
Act, would make losses from any disaster for which the
incident period begins between 2020 and 2023 qualified
Recent Changes
disaster losses. H.R. 5873, the Natural Disaster Tax Relief
In 2018, the first year that P.L. 115-97 took effect, 77%
Act of 2023, would do the same, but only for disasters that
fewer taxpayers claimed the deduction than in the three
occurred in 2023. H.R. 1494, the Hurricane Tax Relief Act,
years prior. Claims continued to decline through 2020, the
would specifically make losses resulting from Hurricanes
most recent year for which data are available. This decline
Ian, Nicole, and Fiona qualified disaster losses.
may have resulted partly from the expansion of the standard
deduction, which made itemizing deductions appealing to
Other recent legislation has proposed partially or fully
fewer taxpayers. While about 31% of filers itemized their
reversing the changes made by the TCJA. S. 2236, the
deductions for tax year 2017, about 11% did for tax year
Casualty Loss Deduction Restoration Act, would make
2018. However, the share of itemizers who claimed the
otherwise eligible losses incurred between 2018 and 2025
casualty and loss deduction also fell from 0.24% in 2017 to
that did not result from a qualified disaster eligible, subject
0.15% in 2018. Among those who did claim the casualty
to a $50,000 limit. H.R. 6938, the Tax Relief for Victims of
and theft loss deduction, the average deduction claimed
Crimes, Scams, and Disasters Act, would reverse the
grew from $24,400 in 2017 to $41,700 in 2018 (Table 1).
changes with no limit on the deduction.
Table 1. Average Casualty and Theft Loss Deduction
Brendan McDermott, Analyst in Public Finance
Claims by Three-Year Period
IF12574
Households Claiming
Average Claim

2012-2014
115,573
$26,947


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The Casualty and Theft Loss Deduction


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