The Casualty and Theft Loss Deduction
Updated February 13, 2024
The Casualty and Theft Loss Deduction
The Internal Revenue Code has let some taxpayers deduct
Assistance Act (P.L. 100-707, as amended), and it occurs in
unreimbursed losses caused by recent disasters and thefts
the disaster area identified in that declaration.
from their income subject to the income tax. Congress
temporarily limited the casualty and theft loss deduction as
Qualified Disaster Losses
part of the 2017 tax law (P.L. 115-97; popularly known as
Congress has passed legislation declaring certain losses to
the Tax Cuts and Jobs Act or TCJA) to losses resulting
be “qualified disaster-related personal casualty losses.”
from federally declared disasters for tax years 2018-2025.
Taxpayers with qualified disaster losses can claim a more
Among other recently proposed legislative changes, H.R.
generous casualty and theft loss deduction than others.
7024, the Tax Relief for American Families and Workers
They can deduct qualified disaster losses even if they also
Act of 2024, would expand this deduction retroactively.
claim the standard deduction. Their per-event limitation is
generally $500 instead of $100, and they are not limited to
The deduction offers financial relief to some taxpayers who
deducting losses that exceed 10% of their AGI in sum.
suffer unexpected monetary damage; in doing so, it reduces
federal revenue. It also subsidizes uninsured losses without
This designation generally applies either to specific
offering similar benefits to insured losses or loss-mitigation
disasters or to any federally declared disasters incurred
expenses, potentially distorting taxpayers’ incentives to
during a specific period. Among others, the disasters in this
insure themselves for losses or spend money on disaster
category have included
loss mitigation expenses. This In Focus discusses the
• federally declared disasters in 2016 or 2017;
structure of the deduction—both before and after the
changes that began in 2018—and analyzes its potential
• federally declared disasters that began in 2018 and
impact on the federal budget and taxpayers’
before December 21, 2019, and continued no later than
decisionmaking.
January 19, 2020; and
Overview
• federally declared disasters (besides those declared
Prior to 2018, households who itemized their deductions
solely because of the COVID-19 pandemic) that were
could deduct their unreimbursed net personal losses that
“
declared between January 1, 2020, and February 25,
arise from fire, storm, shipwreck, or other casualty, or
2021, and occurred between December 28, 2019, and
from theft” from their income. From 2018 through 2025,
December 27, 2020.
the TCJA provides that the deduction is limited to losses
that result from federally declared disasters.
Legislative History
The Revenue Act of 1913 (P.L. 63-16), which created the
Under permanent law, taxpayers can only deduct such
modern federal income tax, also created the modern
losses to the extent each loss exceeds $100, and their total
deduction for casualty losses, without distinction between
exceeds 10% of the taxpayer’s adjusted gross income
business-related and nonbusiness-related losses. Theft
(AGI). The damaged item does not need to be repaired or
losses were eligible by 1916.
replaced for the taxpayer to claim the deduction. Taxpayers
can claim this deduction regardless of their income, and
The Revenue Act of 1964 (P.L. 88-272) placed a $100-per-
there is no cap on the size of the deduction a taxpayer can
event floor on the deduction, corresponding to the $100
claim. Those whose deductions exceed their taxable income
deductible provision common in property insurance
can carry the deduction forward to subsequent tax years.
coverage at that time. The limitation to losses that, in sum,
exceed 10% of the taxpayer’s AGI was created by the Tax
The restriction of eligibility for unreimbursed losses means
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248).
that only losses that insurance does not compensate qualify.
Additionally, it applies only to personal losses—losses on
Congress has at times expanded the deduction in response
business property are subject to different rules.
to specific disasters. The Katrina Emergency Tax Relief
Act of 2005 (P.L. 109-73) eliminated the per-casualty and
Taxpayers must generally claim the deduction in the year in
AGI floors for deductible losses arising from the
which they discover the loss, even if that differs from the
consequences of Hurricane Katrina. Congress removed the
year in which the loss occurred. However, under permanent
floors for losses arising from several other disasters in
law, taxpayers can generally choose to take the loss in the
subsequent years. The Emergency Economic Stabilization
year prior to the casualty if it results from a federally
Act of 2008 (P.L. 110-343) expanded the deduction
declared disaster, meaning one declared by the President
similarly for all federally declared disasters occurring in
under the Robert T. Stafford Disaster Relief and Emergency
2008 and 2009, but imposed a $500 per-casualty limitation
and let taxpayers claim the deduction in addition to the
https://crsreports.congress.gov
link to page 2 The Casualty and Theft Loss Deduction
standard deduction. Subsequent legislation offered similar
Households Claiming
Average Claim
tax benefits to those impacted by other disasters.
2018-2020
14,528
$38,940
The TCJA limited the deduction to casualties and thefts
Source: IRS Statistics of Income and CRS analysis.
resulting from federally declared disasters from 2018
through 2025. It also raised the standard deduction for tax
Notes: Among returns with itemized deductions only. Data are
years 2018 through 2025, meaning fewer taxpayers would
averaged by three-year period to account for the annual variation in
claim any given itemized deduction.
claims for the casualty and theft loss deduction.
Analysis
Use of the deduction has always fluctuated meaningfully
from year to year. This may be because disasters happen
General
sporadically, Congress often expands the deduction in the
The casualty and theft loss deduction provides financial
wake of specific disasters, and taxpayers can carry any
assistance to some taxpayers who suffer substantial
unused deduction forward and backward.
casualties. It shifts part of the loss from the property owner
to the federal government, and thus serves as a form of
In early 2017, before passage of the TCJA, the Joint
government coinsurance.
Committee on Taxation estimated that this deduction would
cost the federal government roughly $400 million in lost
Economists have theorized that when uninsured losses are
revenue annually from FY2016 to FY2019, and $500
deductible but insurance premiums are not, it may make
million in FY2020. Its most recent estimates put the
more financial sense for taxpayers to risk incurring a loss
deduction’s cost at $100 million annually from FY2022 to
(for which they can claim a tax benefit) than to pay for
FY2025, before rising to $500 million in FY2026, during
insurance (for which they cannot). If so, this could
which the changes made by the TCJA will expire.
discourage taxpayers from purchasing insurance. A similar
Recent Legislative Activity
principle could apply to the cost of mitigation activities to
prevent losses, which are not currently deductible (although
Lawmakers have introduced several proposed reforms to
other subsidies may be available). There has not been
the casualty and theft loss deduction in the 118th Congress.
substantial research into whether the casualty and theft loss
Under H.R. 7024, the Tax Relief for American Families and
deduction has these effects.
Workers Act of 2024, qualified disaster losses would
include disasters that occurred between December 28, 2019,
No distinction is made between losses on items considered
and the date of the bill’s enactment, and were declared
basic to maintaining the taxpayer’s household and
within 60 days of enactment. H.R. 7024 passed the House
livelihood versus discretionary personal consumption. As
of Representatives on January 31, 2024, by a vote of 357-
with all deductions, a dollar of deductible casualty or theft
70. The change in this bill is identical to that included in
losses is worth more to taxpayers in higher-income tax
H.R. 5863, the Federal Disaster Tax Relief Act of 2023.
brackets because of their higher marginal tax rates.
Similarly, H.R. 5343, the Federal Disaster Responsibility
Recent Changes
Act, would make losses from any disaster for which the
In 2018, the first year that P.L. 115-97 took effect, 77%
incident period begins between 2020 and 2023 qualified
fewer taxpayers claimed the deduction than in the three
disaster losses. H.R. 5873, the Natural Disaster Tax Relief
years prior. Claims continued to decline through 2020, the
Act of 2023, would do the same, but only for disasters that
most recent year for which data are available. This decline
occurred in 2023. H.R. 1494, the Hurricane Tax Relief Act,
may have resulted partly from the expansion of the standard
would specifically make losses resulting from Hurricanes
deduction, which made itemizing deductions appealing to
Ian, Nicole, and Fiona qualified disaster losses.
fewer taxpayers. While about 31% of filers itemized their
deductions for tax year 2017, about 11% did for tax year
Other recent legislation has proposed partially or fully
2018. However, the share of itemizers who claimed the
reversing the changes made by the TCJA. S. 2236, the
casualty and loss deduction also fell from 0.24% in 2017 to
Casualty Loss Deduction Restoration Act, would make
0.15% in 2018 (Table 1).
otherwise eligible losses incurred between 2018 and 2025
that did not result from a qualified disaster eligible, subject
Table 1. Average Casualty and Theft Loss Itemized
to a $50,000 limit. H.R. 6938, the Tax Relief for Victims of
Deduction Claims by Three-Year Period
Crimes, Scams, and Disasters Act, would reverse the
changes with no limit on the deduction.
Households Claiming
Average Claim
2012-2014
115,573
$26,947
Brendan McDermott, Analyst in Public Finance
2015-2017
113,325
$26,921
IF12574
https://crsreports.congress.gov
The Casualty and Theft Loss Deduction
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12574 · VERSION 2 · UPDATED