Personal Casualty & Theft Losses from 2026: Federal vs. State Disaster Declarations and Thresholds

Quick Take — What changes in 2026

• Who qualifies: Personal casualty losses are deductible if tied to a federally declared disaster or certain state-declared disasters (new in 2026).
• Thresholds (general rule): The deduction applies only after reducing each event by $100 and reducing total losses by 10% of AGI.
• Qualified disaster relief: For specific “qualified disaster” events, the 10% of AGI rule may not apply and the per-event reduction can be $500 instead of $100 (availability depends on the disaster and dates).
• Theft losses: Personal-use theft losses remain generally not deductible (unless part of a profit-motivated transaction or used only to offset personal casualty gains).
• High earners: Starting 2026, a new overall limit caps the tax value of itemized deductions (including casualty losses) to effectively 35% for top-bracket filers.

1) Scope: What counts as a personal casualty or theft loss?

Casualty losses cover sudden, unexpected events—e.g., fires, floods, storms, earthquakes. Theft losses involve criminal taking (burglary, embezzlement, scams) proven by evidence. For 2026+, Congress keeps the longstanding structure but narrows what’s deductible for personal-use property (see federal vs. state disaster rules below).

2) Federal vs. state disaster declarations (starting 2026)

Before 2026: Only federally declared disasters allowed a personal casualty deduction (with limited offsets for casualty gains).

From 2026: Personal casualty losses are deductible if attributable to either a federal disaster declaration or certain state-declared disasters. States must issue a formal declaration under state law; the IRS will clarify mechanics for which state declarations qualify each year. Always confirm your event on FEMA/IRS disaster pages and any state lists.

3) Deduction thresholds: $100 per event and 10% of AGI

• $100 per casualty reduction is applied to each event (after insurance/salvage).
• After summing events, reduce by 10% of AGI. Only the excess is deductible.
• Insurance/other reimbursements must be subtracted; later reimbursements may be taxable to the extent you previously deducted the loss.
• High-income filers: from 2026, the overall itemized-deduction rule caps the tax value of deductions at about 35% in the top bracket.

4) When “qualified disaster” rules remove the 10% test

For certain congressionally designated qualified disasters, personal casualty losses aren’t subject to the 10% of AGI reduction and the per-event reduction is $500, not $100. Eligibility for this special relief is disaster- and date-specific and may be updated by new laws. Always check IRS disaster pages and the instructions for Form 4684 for the latest list and dates.

5) Theft losses in 2026: what’s still deductible?

• Personal-use theft losses (stolen jewelry, scams, etc.) are generally not deductible starting in 2018 and remain so in 2026.
• Profit-related theft (losses in a transaction entered into for profit) can still be deductible under separate rules.
• You may offset personal casualty gains with personal casualty losses not from a declared disaster; beyond that, personal losses stay limited.

6) Timing & the prior-year election (Form 4684, §165(i))

For federally declared disasters, you can elect to claim the loss on the prior year’s return to get a faster refund. The election is generally due within 6 months after the original filing deadline (without extensions) for the disaster year, and is made on Form 4684, Section D. Keep in mind this special timing election currently applies to federal declarations; watch IRS guidance on whether any parallel timing applies to state-declared events included by the 2026 rule.

7) How to calculate a casualty loss (personal-use property)

1. Start with the lesser of: (a) the drop in FMV due to the event, or (b) your adjusted basis.
2. Subtract insurance/other reimbursements (or expected reimbursements).
3. Subtract the per-event reduction ($100, or $500 for qualified disasters).
4. Add up all events; then subtract 10% of AGI (unless qualified-disaster rules waive it).
5. Apply any overall itemized-deduction limit (top-bracket 35% value cap from 2026).

8) Filing checklist (Form 4684 & Schedule A)

• Use Form 4684 to compute losses and any election under §165(i); carry to Schedule A if itemizing.
• Verify the disaster on FEMA/IRS disaster relief pages; print/save the declaration number and date.
• If state-declared: confirm your event qualifies under the new 2026 rule (watch for IRS instructions).
• If you later receive reimbursement, amend/adjust per the tax benefit rule.

9) State income tax conformity & examples

Many states partly conform to federal rules but maintain their own disaster lists and procedures (e.g., California provides separate disaster loss forms and guidance). Check your state revenue department’s site for conformity, thresholds, and any prior-year disaster election allowed at the state level.

10) Worked examples (2026+ rules)

11) FAQs

This article summarizes federal rules for tax years beginning in 2026. Disaster relief is declaration- and date-specific and may vary by state conformity. This is general information, not tax advice—consult a tax professional for your situation.