Casualty Loss
A casualty loss is a loss resulting from a sudden, unexpected, or unusual event such as fire, storm, flood, or theft. After the Tax Cuts and Jobs Act (2017), personal casualty losses are only deductible if the loss occurs in a federally declared disaster area, subject to a $100 per-event reduction and 10% AGI floor.
Exam Tip
Personal casualty loss = federally declared disaster ONLY (post-2017). Two reductions: $100 per event + 10% AGI floor. Business losses have no disaster requirement.
EA exam baseline: For the 2026–2027 SEE, use Tax Year 2025 and federal tax law through December 31, 2025. Later-year amounts below are explicitly labeled comparisons, not the default exam year. IRS SEE policy.
What is a Casualty Loss?
A casualty loss results from damage, destruction, or loss of property due to a sudden, unexpected, or unusual event. Post-TCJA, personal casualty losses require a federal disaster declaration.
Casualty Loss Calculation
| Step | Calculation |
|---|---|
| 1. Loss amount | Lesser of: decline in FMV OR adjusted basis |
| 2. Minus insurance | Subtract any reimbursement |
| 3. Minus $100 | Per-event reduction |
| 4. Minus 10% AGI | AGI floor applied to total losses |
| = Deductible loss | Reported on Schedule A |
Personal vs. Business Casualty Losses
| Feature | Personal | Business |
|---|---|---|
| Disaster declaration required? | Yes (post-2017) | No |
| $100 per-event reduction | Yes | No |
| 10% AGI floor | Yes | No |
| Where reported | Schedule A | Schedule C or Form 4684 |
Exam Alert
Post-TCJA: personal casualty losses ONLY in federally declared disasters. Two floors: $100 per event + 10% of AGI. Business casualty losses have NO disaster requirement and NO floors. Theft losses follow the same rules as casualty losses.
2025 EA Exam Notes
For qualifying major federal disasters, special relief can substitute a $500 per-event reduction, remove the 10% AGI floor, and permit a deduction without itemizing. Apply the specific disaster dates and eligibility rules. An otherwise nondeductible personal loss may also offset personal casualty gains. State-declared disasters can qualify for certain deadline postponements under 2025 law; the expansion of the personal-loss deduction to state-declared disasters begins in 2026.
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Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is gross income minus above-the-line deductions (adjustments to income). AGI is the key threshold used to determine eligibility for many tax credits, deductions, and phase-outs on Form 1040.
Itemized Deductions
Itemized deductions are specific expenses taxpayers can deduct from adjusted gross income instead of the standard deduction, including state and local taxes, mortgage interest, charitable contributions, and certain medical expenses.
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