About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (January 28, 2025)

handle is hein.crs/govesgq0001 and id is 1 raw text is: Con i-a &on I Fesedrch Service h ornino I Ieoi I live ta ~ 'e 914 Updated January 28, 2025 The Nonbusiness Casualty and Theft Loss Deduction The Internal Revenue Code generally allows taxpayers to deduct certain unreimbursed losses caused by recent disasters and thefts from their income subject to the income tax. Lawmakers have adjusted aspects of this deduction over time. Congress temporarily limited the casualty and theft loss deduction as part of the 2017 tax law (P.L. 115- 97, popularly known as the Tax Cuts and Jobs Act or TCJA), generally to only losses resulting from federally declared disasters for tax years 2018-2025. For these purposes, federally declared disasters are those declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (P.L. 100-707, as amended) and occurring in the disaster area identified in that declaration. The deduction offers financial relief to some taxpayers who suffer unexpected monetary damage. In doing so, it reduces federal revenue and subsidizes uninsured losses without offering similar benefits to insured losses or loss-mitigation expenses, potentially distorting taxpayers' incentives to insure themselves for losses or spend money on disaster loss mitigation expenses. This In Focus discusses the structure of the deduction-both before and after the changes that began in 2018-and analyzes its potential impact on the federal budget and taxpayers' decisionmaking. Overvew Prior to 2018, households who itemized their deductions could deduct their unreimbursed net personal (i.e., nonbusiness) losses that arise from fire, storm, shipwreck, or other casualty, or from theft from their income. Under permanent law, taxpayers can only deduct such losses to the extent each loss exceeds $100, and their total exceeds 10% of the taxpayer's adjusted gross income (AGI). The damaged item does not need to be repaired or replaced for the taxpayer to claim the deduction. Taxpayers can claim this deduction regardless of their income, and there is no cap on the size of the deduction a taxpayer can claim. Those whose deductions exceed their taxable income can carry the deduction forward to subsequent tax years. The restriction of eligibility to unreimbursed losses means that only losses that insurance does not compensate qualify. Additionally, the deduction applies only to personal losses-losses on business property are subject to different rules. Taxpayers can claim the deduction on personal property regardless of type. From 2018 through 2025, the TCJA provides that the deduction is limited to losses that result from federally declared disasters. An exception applies when a taxpayer incurs a nonbusiness casualty gain, meaning the taxpayer receives compensation for a loss that exceeds the value of the loss itself. Nonbusiness casualty gains are always considered taxable income and are not limited to casualties resulting from federally declared disasters through 2025. Under the TCJA, taxpayers can deduct losses unrelated to a federally declared disaster, but only to the extent such losses offset nonbusiness casualty gains. Taxpayers can generally choose to take the loss in the year prior to the casualty if it results from a federally declared disaster. In years when the deduction is not limited to federally declared disasters (i.e., before 2018 and after 2025), taxpayers must deduct losses that do not result from a federally declared disaster in the year of the casualty. In both circumstances, casualties are considered to have occurred in the year in which the taxpayer discovers the loss, even if that differs from the year in which the event causing the casualty took place. Qualifed Dksaster Losses Congress has passed several pieces of legislation declaring certain losses to be qualified disaster-related personal casualty losses. This legislation has applied this distinction to losses resulting from specific disasters or occurring during a specific period of time. Taxpayers with qualified disaster losses can claim a more generous casualty and theft loss deduction than others. They can deduct qualified disaster losses even if they also claim the standard deduction. Their per-event limitation is generally $500 instead of $100, and they are not limited to deducting losses that exceed 10% of their AGI in sum. This designation generally applies either to specific disasters or to federally declared disasters that occurred during a specific period. Among others, the disasters in this category have included federally declared major disasters (a subset of federally declared disasters) that began between 2016 and December 21, 2019, as well as those that began between December 28, 2019, and December 12, 2025. Legs atnve HStory The Revenue Act of 1913 (P.L. 63-16), which created the modern federal income tax, also created the modern deduction for casualty losses, without distinction between business-related and nonbusiness-related losses. Theft losses were eligible by 1916. The Revenue Act of 1964 (P.L. 88-272) placed a $100-per- event floor on the deduction, corresponding to the $100 deductible provision common in property insurance coverage at that time. The limitation to losses that, in sum, exceed 10% of the taxpayer's AGI was created by the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248).

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most