How to Use Form 4684 for Casualty and Theft Losses

Form 4684 is the IRS form for figuring and reporting casualty and theft losses, and it splits into two tracks: Section A for personal-use property, Section B for business and income-producing property. The two tracks use similar loss math but very different limits. Personal losses have to survive a $100 per-event reduction and a 10% adjusted-gross-income threshold, and for most taxpayers they only count when the damage comes from a declared disaster. Business losses face neither floor. Getting the routing and the math right is the whole job.

What Actually Qualifies

A casualty is a sudden, unexpected, identifiable event: fire, flood, hurricane, tornado, earthquake, volcanic eruption. Gradual damage does not qualify, no matter how large the repair bill. Termites, rust, erosion, and normal wear are out. So is accidental breakage of everyday items.

Theft means someone took your money or property with criminal intent. Robbery, burglary, embezzlement, and extortion count. A misplaced wallet does not. You need evidence the theft happened, and a police report is the strongest piece of it.

For personal-use property, the deduction is limited to losses from declared disasters. Federally declared disasters have qualified since 2018, and beginning in 2026, losses from state-declared disasters also qualify when the governor and the Treasury Secretary agree the damage is severe enough.¹ One narrow exception: if you have personal casualty gains in the same year, you can deduct non-disaster personal casualty losses to the extent they offset those gains.²

Business and income-producing property is not subject to the declared-disaster limit. A storm that destroys equipment you use in your trade, or a thief who takes inventory, produces a loss under the standard rules regardless of any disaster designation. The property type decides the section: A for personal, B for business or income-producing.³

Which Year You Claim It

A casualty loss is deducted in the year the casualty occurred, even if repairs or replacement come later. A theft loss is deducted in the year you discover the property was stolen, which may not be the year the theft happened.⁴

A pending insurance claim pushes the timing. If you file a claim and have a reasonable chance of recovery, the portion that might be reimbursed is not yet deductible. You wait until the year you know with reasonable certainty what the insurer will pay.⁴ If the payment comes in below expectations, deduct the shortfall in the year you find out. If it comes in higher, you may need to report the excess as income.

You also have to file the insurance claim if the property was covered. Skipping that step limits the deduction to the portion of the loss outside your coverage.⁵

Section A: Figuring a Personal-Use Property Loss

For each damaged item you need two numbers: the adjusted basis before the event (usually cost plus permanent improvements, minus any prior casualty loss deductions) and the decrease in fair market value the event caused (value immediately before minus value immediately after). Your starting loss is the smaller of the two.⁴

A professional appraisal is usually how you establish the FMV decrease. Repair costs can support the number but do not replace it; two appraisals showing before-and-after values are the strongest documentation.

Next, subtract every payment or expected payment tied to the loss: insurance proceeds, government disaster assistance, other compensation. If reimbursements exceed adjusted basis, you have a gain rather than a loss, and it still goes on Form 4684.

Then come the two floors. First, reduce the net loss from each separate event by $100. That $100 applies once per event regardless of how many items were damaged. A single storm that ruins both your roof and your car gets one $100 reduction. Add up the results across all events for the year, and the combined total is deductible only to the extent it exceeds 10% of your AGI.² Apply the $100 floor first, then the AGI threshold.

An example. AGI of $100,000, a federally declared wildfire that leaves $20,000 in damage after insurance. Subtract the $100 floor: $19,900. The 10% AGI threshold is $10,000. Deductible loss: $9,900. At $200,000 AGI, the threshold rises to $20,000 and absorbs the whole loss.

Because the Section A loss lands on Schedule A, you benefit only if your total itemized deductions exceed your standard deduction.⁶

Section B: Business and Income-Producing Property

Section B covers property used in a trade or business and property held to produce income, including rental real estate. The $100 per-event floor and the 10% AGI threshold do not apply here, so smaller losses that would vanish on the personal side can still produce a full deduction.

Total Destruction or Theft

When business property is completely destroyed or stolen, the FMV decrease is irrelevant. Your loss is the adjusted basis immediately before the event, minus salvage value and any reimbursement.⁴ Adjusted basis for business property is generally original cost minus accumulated depreciation. A machine bought for $80,000 with $30,000 in depreciation has a $50,000 basis. If fire destroys it and you recover $5,000 in scrap plus $30,000 from insurance, the deductible loss is $15,000.

Partial Damage

When business property is damaged but not destroyed, the math tracks the personal-property approach: the lesser of adjusted basis or FMV decrease, minus reimbursements.⁴ A rental building with a $150,000 basis, $40,000 in storm damage, and $30,000 in insurance yields a $10,000 deductible loss.

Inventory and Securities

Inventory does not go on Form 4684. You account for destroyed inventory by adjusting cost of goods sold; running it through 4684 as well would double the deduction. Stolen securities are reported as capital losses on Schedule D, not on Form 4684. Investment property like vacant land or rental equipment follows the Section B rules.

Electing to Deduct a Disaster Loss in the Prior Year

If your loss comes from a federally declared or state-declared disaster, you can choose to deduct it on the return for the tax year immediately before the disaster.⁴ A March 2026 hurricane could be deducted on your 2025 return. The election is useful when the prior year’s AGI made the 10% threshold easier to clear, or when you need the refund sooner.

To make the election, attach a statement identifying the disaster (name, date, location of the damaged property). If you already filed the prior-year return, file an amended one. The deadline is six months after the regular (unextended) due date of the disaster-year return. For most individuals, that is six months after the following April 15.

The deductible amount is based on facts known when you claim the loss. If later insurance recoveries exceed what you expected, you adjust income in the year the excess arrives.

Ponzi and Fraudulent Investment Losses

Victims of Ponzi-type schemes can claim a theft loss, and Revenue Procedure 2009-20 provides a safe harbor that avoids arguing about basis and fictitious earnings.⁷ Start with your “qualified investment”: cash actually invested, plus any income you reported from the scheme on prior returns, minus any withdrawals. Then apply the safe-harbor percentage:

95% of the qualified investment, minus actual and potential recoveries, if you are not pursuing third-party recovery.
75% of the qualified investment, minus the same offsets, if you are pursuing third-party recovery.⁸

The loss is claimed in the year the scheme is discovered and is treated as a loss from a transaction entered into for profit, so it bypasses the personal casualty floors. Any later recovery above expectations is reported as income in the year received.

When Reimbursements Exceed Basis: Section 1033 Deferral

When insurance or other reimbursement exceeds the adjusted basis of destroyed property, personal or business, you have a gain. It goes on Form 4684, but Section 1033 of the Internal Revenue Code lets you defer the tax if you reinvest the proceeds in similar replacement property.

The replacement window is generally two years after the close of the first tax year in which you realize the gain. Real property held for business or investment gets three years. To elect deferral, report the gain on Form 4684 and attach a statement of your intent to replace. Miss the deadline and the gain becomes taxable in the year originally realized, requiring an amended return. The replacement property must be “similar or related in service or use”; a destroyed rental house can be replaced with a different rental, but not with stock in a real estate company.

Where the Final Numbers Go

Each computed result routes to a specific schedule.

Personal-use property losses from Section A go to Schedule A as an itemized deduction.⁶
When personal casualty gains exceed losses, both are treated as capital transactions and reported on Schedule D.
Business property results from Section B generally flow to Form 4797, which then feeds the rest of the return.⁶
Income-producing property held by an individual outside a trade or business (rental real estate, for example) sends losses to Schedule A rather than Form 4797.⁶

Documentation to Keep

Hold on to purchase receipts, improvement invoices, depreciation schedules, before-and-after appraisals, insurance correspondence, police reports for thefts, and the FEMA disaster declaration number for disaster losses. The IRS can ask for substantiation years after you file, and without it the deduction is at risk.

1
Internal Revenue Service. Casualty Loss Deduction Expanded and Made Permanent
2
Office of the Law Revision Counsel. 26 U.S. Code 165 – Losses
3
Internal Revenue Service. About Form 4684, Casualties and Thefts
4
Internal Revenue Service. Publication 547 (2025), Casualties, Disasters, and Thefts
5
Internal Revenue Service. 2025 Instructions for Form 4684
6
Internal Revenue Service. Form 4684, Casualties and Thefts
7
Internal Revenue Service. Help for Victims of Ponzi Investment Schemes
8
Internal Revenue Service. Revenue Procedure 2009-20