How to Use Form 4684 for Casualty and Theft Losses

To use Form 4684 for casualty and theft losses, you figure each loss as the lesser of the property’s adjusted basis or the drop in its fair market value, subtract any insurance or other reimbursement, apply the $100-per-event and 10%-of-AGI floors if the property was personal-use, and then route the result to the right schedule on your return. Section A of the form handles personal-use property; Section B handles business and income-producing property. The two sections share a basic structure but produce very different deductions from the same underlying event.

What Counts as a Casualty or Theft

A casualty is damage from an event that is sudden, unexpected, and identifiable. Fires, floods, hurricanes, tornadoes, earthquakes, and volcanic eruptions qualify. Gradual damage from termites, rust, erosion, or normal wear does not, and neither does accidental breakage of everyday items.

A theft requires that someone took your money or property with criminal intent. Robbery, burglary, embezzlement, and extortion qualify; a lost wallet or misplaced ring does not. You need evidence the theft happened, and a police report is the single most useful piece of proof.

For personal-use property, the deduction is limited to losses from a federally declared disaster. Beginning in 2026, state-declared disasters also qualify when the governor and the U.S. Treasury Secretary agree the damage is severe enough.¹ A narrow exception lets you deduct non-disaster personal losses to the extent they offset personal casualty gains in the same year, such as insurance proceeds that exceeded basis.² Beyond that offset, non-disaster personal losses produce no deduction.

Business and income-producing property is not subject to the declared-disaster limit. If a storm destroys equipment you use in your trade, or a thief takes inventory, you can claim the loss regardless of any disaster designation.

Which Section of Form 4684 Applies

The type of property dictates the section you complete.³ Section A is for personal-use property: your home, your car, household belongings, a vacation cabin you don’t rent out. Section B is for business property and property held to produce income, including rental real estate and equipment used in a trade. If a single event damaged both kinds of property, you’ll fill out both sections and keep the calculations separate.

Two categories don’t go on Form 4684 at all. Inventory losses are absorbed through cost of goods sold rather than the form, because running them through 4684 would double-count the deduction. Stolen securities are reported as capital losses on Schedule D.

Calculating a Personal-Use Loss

Section A puts each loss through three steps: a raw loss figure, a reimbursement reduction, and two statutory floors.

Step 1: Figure the Raw Loss

For each item, you need two numbers. The first is the adjusted basis, usually what you paid for the property plus the cost of permanent improvements, minus any earlier casualty deductions. The second is the decrease in fair market value, meaning what the property was worth immediately before the event minus what it was worth immediately after. Your starting loss is the smaller of those two numbers.⁴

If you paid $80,000 for a vacation cabin and a flood dropped its market value by $50,000, your starting loss is $50,000. If that same cabin had cost only $30,000, your starting loss would be $30,000, because basis caps the number.

A credible fair-market-value figure usually requires a professional appraisal. Repair costs can support the FMV decrease, but the IRS treats them as one data point rather than the final answer. Before-and-after appraisals are the strongest documentation.

Step 2: Subtract Reimbursements

Subtract insurance payments, government disaster assistance, and any other compensation you received or expect to receive. If reimbursement exceeds your adjusted basis, you don’t have a deductible loss. You have a gain, which also gets reported on Form 4684.

You generally have to file an insurance claim if your property was covered. Skipping that step limits your deduction to the portion of the loss falling outside your coverage, not the full unrecovered amount.⁵

Step 3: Apply the $100 Floor, Then the 10% AGI Threshold

The net loss from each separate event is reduced by $100.² The reduction applies once per event no matter how many items were damaged. A storm that wrecks your roof and your car triggers one $100 reduction, not two.

After the $100 reduction, add your net casualty and theft losses for the year. The combined total is deductible only to the extent it exceeds 10% of your adjusted gross income.² The sequence matters: $100 first, 10% AGI second.

Try the numbers. A taxpayer with $100,000 in AGI suffers $20,000 in uninsured wildfire damage. The $100 floor leaves $19,900. The 10% AGI threshold is $10,000. The deduction is $9,900. Change the AGI to $200,000 and the threshold jumps to $20,000, absorbing the entire $19,900 and leaving zero. The higher your income, the larger the loss has to be before any of it survives.

One more filter: the deduction flows to Schedule A as an itemized deduction. You see a tax benefit only if your total itemized deductions beat the standard deduction.⁶

Calculating a Business or Income-Producing Loss

Section B skips both the $100 floor and the 10% AGI threshold. Smaller losses that would vanish on the personal side can still produce a full deduction here.

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 reimbursement.⁴ Adjusted basis for business property is typically original cost minus accumulated depreciation. A machine bought for $80,000 with $30,000 of depreciation has a $50,000 basis. Fire destroys it, you recover $5,000 in scrap and $30,000 in insurance, and your deductible loss is $15,000.

When business property is damaged but not destroyed, the calculation mirrors the personal side: lesser of adjusted basis or FMV decrease, minus reimbursement.⁴ A rental building with a $150,000 basis takes $40,000 in storm damage, insurance pays $30,000, and the deductible loss is $10,000.

When to Claim the Loss

A casualty loss is deducted in the year the casualty occurred, even if repairs stretch into later years. A theft loss is deducted in the year you discover the property was stolen, which may be a different year from the theft itself.⁴

A pending insurance claim pauses the clock on the portion that might be reimbursed. If there’s a reasonable chance of recovery, you wait until the year you know with reasonable certainty what you’ll get.⁴ If the insurer later pays less than expected, you deduct the shortfall in the year you learn of it. If they pay more, the excess may be income.

For a federally or state-declared disaster, you can elect to deduct the loss on the prior year’s return instead.⁴ A hurricane in March 2026 can go on your 2025 return. This helps when your prior-year AGI was lower (easier 10% threshold) or when you need the refund sooner. You attach a statement identifying the disaster by name, date, and location of the damaged property; if the prior-year return is already filed, you amend it. The election deadline is six months after the original (unextended) due date of the disaster-year return.

Where the Numbers Flow on Your Return

Each result from Form 4684 lands on a specific schedule.⁶

Personal-use property losses go from Section A to Schedule A as an itemized deduction.
Personal-use gains that exceed personal losses in the same year are treated as capital transactions and reported on Schedule D, along with the offsetting losses.
Business property losses and gains from Section B generally feed Form 4797, Sales of Business Property.
Income-producing property that isn’t used in a trade or business, such as rental real estate held by an individual, goes to Schedule A rather than Form 4797.

Documentation to Keep

Hang 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. Without credible records, the whole 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
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Internal Revenue Service. Form 4684, Casualties and Thefts