Rev. Proc. 2018-08: Safe Harbor Methods for Casualty Loss Deductions

Revenue Procedure 2018-08 gives individual homeowners simplified, IRS-approved ways to calculate a personal casualty loss without paying for a formal before-and-after appraisal. It sets out four safe harbor methods for measuring the drop in your home’s fair market value and two methods for valuing destroyed household belongings. Use one of these methods and the IRS will accept your valuation, provided you meet the eligibility rules and keep the required records.¹

Who Can Use These Safe Harbors

The safe harbors are limited to individual taxpayers with personal-use residential property: a primary home or a second home you don’t rent out or use for business. The property can be a house, apartment, condominium, or mobile home. Business property and income-producing rentals follow different valuation rules and cannot use Revenue Procedure 2018-08.

Your loss also has to sit inside the current casualty loss rules. Since 2018, personal casualty losses have been deductible only when tied to a federally declared disaster, and the One Big Beautiful Bill Act (P.L. 119-21) made that restriction permanent. Beginning with tax year 2026, losses from state-declared disasters also qualify, when the governor and the Secretary of the Treasury jointly determine the damage warrants the deduction.²³ If your loss is from an event that wasn’t declared, none of what follows will help you claim a deduction.

The Four Methods for Valuing Damage to Your Home

Each of these produces a number for the decrease in the fair market value of your residence. Pick the one that fits your situation; you don’t get to combine them.

De Minimis Method

If your total casualty loss for the residence is $5,000 or less (measured before the per-casualty floor and the AGI reduction), you can use your own good-faith estimate of what it would cost to restore the home to its pre-disaster condition. Contractor bids aren’t required, but you must document how you arrived at the figure and keep those records.¹

Estimated Repair Cost Method

For losses up to $20,000 before statutory limitations, you need two itemized repair estimates from separate, independent contractors who are licensed or registered under state or local rules. You use the lesser of the two.¹ The estimates must cover restoration to pre-disaster condition, not upgrades. A single contractor’s bid does not satisfy this safe harbor, and that’s the detail most homeowners miss.

Insurance Method

If you filed a homeowners’ or flood insurance claim, you can use the estimated loss shown in your insurer’s report as the decrease in fair market value.¹ The insurance company has already done the valuation work. Note that this method fixes the value decrease only; you still subtract the actual payout later when you compute the deductible loss.

Federally Declared Disaster Method

If a federal loan or grant program (such as a Small Business Administration disaster loan) had an appraisal prepared for your property, you can use that appraisal as the decrease in fair market value. This is worth checking if you applied for SBA assistance and already have a government-backed valuation on file.

The Two Methods for Personal Belongings

Furniture, clothing, electronics, and appliances inside the residence are valued under their own safe harbors, because most people don’t have receipts for everything they owned.

De Minimis Method for Belongings

If your combined personal property losses are $5,000 or less, you provide a good-faith estimate of what the items were worth immediately before the disaster. Individual receipts aren’t required, but you do need to document your methodology.¹

Replacement Cost Method

For larger losses tied to a federally declared disaster, you look up the current cost to buy each item new and then apply a percentage based on how long you owned it:¹

1 year old: 90%
2 years old: 80%
3 years old: 70%
4 years old: 60%
5 years old: 50%
6 years old: 40%
7 years old: 30%
8 years old: 20%
9 or more years old: 10%

A three-year-old refrigerator that would cost $1,200 to replace new has a pre-disaster value of $840 under this method.

Property You Can’t Value With These Methods

The personal belongings safe harbors do not cover:

Vehicles, including cars, motorcycles, motor homes, SUVs, vans, trucks, and recreational vehicles
Boats and aircraft
Mobile homes and trailers
Antiques, collectibles, and any item that holds or increases in value over time

For excluded items you need a separate appraisal or other evidence of fair market value.¹ Vehicles can generally be valued using pricing guides like Kelley Blue Book or NADA.

Turning the Safe Harbor Number Into a Deduction

The number you get from a safe harbor is the decrease in fair market value. Getting to the deductible amount takes several more steps:

Take the lesser of the fair market value decrease or your adjusted basis in the property (generally what you paid plus permanent improvements).¹
Subtract any insurance or other reimbursement received or expected.
Subtract $500 per casualty event.³
Add all your casualty losses for the year, then subtract 10% of your adjusted gross income. What’s left is deductible.

The 10% AGI floor is what eliminates most smaller claims. At an $80,000 AGI, you need more than $8,000 in net casualty losses before you get any deduction at all.

Qualified Disaster Losses Skip the AGI Floor

Certain disasters, designated by Congress, produce “qualified disaster losses” that are treated more generously. The 10% AGI reduction doesn’t apply, so your loss after the $500 per-casualty floor is fully deductible.⁴

A qualified disaster loss can also be claimed by taxpayers who take the standard deduction. The loss effectively increases the standard deduction and is reported through Schedule A even though you aren’t otherwise itemizing.⁴ Since the standard deduction is high enough that most people don’t itemize, this is the difference between claiming the loss and losing it entirely. Check the current Publication 547 for the list of qualifying events.

Records the Safe Harbors Still Require

Even the shortest safe harbor requires records. You need to be able to show cost basis for the property, the safe harbor calculation itself, the insurance settlement (if any), and, for belongings, some evidence of what you owned.

If the disaster destroyed your records, the IRS offers several ways to rebuild them. For your home’s purchase price and basis, contact the title company, escrow company, or real estate broker from the original transaction. County assessor tax statements help establish the land-versus-building split. For improvements, reach out to the contractors who did the work or the lenders who financed it.⁵

For belongings, old phone photos of rooms, credit card and bank statements, and sketched floor plans noting furniture placement and the contents of closets, attics, and garages all count as documentation. You can pull past tax returns with Form 4506 or free transcripts through the IRS “Get Transcript” tool. Writing the disaster designation (for example, “HURRICANE HELENE”) in red at the top of the request expedites processing and waives the fee.⁵ Keep everything for at least three years after filing.

How to File the Claim

Report the loss on Form 4684 (Casualties and Thefts), which attaches to your Form 1040.⁶ The form walks through the property description, basis, fair market value decrease, insurance reimbursement, $500 floor, and 10% AGI threshold, and the result flows to Schedule A. For a qualified disaster loss claimed alongside the standard deduction, follow the Schedule A instructions in Publication 547.⁴

If the loss is from a federally declared disaster, you can elect to deduct it on the prior year’s return instead of the disaster-year return, which puts refund money in your hands sooner.⁷ Complete Part I of Section D on Form 4684 for the prior year and attach it to your original or amended prior-year return. For calendar-year individuals, the deadline is six months after the regular (unextended) filing due date for the disaster year: October 15, 2026 for a 2025 disaster. To revoke the election, complete Part II of Section D on an amended prior-year return within 90 days after the election deadline.⁸

The IRS typically postpones filing deadlines for taxpayers in federally declared disaster areas. The specific postponed dates vary by declaration, so check the IRS disaster relief page for your area.⁹

1
Internal Revenue Service. Revenue Procedure 2018-08 – Safe Harbor Methods for Personal Casualty Losses
2
Internal Revenue Service. Casualty Loss Deduction Expanded and Made Permanent
3
Office of the Law Revision Counsel. 26 USC 165 Losses
4
Internal Revenue Service. Publication 547 Casualties, Disasters, and Thefts
5
Internal Revenue Service. Reconstructing Records After a Natural Disaster or Casualty Loss
6
Internal Revenue Service. Form 4684 – Casualties and Thefts
7
eCFR. 26 CFR 1.165-11 – Election to Take Disaster Loss Deduction for Preceding Year
8
Internal Revenue Service. Instructions for Form 4684
9
Internal Revenue Service. Tax Relief in Disaster Situations