! sonal casualty and theft losses — 2025 Publ 225 (PDF)

CAUTION dividual are deductible only to the ex-

tent they’re attributable to a federally declared disaster. An exception to the rule limiting the de- duction for personal casualty and theft losses to federal disaster losses applies where you have personal casualty gains to the extent the losses don’t exceed your gains.

If your property is destroyed, damaged, or stolen, you may have a deductible loss. If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain.

Casualty. A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.

A sudden event is one that is swift, not gradual or progressive.
An unexpected event is one that is ordinarily unanticipated and unintended.
An unusual event is one that isn’t a day-to-day occurrence and that isn’t typical of the activity in which you were engaged.

Deductible losses. Deductible casualty losses can result from a number of different causes, including the following.

Airplane crashes.
Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence.
Earthquakes.
Fires (but see Nondeductible losses next for exceptions).
Floods.
Freezing.
Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster, as discussed under Disaster Area Losses in Pub. 547.
Lightning.
Storms, including hurricanes and tornadoes.
Terrorist attacks.
Vandalism.
Volcanic eruptions.

Note: For tax years beginning after 2017, if you are an individual and you have a loss of personal-use property caused by one the events listed above or other casualties or thefts, this loss is deductible only if it is attributable to a federally declared disaster. See Pub. 547 for more information.

Example. The event causing you to suffer a personal casualty loss occurred before January 1, 2018, but the casualty loss was not sustained until January 1, 2018, or later. If this loss was not attributed to a federally declared disaster, it is not deductible.

Nondeductible losses. A casualty loss isn’t deductible if the damage or destruction is caused by the following.

Accidentally breaking articles such as glassware or china under normal conditions.
A family pet (explained below).
A fire if you willfully set it or pay someone else to set it.
A car, truck, or farm equipment accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
Progressive deterioration (explained below).

Family pet. Loss of property due to damage by a family pet isn’t deductible as a casualty loss unless the requirements discussed above under Casualty are met.

Example. You keep your horse in your yard. The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Some of the trees were completely girdled and died. Because the damage wasn’t unexpected or unusual, the loss isn’t deductible.

Progressive deterioration. Loss of property due to progressive deterioration isn’t deductible as a casualty loss. This is because the damage results from a steadily operating cause

or a normal process rather than from a sudden event. Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. However, weather-related conditions or disease may cause another type of involuntary conversion. See Other Involuntary Conversions, later.

Theft. A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. You don’t need to show a conviction for theft.

Theft includes the taking of money or property by the following means.

Blackmail.
Burglary.
Embezzlement.
Extortion.
Kidnapping for ransom.
Larceny.
Robbery.
Threats.
Timber trespass.

The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law.

Decline in market value of stock. You can’t deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. However, you may be able to deduct it as a capital loss on Schedule D (Form 1040) if the stock is sold or exchanged or becomes completely worthless. You report a capital loss on Schedule D (Form 1040). For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Pub. 550.

Mislaid or lost property. The simple disappearance of money or property isn’t a theft. However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual.

Example. A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. The diamond falls from the ring and is never found. The loss of the diamond is a casualty.

Farm Property Losses

You can deduct certain casualty or theft losses that occur in the business of farming. The following is a discussion of some losses you can deduct and some you can’t deduct.

Livestock or produce bought for resale. Casualty or theft losses of livestock or produce bought for resale are deductible on Schedule F (Form 1040) if you report your income on the cash method. If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. You can’t take a separate deduction.

Publication 225 (2025) Chapter 11 Casualties, Thefts, and Condemnations 69

Livestock, plants, produce, and crops raised for sale. Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero.

For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. The uniform capitalization rules are discussed in chapter 6.

If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. You get the deduction by omitting the item from your inventory at the close of your tax year. You can’t take a separate casualty or theft deduction.

Income loss. A loss of future income isn’t deductible.

Example. A severe flood destroyed your crops. Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss isn’t deductible, as explained above under Livestock, plants, produce, and crops raised for sale . You estimate that the crop loss will reduce your farm income by $25,000. This loss of future income is also not deductible.

Loss of timber. If you sell timber downed as a result of a casualty, you may have a reportable gain. If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. See Timber loss in the section Post- poning Gain , later.

Property used in farming. Casualty and theft losses of property used in your farm business usually result in deductible losses. If a fire or storm destroyed your barn or you lose by casualty or theft farm equipment or an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. See How To Figure a Loss , later.

Raised draft, breeding, dairy, or sporting animals. Generally, losses of raised draft, breeding, dairy, or sporting animals don’t result in deductible casualty or theft losses because you have no basis in the animals. However, you may have a basis in the animal and therefore may be able to claim a deduction if you report your income using the accrual method, use inventories to determine your income, and included the animals in your inventory.

When you include livestock in inventory, its last inventory value is its basis. When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. You can’t take a separate deduction.

How To Figure a Loss

How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the

property was stolen or partly or completely destroyed.

Farm property. Farm property is the property you use in your farming business. If your farm property was completely destroyed or stolen, your loss is figured as follows:

Your adjusted basis in the property

MINUS

Any salvage value

MINUS

Any insurance or other reimbursement you

receive or expect to receive

You can use the schedules in Pub.

TIP 584-B to list your stolen, damaged, or

destroyed business property and to fig- ure your loss.

If your farm property was partially damaged, use the following steps to figure your casualty loss.

Determine your adjusted basis in the property before the casualty or theft.
Determine the decrease in fair market value of the property as a result of the casualty or theft.
From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive.

Personal-use property. For tax years beginning after 2017, personal casualty and theft losses of an individual are deductible only to the extent they’re attributable to a federally declared disaster. An exception to the rule limiting the deduction for personal casualty and theft losses to federal disaster losses applies where you have personal casualty gains to the extent the losses don’t exceed your gains.

Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. The following items are examples of personal-use property.

Your main home.
Furniture and electronics used in your main home and not used in a home office or for business purposes.
Clothing and jewelry.
An automobile used for nonbusiness purposes.

You figure the casualty or theft loss on this property by taking the following steps.

Determine your adjusted basis in the property before the casualty or theft.
Determine the decrease in fair market value of the property as a result of the casualty or theft.
From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive.

You must apply the deduction limits, discussed later, to determine your deductible loss.

You can use Pub. 584 to list your stolen

TIP or damaged personal-use property and

figure your loss. It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles.

Adjusted basis. Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. For more information about adjusted basis, see chapter 6.

Decrease in fair market value (FMV). The decrease in FMV is the difference between the property’s value immediately before the casualty or theft and its value immediately afterward. FMV is defined in chapter 10 under Pay- ments Received or Considered Received .

Appraisal. To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. But other measures, such as the cost of cleaning up or making repairs and certain safe harbor methods, can be used to establish decreases in FMV.

An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. The appraiser must recognize the effects of any general market decline that may occur along with the casualty. This information is needed to limit any deduction to the actual loss resulting from damage to the property.

Note: Several factors are important in evaluating the accuracy of an appraisal. See Pub. 547 for additional details regarding appraisals.

Cost of cleaning up or making repairs. The cost of cleaning up after a casualty isn’t part of a casualty loss. Neither is the cost of repairing damaged property after a casualty. But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions.

The repairs are actually made.
The repairs are necessary to bring the property back to its condition before the casualty.
The amount spent for repairs isn’t excessive.
The repairs fix the damage only.
The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.

Landscaping. The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. You may be able to measure your loss by what you spend on the following.

Removing destroyed or damaged trees and shrubs, minus any salvage you receive.
Pruning and other measures taken to preserve damaged trees and shrubs.
Replanting necessary to restore the property to its approximate value before the casualty.

Safe harbor methods for individual tax- payers to determine casualty and theft los- ses. Revenue Procedure 2018-08, 2018-2 I.R.B. 286, available at IRS.gov/IRB/

70 Chapter 11 Casualties, Thefts, and Condemnations Publication 225 (2025)

loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement.

Actual reimbursement more than expec- ted. If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. However, if any part of your original deduction didn’t reduce your tax for the earlier year, don’t include that part of the reimbursement in your income. Don’t refigure your tax for the year you claimed the deduction. See Recoveries in Pub. 525 to find out how much extra reimbursement to include in income.

If the total of all the reimbursements