Disaster Casualty Loss (2026): State-Declared Disasters Now Qualify
OBBBA (P.L. 119-21) makes the TCJA disaster-only limitation permanent but broadens IRC §165(h) — starting tax year 2026, losses from STATE-declared disasters qualify alongside federally declared ones. Here's the full Form 4684 math with a worked example.
What changed for casualty losses in 2026?
Starting tax year 2026, IRC §165(h) — as amended by OBBBA — allows personal casualty and theft losses from state-declared disasters, not just federally declared ones. The 2018–2025 rule (FEMA-only) is gone. You still must itemize on Schedule A using Form 4684, and losses are still limited by the $100 per-event and 10%-of-AGI floors. The exception is a qualified disaster loss on a 2025 or 2026 return (P.L. 119-108, signed September 11, 2026): a loss from a Presidential major disaster whose incident period began on or after December 28, 2019 and before January 1, 2027 takes a $500 floor, no 10%-of-AGI floor, and can be added to the standard deduction.
- •2018–2025: FEDERALLY declared disasters only
- •2026+: federal OR state-declared disasters qualify
- •$100 per-event floor + 10% of AGI floor still apply (qualified disaster losses: $500 floor, no 10% floor)
- •Requires itemizing on Schedule A (Form 4684), except a qualified disaster loss (2025 and 2026 returns)
- •Hurricane season Aug–Oct is the peak filing driver
What is a state-declared disaster for casualty-loss purposes?
A natural catastrophe (hurricane, tornado, storm, earthquake) or any fire / flood / explosion that, in the determination of the state's governor (or the D.C. mayor) and the Treasury Secretary, causes damage severe enough to warrant the casualty-loss rules (IRC §165(h)(5)(C)). Starting tax year 2026, a loss from such a disaster can be deducted without a federal (FEMA) declaration, but a state proclamation alone does not establish it.
- Governor (or D.C. mayor) and Treasury Secretary determinations
- Covers natural catastrophes, fire, flood, explosion
- Keep declaration reference with your records
- Applies to personal (non-business) property losses
Declaration scope: 2025 vs 2026
| Tax year | Qualifying disaster | Example |
|---|---|---|
| 2018–2025 (TCJA) | FEDERALLY declared only (FEMA / Stafford Act) | Hurricane damage — deductible only if FEMA declared |
| 2026+ (OBBBA) | Federal OR STATE-declared | Qualifies when the governor and the Treasury Secretary both determine it is severe enough |
The three-step math (Form 4684 → Schedule A)
1. Per-event loss
Loss = min(FMV decline, adjusted basis) − insurance reimbursement. Reimbursement you were eligible for but didn't file still reduces the loss.2. Subtract $100 per event
Per event — not per item. Two storms = two $100 reductions ($500 each for a qualified disaster loss).
3. Subtract 10% of AGI
After summing the after-$100 amounts across all events. Result floored at 0. A qualified disaster loss skips this step.
Worked example
AGI $80,000, tax year 2026. A hurricane damages your home, and the area is a declared disaster that is not a Presidential major disaster (a 2026 State declared disaster, or a federal emergency declaration only). FMV decline / basis gives a $30,000 loss; insurance reimburses $5,000.
- Loss after reimbursement: $30,000 − $5,000 = $25,000
- Minus $100 event floor: $24,900
- Minus 10% AGI ($8,000): $16,900
- Schedule A deduction: $16,900
The $16,900 depends on the declaration. If the President declared a major disaster (DR) for the area, the same loss is a qualified disaster loss: $24,500 (below). The same loss from an ordinary house fire not tied to a declared disaster deducts $0 under §165(h)(5)(A), except to offset personal casualty gains in the same year.
Qualified disaster losses (2025 and 2026 returns)
A qualified disaster loss is a personal casualty loss in an area covered by a Presidential major-disaster declaration (not an emergency declaration) whose FEMA incident period began on or after December 28, 2019 and before January 1, 2027, caused by that disaster on or after the first day of its incident period (IRC §165(h)(6), added by P.L. 119-108, signed September 11, 2026, for 2025 and later returns). For it, the per-event floor is $500 instead of $100, there is no 10%-of-AGI floor, and you can deduct it without itemizing by adding it to your standard deduction (Schedule A line 16).
The 2025 Form 4684 instructions, written before that law, used a narrower definition: a declaration made between January 1, 2020 and September 2, 2025, with an incident period that began on or after December 28, 2019 and by July 4, 2025 and ended by August 3, 2025, and not a declaration made only because of COVID-19. P.L. 119-108 replaced that definition for 2025 returns too, so a 2025 loss from a major disaster declared later in 2025 now qualifies.
- Same facts on a 2025 or 2026 return, qualified disaster: $25,000 − $500 = $24,500, with no 10%-of-AGI reduction
- A single filer who doesn't itemize, 2025: $15,750 standard deduction + $24,500 = $40,250
- A single filer who doesn't itemize, 2026: $16,100 standard deduction + $24,500 = $40,600
What is NOT deductible
- Losses not tied to a federally declared or (2026+) State declared disaster — an ordinary house fire, car accident, or theft — except to offset personal casualty gains
- Normal wear and tear
- Progressive deterioration (slow leaks, termite damage over time)
- Losses fully covered by insurance
- Losses in tax years 2018–2025 that were only state-declared (still FEMA-only)
- Losses if you take the standard deduction — this deduction requires itemizing, except a qualified disaster loss (2025 and 2026 returns), which is added to the standard deduction
Documentation checklist
- Photos and video of damage — before repairs, ideally timestamped
- Purchase receipts / appraisals establishing adjusted basis
- Pre- and post-event appraisals showing FMV decline
- All insurance correspondence — claim, adjuster report, payout letter
- The declaration reference (FEMA number or state proclamation)
- Contractor estimates or repair invoices
Hurricane season timing
Atlantic hurricane season peaks August through October. If your home was damaged by a storm in a state whose governor declared a disaster — even if FEMA didn't — start the paperwork now. In 2026, the loss qualifies under §165(h) once the Treasury Secretary also determines the damage is severe enough; the governor's declaration alone does not establish it. Save every photo and every insurance letter.
FAQ
Is hurricane damage deductible in 2026?
Yes, if the disaster was federally OR state-declared. Starting tax year 2026, OBBBA amends IRC §165(h) to let losses from state-declared disasters qualify — not just FEMA-declared ones. You file Form 4684 and itemize on Schedule A — unless the President declared a major disaster for your area, in which case it is a qualified disaster loss (P.L. 119-108): a $500 floor, no 10%-of-AGI floor, and you can add it to the standard deduction instead of itemizing.
My state declared a disaster but FEMA didn't — can I deduct?
Possibly — this is new for 2026. From 2018–2025, only federally declared disasters qualified. Under OBBBA, a natural catastrophe (hurricane, tornado, storm, earthquake) or fire, flood, or explosion qualifies as a State declared disaster when the governor (or D.C. mayor) and the Treasury Secretary both determine the damage is severe enough (§165(h)(5)(C)); a state proclamation alone does not establish it. Keep the declaration reference with your records.
Do I subtract $100 once or per item?
$100 PER EVENT, not per item. If one storm destroys three items in your house, that is a single event and a single $100 reduction. Two separate storms are two events and two $100 reductions.
What if insurance covered everything?
You can't deduct a loss fully covered by insurance. You also must reduce the loss by any reimbursement you were eligible to claim but didn't — the IRS treats that eligibility itself as the offset.
Related
Sources & References
Primary references used for this content
About Form 4684, Casualties and Thefts
IRS form and instructions
View on irs.gov
Casualties, Disasters, and Thefts
Full IRS guidance
View on irs.gov
Casualty and theft loss deductions after OBBBA (2026)
Practitioner analysis of the OBBBA change
View on natptax.com
✓3 primary sources; links re-checked on a weekly rotation by the source watcher
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.