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Form 4684: How to Claim a Casualty and Theft Loss Deduction

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Closeup of Form 4684 from the Department of the Treasury Internal Revenue Service.
Closeup of Form 4684 from the Department of the Treasury Internal Revenue Service.

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Form 4684 allows individuals, businesses and estates to claim deductions against any unexpected losses due to theft or disasters. These deductions can help reduce taxable income, but they come with specific eligibility requirements and limitations. In most cases, only losses caused by federally declared disasters or qualified thefts can be deducted.

A financial advisor can help you claim tax deductions for disaster or theft losses using Form 4684.

Form 4684, titled Casualties and Thefts, is used to report financial losses that result from unexpected events, such as natural disasters, accidents or theft. The IRS distinguishes between casualty losses – caused by sudden and unusual events like hurricanes, earthquakes or fires – and theft losses, which result from criminal acts such as burglary or fraud. The deduction amount is limited by insurance reimbursements and a required $100 reduction per event for personal-use property. Additionally, the deductible portion of the loss must exceed 10% of the taxpayer’s adjusted gross income (AGI).

If you want to claim deductions for disaster or theft losses, here are seven general steps to help you get started:

  • Download Form 4684 from the IRS website or obtain it through tax preparation software.

  • Calculate the cost basis of the property, which refers to its original value before the loss.

  • Determine the fair market value (FMV) before and after the event to assess the financial impact.

  • Subtract any insurance reimbursement or compensation received from insurance claims, government assistance or settlements.

  • Apply the $100 reduction per event and further reduce the loss by 10% of adjusted gross income (AGI) for personal-use property.

  • Transfer the calculated loss to Schedule A (Itemized Deductions) if claiming a personal deduction.

  • Attach Form 4684 to Form 1040 and submit it with your tax return.

The loss must result from a federally declared disaster as designated by the Federal Emergency Management Agency (FEMA). The loss must be sudden, unexpected and beyond the taxpayer’s control (e.g., floods, wildfires, tornadoes, earthquakes) and the damaged or destroyed property must be personal-use or business property that was not already compensated by insurance or other relief programs. Additionally, tax laws allow affected individuals to claim losses in either the tax year the disaster occurred or the previous tax year for potentially greater tax benefits.

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