capital loss / federally declared disaster

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Can I take a long-term capital loss on the sale of a second home caused by federally declared disasters?

Alumni - Intuit

If this was just a second home then generally the loss is not deductible. If it was ever used for rental property and you sold the house at a loss then yes, you can take the long-term loss on your tax return. But there are other things you have to take into consideration.

If you received an insurance settlement in order to fix up the property but then decided to sell it the insurance settlement is seen as reimbursing you for your loss. So make sure to reduce the loss by any insurance settlement received.

If you took a loss from a disaster declaration already then that can be seen as reducing your basis in the property. So reduce your basis in the property by any disaster loss that you have already taken.

[Edited 2/20/26 7:30 AM PST]

@Stevenb12

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R

RobertB4444Answer

Alumni - Intuit

If this was just a second home then generally the loss is not deductible. If it was ever used for rental property and you sold the house at a loss then yes, you can take the long-term loss on your tax return. But there are other things you have to take into consideration.

If you received an insurance settlement in order to fix up the property but then decided to sell it the insurance settlement is seen as reimbursing you for your loss. So make sure to reduce the loss by any insurance settlement received.

If you took a loss from a disaster declaration already then that can be seen as reducing your basis in the property. So reduce your basis in the property by any disaster loss that you have already taken.

[Edited 2/20/26 7:30 AM PST]

@Stevenb12

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Stevenb12Author

Level 2

Thanks,

No insurance, no fed dollars either. If the casualty happened in 8/2024 & loss from sale on 1/2025 do I have to amend 2024 filing??

Steve

AmyC

Alumni - Intuit

It depends. While a capital loss on a personal residence is not deductible, the federal disaster is allowed to be claimed. You can claim the loss on either your 2024 or 2025 return. The 2025 is allowed as an option since you have discovered your full loss.

These are the steps to take:

Pick a year and fill out the casualty loss for the disaster. Most people will pick 2024 since it is the year that it happened.
- You may want to try it out in both years and see which gives you a bigger refund.
- Depending on tax brackets and income, there is a good chance 2024 will reap a better reward.
- The final amount of casualty loss on the house is important so make a note.
Fill out your 2025 and claim the sale of the house.
1. Read through Where do I enter the sale of a second home, an inherited home, or land on my taxes?
2. While entering the information, your basis in the house- what you paid plus improvements, minus any depreciation minus your casualty loss, etc. See About Publication 551, Basis of Assets
3. I suspect your sale will zero out or still have a loss. Your form 8949 will show the sale along with a zero in the gain or loss column. This lets the IRS know you sold the house and did not make money.

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AmyC

Alumni - Intuit

The federal disaster loss must be claimed in a single year. However, it may be so large it wipes out your income and creates a Net Operating Loss which can carryforward.

Reiterating, the federal disaster loss is allowed but sale of second home at a loss is not permitted. However, the basis of your house is adjusted by the disaster claim and it may not be a loss.

Example:

Let’s say you bought a second home for $500,000. A hurricane (federally declared disaster) causes massive damage in 2024.

The Loss: You determine the house is now only worth $300,000.

The Deduction: You claim a $200,000 casualty loss on your tax return (ignoring the small $100/10% AGI floor for this example).

The Basis Adjustment: Your basis drops from $500,000 to $300,000.

The Sale: In 2025, you sell the house for $300,000.

Sale Price ($300k) - Adjusted Basis ($300k) = $0 Gain/Loss.

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