The concept is that your casualty loss is the decrease in property value caused by the damage. The IRS allows you to use the repair cost as a reasonable estimate the decrease in value assuming the repair doesn't substantially increase the value of the property. (For example, if you tore out 10 year old carpeting and replaced it with brand new, part of the cost is a betterment and not part of your loss.)
Then, the IRS requires you to submit a claim if you can.
For the remaining loss ($1000, or the $1000 deductible plus any uncovered expenses) the casualty deduction rules call for a deductible equal to 10% of your income. So if your income is $50,000, there is a $5,000 deductible on the loss. The rest of the loss (if any) would be deductible as an itemized deduction on schedule A.
