You may take a deduction for casualty losses to your rental property (these are business casualties) only to the extent that the loss is not covered by insurance. If the loss is fully covered, you get no deduction. You can’t avoid this rule by not filing an insurance claim. If you have insurance coverage, you must file a claim in a timely manner, even if it will result in cancellation of your policy or an increase in your premiums. If you have insurance and don’t file an insurance claim, you cannot obtain a casualty loss deduction.
You must reduce the amount of your claimed casualty loss by any insurance recovery you receive or reasonably expect to receive, even if it hasn’t yet been paid. If it later turns out that you receive less insurance than you expected, you can deduct the amount the following year. If you receive more than you expected and claimed as a casualty loss, the extra amount is included as income for the year it is received.
For losses involving business-use property, refer to Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook. These workbooks are helpful in claiming the losses on Form 4684; keep them with your tax records.
Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles (NON-BUSINESS) on your federal income tax return if the loss is caused by a federally declared disaster declared by the President. Topic No. 515 Casualty, Disaster, and Theft Losses
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