The cost basis of the loss is the decrease in basis from the casualty event, and subtract the state assistance. You can deduct the fair market value decrease of your home due to the flood. You must also reduce the loss by insurance payments, and you must have already applied for any available insurance reimbursement.
The fair market value before the casualty or loss equals what the house would have sold for immediately before the flood. The fair market value after the casualty is what the house or item would have sold for on the market after the flood.
For more information, see IRS Publication 547 and also What if I have property that was lost or damaged (a casualty loss)?
