For tax purposes, a casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration. There are three types of casualty losses, federal casualty losses, disaster losses and qualified disaster losses. All three types of losses are referred to as federally declared disasters. For complete details, see About Casualty Deduction for Federal Income Tax - TurboTax.
If the casualty loss does not apply, you will be able to adjust the basis of the property, which may reduce the gain when ther property is sold.
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