Tornado damage not a federally declared disaster

[goinsfamily1]

My 40x50 storage building was destroyed by a tornado that was a spinoff of Tropical storm Nestor. TS Nestor wasn't declared a federal disaster because it didn't meet the FEMA limit but my area was offered U.S. Small Business Administration loans. Can I deduct the loss from my building?

[DawnC]

Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return if the loss is caused by a federally declared disaster declared by the President. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.

Disaster Area Losses – A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. It includes a major disaster or emergency declaration under the Act. See Publication 547, Casualties, Disasters, and Thefts and Publication 2194, Disaster Resource Guide (PDF) for more information.

Casualty Losses - 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.

If your property is personal-use property or isn't completely destroyed, the amount of your casualty loss is the lesser of:

• The adjusted basis of your property, or
• The decrease in fair market value of your property as a result of the casualty

If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis.

Claiming the Loss

Individuals are required to claim their casualty and theft losses as an itemized deduction on Schedule A (Form 1040 or 1040-SR), Itemized Deductions (PDF) (or Schedule A in Form 1040-NR (PDF), if you're a nonresident alien). For property held by you for personal use, you must subtract $100 from each casualty or theft event that occurred during the year after you've subtracted any salvage value and any insurance or other reimbursement. Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year. Report casualty and theft losses on Form 4684, Casualties and Thefts (PDF). Use Section A for personal-use property and Section B for business or income-producing property. If personal-use property was damaged, destroyed or stolen, you may wish to refer to Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property). For losses involving business-use property, refer to Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook (PDF). These workbooks are helpful in claiming the losses on Form 4684; keep them with your tax records.

When to Deduct

Casualty losses are deductible in the year you sustain the loss, which is generally in the year the casualty occurred. You have not sustained a loss if you have a reasonable prospect of recovery through a claim for reimbursement. 

Topic No. 515 Casualty, Disaster, and Theft Losses

[christopher doyle]

the storm in question caused major uninsured damage, $40,000, but the storm not declared a Federal Disaster

[christopher doyle]

What if,  for example my house burns, which causes substantial damage and I have no insurance, is this not a casualty loss even though there is no disaster declared by Federal Government.

[JamesG1]

Unfortunately, the claim must be caused by a federally declared disaster.

For tax years 2018 through 2025, you can no longer claim casualty and theft losses on personal property as itemized deductions, unless your claim is caused by a federally declared disaster. You will still use Form 4684 to figure your losses and report them on Form 1040, Schedule A.

Instructions for IRS Form 4684 states:

Definitions Three types of casualty losses are described in these instructions.

1. Federal Casualty Losses.
2. Disaster Losses.
3. Qualified Disaster Losses.

All three types of losses refer to federally declared disasters, but the requirements for each loss vary.

A federally declared disaster is a disaster determined by the President of the United States to warrant assistance by the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act).

A disaster loss is a loss that is attributable to a federally declared disaster and that occurs in an area eligible for assistance 

pursuant to the Presidential declaration.

A qualified disaster loss is an individual’s casualty or theft loss of personal-use property that is attributable to a major federal disaster declared by the President under section 401 of the Stafford Act in 2016, as well as from Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or from the California wildfires in 2017 and January 2018.