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People assume a stolen car or a flood-damaged basement is automatically deductible. For personal-use property in 2018 through 2025, it is not. The loss is deductible only if it is attributable to a federally declared disaster, and even then the number you started with shrinks twice before anything reaches Schedule A.
Form 4684 reports casualty and theft gains and losses across four sections: Section A for personal-use property, Section B for business and income-producing property, Section C for Ponzi-type theft losses, and Section D for the §165(i) election. For personal losses you subtract the $100 per-event floor on line 11, which rises to $500 for qualified disaster losses, then reduce again by 10% of AGI on line 17 before the line 18 result carries over. Get the order or the section wrong and the deduction lands in the wrong place or disappears.
Key Takeaways
- Form 4684, Casualties and Thefts, reports gains and losses from casualty and theft events. It attaches to your return with Attachment Sequence No. 26.
- The form has four parts: Section A for personal-use property, Section B for business and income-producing property, Section C for Ponzi-type theft losses under Revenue Procedure 2009-20, and Section D for the IRC §165(i) election to deduct a federally declared disaster loss in the preceding year.
- Personal-use casualty and theft losses (Section A) are reduced by a $100 per-event floor on line 11, which rises to $500 when qualified disaster loss rules apply.
- After the per-event floor, net personal casualty losses are reduced again by 10% of adjusted gross income on line 17, before the deductible amount carries to Schedule A.
- For tax years after 2017, personal-use casualty and theft losses are deductible only if attributable to a federally declared disaster.
- The Section C Ponzi safe harbor deducts 95% of the qualified investment when you have no potential third-party recovery, or 75% when you do.
- The IRC §165(i) election to claim a federally declared disaster loss in the preceding year is generally made within 6 months after the original due date of the disaster-year return.
What is IRS Form 4684
At its core, Form 4684 turns a damaged or stolen asset into numbers the IRS recognizes. You determine your adjusted basis, measure the decrease in fair market value, subtract salvage and reimbursements, and apply the personal loss limits if they apply to you. The output routes to Schedule A, Schedule D, or Form 4797 depending on the property and whether you have a net gain or loss.
- Section A, personal‑use property, is where most homeowners start. For 2018–2025, you only deduct a personal loss if the event is a federally declared disaster. You will enter the FEMA declaration number when applicable.
- Section B covers trade, business, rental, and royalty property, which are not subject to the $100 and 10% of AGI personal limits. Results flow to Schedule A for income‑producing property or to Form 4797 for trade or business property.
- Section C is a specialized path for theft losses from Ponzi‑type schemes using Revenue Procedure 2009‑20. If you are not in that scenario, you will skip Section C.
- Section D lets you elect to claim a federally declared disaster loss on the prior year’s return, or revoke that election within the IRS time window.
If you suffered a qualified disaster loss, you can claim it without itemizing, the $100 reduction becomes $500, and the 10% of AGI rule does not apply, for disasters declared in the IRS date window.
Why this matters right now
Disasters are common, and the numbers are sobering. In 2023, the United States saw a record 28 billion‑dollar weather and climate disasters with about 92.9 billion in damage. That scale of loss is exactly why Form 4684 exists, and why accurate documentation and correct filing can make a real difference for your recovery.
Who should use Form 4684
If you experienced a sudden event or a theft that damaged or destroyed property, you likely need Form 4684. That includes individuals, landlords, and business owners.
Eligible taxpayers and events
- Individuals with personal‑use property losses from a federally declared disaster, for example a hurricane, wildfire, flood, or severe storm that FEMA lists under a presidential declaration.
- Owners of trade, business, rental, or royalty property with casualty or theft losses, which are calculated on Section B and are not subject to the personal $100 and 10% of AGI limits.
- Taxpayers with theft losses, larceny, embezzlement, burglary, robbery, provided the taking was illegal under state law and done with criminal intent. Keep the police report.
You generally claim a casualty loss in the year the event happened, and a theft loss in the year you discovered it.
When to file, and which year to use
Timing rules are simple once you know the triggers.
- Casualty losses are claimed in the year the casualty occurred.
- Theft losses are claimed in the year you discover the theft.
- Federal disaster losses may be elected on the prior year’s return, which can speed up a refund. You make or revoke that election with Section D, and the IRS has precise deadlines for revoking.
Keep an eye on reimbursements. If you have a claim with a reasonable prospect of recovery, you generally wait to deduct that portion until you know whether you will be paid. If you later recover money for a previously deducted loss, you may have to include the recovery in income under the tax‑benefit rule.
Special rules for qualified disaster losses
Congress has extended relief for certain disasters. For individuals, a qualified disaster loss includes personal‑use property losses attributable to major disasters declared during a specific window. For current returns, the IRS says a qualified disaster loss includes disasters declared between January 1, 2020 and February 10, 2025, with incident periods that began on or after December 28, 2019, ended no later than January 11, 2025, and meet the other criteria.
Why you care:
- You can claim the deduction without itemizing.
- The per‑casualty reduction is 500 instead of 100.
- The 10% of AGI floor does not apply to the net qualified disaster loss.
- You still must reduce by insurance or other reimbursements, and you must include the FEMA declaration.
If you do not fall in that qualified window, the regular personal rules apply, you must itemize, reduce by 100 per event, and your total federal disaster losses must exceed 10% of AGI. Business or rental property follows Section B and different reporting.
Quick map of where results flow
- Personal‑use loss, Section A, after limits, usually goes to Schedule A, line 15 or line 16 depending on qualified‑disaster treatment.
- Business or income‑producing property, Section B, flows to Form 4797 for trade or business and to Schedule A for income‑producing property.
- Net personal casualty gains can trigger Schedule D reporting (they flow to Schedule D as capital gains, not to Schedule A like losses do). The form prompts you when to send gains to capital gains schedules.
Use one Form 4684 per event for Section A through line 12, then combine on a single form for lines 13–18 to apply the personal limits correctly.
What counts, what does not
Your first task is classification. The IRS draws a bright line between sudden events and slow deterioration.
Casualty versus theft, in practice
- Casualty, a sudden, unexpected, unusual event such as a fire, hurricane, tornado, earthquake, or vandalism.
- Theft, an illegal taking with criminal intent, like burglary, robbery, larceny, or embezzlement (misplaced, lost, or simply missing property does not qualify – you need proof of an illegal taking under state law). You do not need a conviction, but you need credible proof.
For personal‑use property in 2018–2025, a loss is deductible only if it is attributable to a federally declared disaster (the casualty itself must be caused by that disaster – simply being located in a declared disaster area is not enough on its own), unless you are netting against casualty gains. Business and income‑producing property losses are still reported on Form 4684 without the personal $100 and 10% rules.
Progressive deterioration exclusions
Ongoing problems do not qualify. Termites, rust, rot, mold, gradual water seepage, and normal wear break things over time, they are not sudden casualties. Routine breakage, like a dropped plate, also fails the test.
Simple “does it qualify” table
| Situation | Deductible on Form 4684? |
| Windstorm in a federally declared disaster damages your roof | Yes, Section A (personal) or Section B (business) |
| Theft with police report and credible evidence | Yes, as theft loss |
| Ordinary breakage of household items | No |
| Gradual damage, termites, rust, long‑term leaks | No |
| Flood not in a federal disaster area, personal use | Only to offset personal casualty gains |
Source guidance, IRS Pub. 547.
Losses on bank deposits, updated treatment
Losses on deposits in an insolvent or bankrupt financial institution are no longer claimed as a personal casualty deduction, except to the extent they offset personal casualty gains. Otherwise, they are generally treated as a nonbusiness bad debt and reported on Form 8949 and Schedule D in the year the loss becomes certain. Pub. 547 explains both routes.
Ponzi‑type schemes have their own lane
If you are a victim of a Ponzi‑type investment scheme, Section C of Form 4684 provides a streamlined method under Revenue Procedure 2009‑20 to compute a theft loss in the discovery year (the year you learn about the fraud) – you do not amend the prior years you originally invested or reported the phantom income. You will enter your total qualified investment, expected recovery factors, and then carry the result into Section B. This is a specialized path, so use it only if your facts match the revenue procedure.
Many older summaries still say Section C is for bank failures. Today’s Form 4684 uses Section C for Ponzi‑type theft losses, and Section D for disaster year elections. Always check the current form.
Documentation that makes your deduction stick
From experience, good records shorten IRS questions and reviewer time. Build a simple file for each event.
- FEMA declaration number and the disaster name for federal disasters.
- Police report for theft, insurance claim file, adjuster’s report, settlement letters, and canceled checks.
- Proof of adjusted basis, purchase invoices, closing statements, and improvement records.
- Pre‑ and post‑loss photos, appraisals, and contractor estimates showing the damage and value change.
- Notes on expected insurance recovery, and later letters if the final payment differs.
If originals were destroyed, rebuild with third‑party statements, property tax records, bank statements, and a written explanation of what happened and when.
How to calculate your loss, step by step
Start with two numbers, adjusted basis and the decrease in fair market value caused by the event. Your tentative loss is the smaller of those two, reduced by reimbursements and salvage. Personal losses then face the $100 or $500 reduction and possibly the 10% of AGI rule.
Worked example, personal‑use property in a federal disaster
- You bought your home years ago. Your adjusted basis in the damaged property before the storm is 18,500, and its value dropped from 17,000 to 200 after the event. You had no insurance. Your AGI is 70,000.
- Compute on Section A: the smaller of basis or value decrease is 16,800, less reimbursements 0, less the 100 reduction, then subtract 10% of AGI which is 7,000. Your deductible casualty loss is 9,700. This mirrors the IRS example.
On the form, Section A lines 2–9 capture basis, reimbursements, and the value drop, line 11 applies the 100 or 500 reduction once per casualty event (not once per item of property destroyed), and lines 13–18 handle combining events and applying the 10% of AGI rule. If you only have qualified disaster losses within the IRS window, you may bypass the 10% floor and use 500 on line 11, then report the amount on Schedule A even if you do not itemize, using the special “Net Qualified Disaster Loss” notation.
Worked example, business property
- Your rental property’s roof is destroyed. Adjusted basis component at issue is 25,000, value drop is 22,000, insurance paid 15,000.
- In Section B, your loss is the smaller of basis or value drop, 22,000, minus the 15,000 reimbursement, so 7,000. There is no 100 reduction and no 10% of AGI floor for business or rental property. Depending on holding period and type, results flow to Schedule A for income‑producing property or to Form 4797 for trade or business.
Tip, if property is totally destroyed or stolen, Section B tells you to use adjusted basis on line 26. That simplifies the math but you still reduce by reimbursements.
Insurance, reimbursements, and timing rules
File insurance claims promptly (any covered reimbursement reduces your loss whether or not you actually file a claim, so skipping the claim does not preserve the deduction). If you have a reasonable prospect of recovery, you generally cannot deduct that portion yet. When the final settlement arrives, reduce your loss by what you received or reasonably expect to receive. If you later recover more after you already claimed a deduction, the tax‑benefit rule may require including part of that recovery in income. Keep a note in your file with dates, amounts, and the claim number.
- Personal losses in 2018–2025 must be tied to a federally declared disaster to be deductible, unless you are offsetting personal casualty gains.
- Qualified disaster losses in the IRS window can be deducted without itemizing, the 100 becomes 500, and the 10% of AGI floor is waived. Follow the specific reporting on Schedule A the instructions describe.
Special rules for federally declared disasters
Section D lets you elect to claim a federal disaster loss on the prior year’s return, which can unlock a faster refund. If you change your mind, Part II of Section D sets out how to revoke the election, including the 90‑day timing rule. You will list the disaster name, the date of loss, and the property address.
If your home was ordered unsafe by local officials within 120 days of the disaster declaration, the loss in value from tearing down or moving the home is treated as a disaster loss.
Where to report and common filing pointers
- Section A personal losses, after lines 13–18, go to Schedule A. If all your losses are qualified disaster losses within the IRS window, follow the “increased standard deduction” reporting so you can claim the loss without itemizing.
- Section B business and income‑producing property flows to Form 4797 for trade or business, and to Schedule A for income‑producing property. Gains can pull in Schedule D. The form lines show exactly where to send each number.
- Section C applies only to Ponzi‑type theft losses under Rev. Proc. 2009‑20.
- Always include the FEMA declaration number for federal disasters, and keep appraisals, adjuster reports, and photos with your tax file.
A quick note for busy accounting teams
If your firm is buried during disaster seasons and Form 4684 reviews keep slipping, you are not alone. Many firms do not struggle to find clients, they struggle to deliver consistent, on‑time work at quality when workload spikes. Accountably integrates trained offshore teams into your workflow with SOPs, structured workpapers, and layered reviews so your partners spend less time stuck in review and more time with clients. Use it where it makes sense, for example workpaper prep, tie‑outs, and standardized Section A and B reviews, and keep ownership of your process, security, and standards.
Closing thoughts and next steps
You now know when Form 4684 applies, how to calculate losses, and where to report them. If your loss is tied to a federally declared disaster, the rules are more generous within the IRS qualified‑disaster window. If not, you may still get relief, especially for business or rental property. Either way, build a clean file, verify your FEMA details, and match your entries to the form lines so your numbers stand up to review. For a sense of scale, the U.S. faced 28 billion‑dollar disasters in 2023 and about 92.9 billion in damage, which is why careful, methodical filing matters.
Common Mistakes We See Every Season
The patterns that come back to my desk every season cluster around four traps: the post-TCJA disaster rule, the floor sequence, the insurance-claim rule, and the qualified-disaster carve-out. Each one looks small on paper and quietly drops a deduction or invites an exam letter.
Reusable Checklists
These checklists are copy-paste ready for firm SOPs. Drop them into the engagement workpapers, version them by tax year, and tie each item to the specific Form 4684 line it supports.
Pre-filing documentation packet
- FEMA DR- or EM- declaration number, with the ZIP of the most-affected property captured for the Property A line.
- Police report (for theft) or first-responder/insurance incident report (for casualty), with date matched to the date of loss.
- Dated photos or video of the property before and after the event.
- Contractor estimate or licensed appraisal establishing FMV before and after (lines 5 and 6 for Section A, lines 23 and 24 for Section B).
- Adjusted basis worksheet, with closing statement, capital improvements, and depreciation schedule for business property.
- Insurance claim filing, settlement letter, and proof of any amount denied or pending (line 3 or line 21).
- For qualified disaster losses, copy of the IRS qualified disaster designation for that declaration.
Section A personal-use loss walk-through
- Confirm the event is attributable to a federally declared disaster, or that the year has offsetting personal casualty gains.
- Line 2: cost or other basis per column A through D.
- Line 3: insurance or other reimbursement, claimed or coverable.
- Lines 5, 6, 7: FMV before, FMV after, decrease in FMV.
- Line 8: smaller of line 2 or line 7, the unreimbursed loss before insurance.
- Line 9: line 8 minus line 3, floored at zero.
- Line 11: $100 per-event floor ($500 for qualified disaster losses).
- Line 17: 10% of AGI floor (skipped for qualified disaster losses).
- Line 18 result to Schedule A line 15 (or line 16 if a qualified disaster loss is combined with the standard deduction).
Section C Ponzi safe-harbor checklist
- Confirm the taxpayer meets the Section 4.03 qualified-investor definition in Rev. Proc. 2009-20.
- Take the deduction in the discovery year only, do not amend prior years where fraudulent income was reported.
- Line 40: initial investment. Line 41: subsequent investments, net of withdrawals already counted.
- Line 42: cumulative income reported on prior returns before discovery.
- Line 44: cumulative withdrawals across all years.
- Line 46: 95% if no potential third-party recovery and the affirmative declaration is signed, otherwise 75%.
- Line 49: potential insurance or SIPC recovery, even if not yet received.
- Identify the perpetrator (name, TIN if known, address) and attach the required declarations in Section C Part II.
- Carry line 51 to Section B line 28 and route through Part II to the appropriate Schedule A or Form 4797 line.
Keep 4684 Season From Stalling
Form 4684 work clusters in unpredictable spikes. A federally declared disaster in February can flood return-prep desks for the next eighteen months as filers debate whether to claim the loss in the disaster year or elect IRC §165(i) to deduct it in the immediately preceding year. Per Treas. Reg. §1.165-11(g), that election generally has to be made within six months of the original due date of the disaster-year return, which means the decision cannot sit in a later-this-month pile.
The bottleneck is rarely the math. It is the documentation chain, the FEMA number lookup, the standard-deduction comparison for qualified disaster losses, and the prior-year amend versus current-year deduct decision. None of those are hard, all of them slow a preparer down at exactly the moment the rest of the engagement is moving.
- Standardize the disaster intake: FEMA DR or EM number, incident dates, ZIP of the property most affected, and qualified-disaster status checked against the IRS instructions before line 11 is touched.
- Run the standard-deduction comparison once and lock it in workpapers. For 2025 the OBBBA-updated standard deduction is $15,750 single, $31,500 MFJ, and $23,625 head of household, and a qualified disaster loss can sit on Schedule A line 16 alongside the standard deduction.
- For §165(i) elections, calendar the six-month preceding-year election deadline and the 90-day revocation window on the day the engagement opens.
- Hold Section B (business and income-producing) workpapers in a separate review queue from Section A. Totally destroyed business property uses adjusted basis on line 26, and the result routes to Form 4797 line 14 (or line 3 when long-term gains equal or exceed losses).
- For Section C Ponzi events, require the qualified-investor declaration and the no-recovery affirmation in writing before line 46 is populated. The 95% versus 75% choice is irrevocable once the section is filed.
That is where structured offshore execution earns its keep. Trained preparers run the documentation pack, the line-by-line entry, and the Schedule A or Form 4797 routing on documented SOPs, and a layered review catches the FEMA number or floor sequencing before the return ships. Bring that capacity in through U.S. tax preparation outsourcing and reviewer time stays on judgment calls, not data entry.
FAQs
What is IRS Form 4684
It is the form for reporting gains and losses from casualties and thefts and for computing the deductible amount that flows to your return. Sections A through D handle personal losses, business or rental property, Ponzi‑type theft losses, and the prior‑year disaster election.
What qualifies as a deductible casualty loss in 2018–2025
For individuals, a personal‑use casualty or theft loss is deductible only if it is attributable to a federally declared disaster, unless you are offsetting casualty gains. You still must reduce by insurance and apply the $100 and 10% of AGI rules, unless you meet the qualified disaster window that switches those rules to $500 and no 10% floor.
Can I claim a qualified disaster loss without itemizing
Yes, if your loss meets the IRS qualified disaster definition for declarations between January 1, 2020 and February 10, 2025 with the required incident‑period dates. You will follow the instructions to show “Net Qualified Disaster Loss” on Schedule A with your standard deduction.
How do I document my loss
Keep the FEMA number, police report for theft, photos before and after, appraisals or contractor estimates, insurance claim and settlement papers, and proof of basis like receipts and closing statements. Good documentation is the difference between a smooth review and a long back‑and‑forth.
What if my bank failed and my deposits were lost
You generally cannot claim an ordinary personal casualty deduction for a deposit loss. You may treat it as a casualty only to offset personal casualty gains, or treat it as a nonbusiness bad debt when the loss becomes certain, reported on Form 8949 and Schedule D.
Can I claim the disaster on last year’s return
Yes, federal disaster losses can be elected on the prior year. Use Section D for the election, and Part II if you need to revoke it within the IRS time window. Follow the instructions and include the disaster name, dates, and property address.