This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits.

The chapter also explains the following
topics.

• How to figure the amount of your loss.
• How to treat insurance and other reimbursements you receive.
• The deduction limits.
• When and how to report a casualty or theft.

When you have a casualty or theft, you have to file Form 4684. You will also have to file one or more of the following forms.

• Schedule A (Form 1040), Itemized Deductions
• Schedule D (Form 1040), Capital Gains and Losses

For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets.

Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles.

For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts.

A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.

• A sudden event is one that is swift, not gradual or progressive.
• An unexpected event is one that is ordinarily unanticipated and unintended.
• An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged.

Deductible casualty losses can result from a number of different causes, including the following.

• Car accidents (but see Nondeductible losses, next, for exceptions).
• Earthquakes.
• Fires (but see Nondeductible losses, next, for exceptions).
• Floods.
• Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547.
• Mine cave-ins.
• Shipwrecks.
• Sonic booms.
• Storms, including hurricanes and tornadoes.
• Terrorist attacks.
• Vandalism.
• Volcanic eruptions.

A casualty loss is not deductible if the damage or destruction is caused by the following.

• Accidentally breaking articles such as glassware or china under normal conditions.
• A family pet (explained below).
• A fire if you willfully set it or pay someone else to set it.
• A car accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
• Progressive deterioration (explained later).

Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met.

Your antique oriental rug was damaged by your new puppy before it was housebroken. Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss.

Loss of property due to progressive deterioration is not deductible as a casualty loss. This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. The following are examples of damage due to progressive deterioration.

• The steady weakening of a building due to normal wind and weather conditions.
• The deterioration and damage to a water heater that bursts. However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty.
• Most losses of property caused by droughts. To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit.
• Termite or moth damage.
• The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss.

Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. For details, see Publication 547.