September’s theme is “Being Prepared,” which starts with understanding how to protect yourself financially when disaster strikes. This week, we’re focusing on how you may be able to deduct casualty losses on your tax return if a natural disaster damages your property.
Natural disasters—like floods, fires, or storms—can cause significant damage to your property. The good news is that the recent tax law changes in the “One Big Beautiful Bill” make it easier to claim a tax deduction for losses from certain state or federally declared disasters. You can now deduct losses over $500, even if you take the standard deduction instead of itemizing.
How to Calculate Your Loss
To figure out your deductible loss, follow these simple steps:
- Know your property’s original value: This is what you paid for the property plus improvements, or its tax basis.
- Estimate the decrease in value: Determine how much the property’s value decreased because of the disaster. (Often, this can be calculated as the cost to restore the property to its pre-disaster condition.)
- Subtract any payments: Take away any insurance money or other reimbursements you received.
Your deductible loss is the smaller amount from steps 1 or 2, less any payments.
Tips to Prepare
It’s never too early to prepare for the unexpected. To protect yourself and simplify future claims, create a record of your belongings. You can:
- Make a detailed list of your items and/or
- Take photos or videos of your property
It’s important to store a copy of these records in a safe place, such as your online backup storage account or with a trusted person away from your home. This inventory will help with both future tax filings and insurance claims. Also, keep receipts or records of what you paid for the property, as this will help prove your loss amount.
By staying organized, you can maximize your deductions and recover more quickly from unexpected disasters.