Casualty, Disaster and Theft Losses

THIS DEDUCTION HAS BEEN SUSPENDED FOR THE YEARS 2018-2025

There is an exception to the suspension, in which a taxpayer has a gain as a result of another casualty (the insurance or other reimbursement is more than the loss), in which case the loss would be allowed to the extent of another casualty gain. 

The Act did, however, retain a deduction for qualified disaster-related personal casualty losses for years 2018 through 2025. A qualified disaster-related personal casualty loss is one that occurs in a presidentially declared disaster area and is a result of the disaster. 

Americans living abroad can claim many of the same itemized deductions on their US expatriate tax returns as back home. The rules that apply to taxpayers in the US relating to casualty, disaster and theft losses apply to expat taxpayers. 

Can American expats living abroad benefit from tax deductions for casualty, disaster and theft losses of foreign property?

Yes. If you are a victim of casualty, theft, or disaster, you can deduct the amount of your loss on Schedule A. Your house, household items, and automobiles are eligible items. To be able to claim this type of loss on your expat tax return:

  • You must itemize deduction on Schedule A
  • Caution! Casualty, disaster and theft losses only benefit taxpayers with taxable income. Expatriates, who live abroad and take advantage of the foreign income exclusion, tax credit, housing exclusion, or other benefits, may not have taxable income (Form 1040 Line 43).

How much can I deduct?

Personal-use property or property that is not completely destroyed:

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 lost due to theft:

  • Generally the adjusted basis of your property

Business or income-producing property:

  •  If completely destroyed, the adjusted basis in that property

Your loss must be reduced by the salvage value of your property and by any insurance proceeds or other reimbursement you receive or expect to receive for your loss. You must then subtract $100 from each event that occurred during the tax year and add the amounts calculated for your type of property, subtract 10% of your adjusted gross income (Line 37 of Form 1040) to arrive at your allowable loss for the year.

What is adjusted basis?

Adjusted basis generally refers to the original cost of your property which is then decreased by certain items such as depreciation. You adjusted basis can be increased by such things as improvements.

To properly determine the basis, it is always best to contact a tax professional.

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By Stephen Stambaugh

Last Updated: October 15, 2013