Casualty and theft loss deductions after OBBBA: what changes in 2026

When a client suffers a devastating loss or becomes a victim of an investment scheme, they rely on you to understand how it impacts their taxes. Knowing when a casualty or theft loss qualifies for a deduction and how to determine the amount can make a significant difference in their recovery. 

Your ability to navigate these complex situations allows you to provide clarity when they need it most, and we want to make sure you’re prepared to do just that.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.  

Q: When will the state-declared disasters under the One Big Beautiful Bill Act (OBBBA) become effective?

A: The state-declared disasters under the OBBBA will apply to tax years after Dec. 31, 2025.

Q: Is a taxpayer required to amend their tax return if the taxpayer receives reimbursement?

A: A taxpayer generally must amend their return if they previously claimed a deduction or loss that was later reimbursed. If they later receive reimbursement (for example, from insurance, FEMA assistance or another source), they can’t keep the deduction and the reimbursement. If the taxpayer has already filed and claimed the loss, they must file an amended return (Form 1040-X, Amended U.S. Individual Income Tax Return) to reduce or eliminate the deduction. This prevents double-dipping.

Q: What if the property destroyed is used for a taxpayer’s Schedule C business?

A: If the casualty loss involves business-use property (equipment, inventory, or a building used in the trade or business), the taxpayer does not use the personal casualty loss rules. The loss is computed under the business loss casualty rules in §165. This goes on Form 4684, Section B, and then to Schedule C. These losses are not subject to the $100 or $500 per-event reduction, and there is no 10% of AGI threshold. These losses reduce business income directly, like any other Schedule C expense.

Q: How is a net operating loss (NOL) calculated for a personal loss?

A: An NOL happens when certain allowable deductions exceed taxable income for the year. For individuals, this generally arises from business or casualty-related activities, not from personal living expenses. For a taxpayer filing as an individual, you may generate an NOL if deductions exceed income and the losses come from a trade or business operation (like Schedule C self-employment or Schedule F farming losses). Also, for casualty losses (personal or business, but only deductible under IRS rules) and rental or royalty property losses (Schedule E). Personal expenses (like home mortgage, medical expenses, charitable contributions, standard deduction, etc.) cannot create or increase an NOL.

To learn more about casualty and theft loss deduction, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.