You Make the Call - July 30, 2026

Question: In 2026, Jim’s personal-use home is damaged in a federally declared disaster that is not a qualified disaster. The home’s adjusted basis before the disaster was $210,000. Its fair market value (FMV) decreased from $240,000 to $190,000. Jim received $18,000 of insurance reimbursement and has an adjusted gross income (AGI) of $70,000. What casualty loss deduction may Jim claim on Schedule A (Form 1040), Itemized Deductions? 

Answer: Jim’s casualty loss deduction is $24,900. 

The casualty loss for personal-use real property is the lesser of the property’s adjusted basis before the casualty or the decrease in FMV caused by the casualty. The decrease in FMV is $50,000 [$240,000 - $190,000], which is less than the $210,000 adjusted basis. 

After subtracting the $18,000 insurance reimbursement, the unreimbursed casualty loss is $32,000 ($50,000 - $18,000).  

Because the loss is a personal casualty loss attributable to a federally declared disaster, Jim will reduce the loss by the statutory reductions: first, by $100 and then by 10% of AGI, or $7,000.  

The allowable Schedule A (Form 1040) deduction is $24,900 [$32,000 - $100 - $7,000].