A casualty loss deduction may offset some unreimbursed costs if a disaster damages your home or personal property. Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) expanded the deduction to certain state-declared disasters.

Now, the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (LaMalfa Act), signed September 11, 2026, has codified and extended relief for personal casualty losses from certain federally declared disasters. That relief temporarily removes two major barriers to claiming the deduction and allows eligible recipients to exclude qualified wildfire relief payments from taxable income.

Which Losses Qualify for the Deduction?

For losses incurred from 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) generally restricted deductions for personal casualty losses to those attributable to federally declared disasters. (Before the TCJA, losses from incidents such as theft, vandalism, accidents, fires and floods could also be deductible even if they were unrelated to a federally declared disaster.)

The OBBBA generally made the disaster requirement permanent. But, effective January 1, 2026, it expanded eligible disasters to include certain state-declared disasters.

There’s an exception to the general rule, however: If you have personal casualty gains because your insurance proceeds exceed the tax basis of the damaged or destroyed property, you can deduct personal casualty losses that aren’t associated with a declared disaster up to the amount of your personal casualty gains.

What Relief Does the LaMalfa Act Provide?

Many rules and limits apply to the personal casualty loss deduction beyond just whether a loss qualifies. The deductible loss is generally the smaller of the property’s adjusted tax basis or decline in value, reduced by any insurance or other reimbursement. If reimbursement covers the entire loss, you can’t claim a casualty loss deduction.

If insurance doesn’t cover your entire loss, then without the tax relief extended by the LaMalfa Act, you generally must subtract $100 per casualty event from the uncovered amount. However, under the extended relief, you must subtract $500 per qualifying casualty event. This may sound like a negative, but the relief makes two other changes that, for many taxpayers, will provide tax benefits that far outweigh any downside of the $500 reduction:

1. Elimination of the income-based floor. Normally, a floor equal to 10% of adjusted gross income (AGI) applies. So you can deduct only the uncovered loss (reduced by $100 per casualty event) that exceeds 10% of your AGI for the year you claim the loss deduction. If, say, you had one casualty loss event, your AGI is $100,000 and your casualty loss (after subtracting insurance proceeds and $100) is $11,000, you can deduct only $1,000 on your federal income tax return.

For a qualified disaster-related personal casualty loss under the relief extended by the LaMalfa Act, the 10% floor doesn’t apply. So, using the same example, your casualty loss deduction would be $10,600 ($11,000 – the additional $400 per casualty loss you must subtract).

2. Suspension of the itemizing requirement. Normally, you must itemize deductions to claim the casualty loss deduction. Since 2018, fewer people have itemized because the TCJA significantly increased the standard deduction amounts — and the OBBBA has increased them further. For 2026, they’re $16,100 for single filers and married taxpayers filing separately, $24,150 for head of household filers, and $32,200 for married couples filing jointly.

Itemizing is beneficial only if your total itemized deductions exceed the standard deduction for your filing status. So, without the relief extended by the LaMalfa Act, if your total itemized deductions don’t exceed your standard deduction, a casualty loss won’t provide any tax benefit. Under the relief, however, you don’t have to itemize to claim a qualified disaster-related personal casualty loss.

When Does the Relief Apply?

The LaMalfa Act generally extends relief originally provided by the Federal Disaster Tax Relief Act of 2023, signed into law in December 2024. It temporarily provided the casualty loss deduction relief for certain federally declared disasters, and the OBBBA extended the covered period.

The LaMalfa Act now codifies the rules and extends the relief to qualifying disasters whose incident periods begin before January 1, 2027. These rules don’t, however, extend to disasters declared only at the state level — even if they now qualify as eligible disasters under the OBBBA for purposes of the personal casualty loss deduction in general.

The LaMalfa Act generally applies to tax years beginning after December 31, 2024, superseding the earlier temporary provisions for those years. It covers qualifying federally declared disasters whose incident periods begin on or after December 28, 2019, and before January 1, 2027.

Determine Whether You Qualify

The temporary elimination of the 10% of AGI floor and the itemizing requirement means many more taxpayers who’ve been victims of natural disasters can claim personal casualty loss deductions. If you’ve suffered an unreimbursed loss from a disaster, these changes could affect whether you qualify for a deduction and which return should include it. Contact your tax advisor to determine how the rules apply to your loss.

Questions Email us!