The following paragraphs explain the special rules that apply to casualties and thefts of taxpayers in both the Kansas disaster area (defined below) who were affected by storms and tornadoes that began on May 4, 2007, and Midwestern disaster areas (defined below). In addition, you may be entitled to other tax benefits not covered in this publication. For more information, see Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes or Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.

Losses of personal use property that arose in these disaster areas are not subject to the $100 or 10% of adjusted gross income limitation. Qualifying losses include losses from casualties and thefts that arose in the disaster area and that were attributable to the storms and tornadoes. If you live in the Kansas disaster area and deducted your loss in 2007 or elected to deduct the loss in 2006, see Publication 4492-A for special instructions on how to complete your tax forms. If you live in a Midwestern disaster area and you elect to deduct the loss in 2007, see Publication 4492-B for special instructions on how to complete your tax forms.

The replacement period for property in these disaster areas that was damaged, destroyed or stolen has been extended from 2 to 5 years. For more information, see Publication 547, Casualties, Disasters and Thefts.

The Kansas disaster area covers the Kansas counties of Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford.

For purposes of the special rules discussed above, a Midwestern disaster area is an area that has been declared a major disaster by the President, after May 19, 2008, and before August 1, 2008, under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act because of severe storms, tornadoes, or flooding that occurred in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.

For a list of counties in Midwestern disaster areas, see Table 4, in Pub. 547.

New rules apply to losses of personal use property attributable to federally declared disasters declared in tax years beginning after 2007 and that occur before 2010. The new rules discussed below do not apply to losses in Midwestern disaster areas.

1. The net disaster loss (defined in (3) below) is not subject to the 10% of adjusted gross income limit.
2. You can deduct a net disaster loss even if you do not itemize your deductions on Schedule A (Form 1040). You do this by completing Form 4684 and entering your net disaster loss on line 6 of the Standard Deduction Worksheet-Line 40 in the Form 1040 instructions.
3. Your net disaster loss is the excess of—
   1. Your personal casualty losses attributable to a federally declared disaster and occurring in a disaster area, over
   2. Your personal casualty gains.

If you claimed a casualty or theft loss deduction and in a later year you received more reimbursement than you expected, you do not recompute the tax for the year in which you claimed the deduction. Instead, you must include the reimbursement in your income for the year in which it was received, but only to the extent the original deduction reduced your tax for the earlier year. However, an exception applies if you claimed a casualty or theft loss deduction for damage to or destruction of your main home caused by Hurricane Katrina, Rita, or Wilma, and in a later year you received a hurricane relief grant. Under this exception, you can choose to file an amended income tax return (Form 1040X) for the tax year in which you claimed the deduction and reduce (but not below zero) the amount of the deduction by the amount of the grant.

For more information, see Reimbursement Received After Deducting Loss later.

Generally, a personal casualty or theft loss must exceed $500 to be allowed for 2009. This is in addition to the 10% of AGI limit that generally applies to the net loss.

This chapter explains the tax treatment of personal (not business related) casualty losses, theft losses, and losses on deposits.

The chapter also explains the following 
topics.

• How to figure the amount of your loss.
• How to treat insurance and other reimbursements you receive.
• The deduction limits.
• When and how to report a casualty or theft.

When you have a casualty or theft, you have to file Form 4684. You will also have to file one or both of the following forms.

• Schedule A (Form 1040), Itemized Deductions
• Schedule D (Form 1040), Capital Gains and Losses

For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544.

Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles.

For information on a casualty or theft loss of business or income-producing property, see Publication 547.

A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.

• A sudden event is one that is swift, not gradual or progressive.
• An unexpected event is one that is ordinarily unanticipated and unintended.
• An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged.

Deductible casualty losses can result from a number of different causes, including the following.

• Car accidents (but see Nondeductible losses, next, for exceptions).
• Earthquakes.
• Fires (but see Nondeductible losses, next, for exceptions).
• Floods.
• Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547.
• Mine cave-ins.
• Shipwrecks.
• Sonic booms.
• Storms, including hurricanes and tornadoes.
• Terrorist attacks.
• Vandalism.
• Volcanic eruptions.

A casualty loss is not deductible if the damage or destruction is caused by the following.

• Accidentally breaking articles such as glassware or china under normal conditions.
• A family pet (explained below).
• A fire if you willfully set it or pay someone else to set it.
• A car accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
• Progressive deterioration (explained later).

Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met.

Your antique oriental rug was damaged by your new puppy before it was housebroken. Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss.

Loss of property due to progressive deterioration is not deductible as a casualty loss. This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. The following are examples of damage due to progressive deterioration.

• The steady weakening of a building due to normal wind and weather conditions.
• The deterioration and damage to a water heater that bursts. However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty.
• Most losses of property caused by droughts. To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit.
• Termite or moth damage.
• The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss.