Each personal casualty or theft loss is limited to the excess of the loss over $100. In addition, the 10%-of-AGI limit continues to apply to the net loss.

Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. For details, see Special Procedure for Damage From Corrosive Drywall later.

The special rules that were in effect in 2008 and 2009 for losses of personal use property attributable to federally declared disasters do not apply to losses occurring in 2010 and later years. Instead, these losses are subject to the 10%-of-AGI limit and are deductible only if you itemize your deductions. These losses are subject to the $100-per-loss limit. The special rules do apply to a loss you are deducting in 2010 from a disaster that was declared a federal disaster in tax years beginning after 2007 and that occurred before 2010. For details, see the Form 4684 instructions.

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication explains the tax treatment of casualties, thefts, and losses on deposits. A casualty occurs when your property is damaged as a result of a disaster such as a storm, fire, car accident, or similar event. A theft occurs when someone steals your property. A loss on deposits occurs when your financial institution becomes insolvent or bankrupt.

This publication discusses the following topics.

• Definitions of a casualty, theft, and loss on deposits.
• How to figure the amount of your gain or loss.
• How to treat insurance and other reimbursements you receive.
• The deduction limits.
• When and how to report a casualty or theft.
• The special rules for disaster area losses.

Generally, when you have a casualty or theft, you have to file Form 4684. You may also have to file one or more of the following forms.

• Schedule A (Form 1040).
• Form 1040NR, Schedule A (for nonresident aliens).
• Schedule D (Form 1040).
• Schedule L (Form 1040A or 1040).
• Form 4797.

For details on which form to use, see How To Report Gains and Losses, later.

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 and its contents, and your motor vehicles.

Publication 584-B is available to help you make a list of your stolen or damaged business or income-producing property and figure your loss.

We welcome your comments about this publication and your suggestions for future editions.

You can write to us at the following address:

Internal Revenue Service 
Individual Forms and Publications Branch 
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Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put "Publications Comment" on the subject line. You can also send us comments from www.irs.gov/formspubs, select "Comment on Tax Forms and Publications" under "Information about."

Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service 
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If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

See How To Get Tax Help near the end of this publication for information about getting publications and forms.

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, later.
• 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 below).

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.

Under a special procedure, you can deduct the amounts you paid to repair damage to your home and household appliances due to corrosive drywall. Under this procedure, you treat the amounts paid for repairs as a casualty loss in the year of payment. For example, amounts you paid for repairs in 2010 are deductible on your 2010 tax return and amounts you paid for repairs in 2009 are deductible on your 2009 tax return.

For purposes of this special procedure, "corrosive drywall" means drywall that is identified as problem drywall under the two-step identification method published by the Consumer Product Safety Commission (CPSC) and the Department of Housing and Urban Development (HUD) in their interim guidance dated January 28, 2010, as revised by the CPSC and HUD. The revised identification guidance and remediation guidelines are available at www.cpsc.gov/info/drywall/index.html.

If you choose to follow this special procedure, complete Form 4684, Section A, according to the instructions below. The IRS will not challenge your treatment of damage resulting from corrosive drywall as a casualty loss if you determine and report the loss as explained below.

Enter "Revenue Procedure 2010-36".

Enter the information required by the line 1 instructions.

Skip this line.

Enter the amount of insurance or other reimbursements you received (including through litigation). If none, enter -0-.

Skip these lines.

Enter the amount you paid to repair the damage to your home and household appliances due to corrosive drywall. Enter only the amounts you paid to restore your home to the condition existing immediately before the damage. Do not enter any amounts you paid for improvements or additions that increased the value of your home above its pre-loss value. If you replaced a household appliance instead of repairing it, enter the lesser of:

• The current cost to replace the original appliance, or
• The basis of the original appliance (generally its cost).

If line 8 is more than line 3, do one of the following.

1. If you have a pending claim for reimbursement (or you intend to pursue reimbursement), enter 75% of the difference between lines 3 and 8.
2. If item (1) does not apply to you, enter the full amount of the difference between lines 3 and 8.

If line 8 is less than or equal to line 3, you cannot claim a casualty loss deduction using this special procedure.

Complete these lines according to the instructions for Form 4684.

If you choose not to follow this special procedure, you are subject to all of the provisions that apply to the deductibility of casualty losses, and you must complete lines 1–9 according to the instructions for Form 4684. This means, for example, that you must establish that the damage, destruction, or loss of property resulted from an identifiable event as defined earlier under Casualty. Furthermore, you must have proof that shows the following.

• The loss is properly deductible in the tax year you claimed it and not in some other year. See When To Report Gains and Losses, later.
• The amount of the claimed loss. See Proof of Loss, later.
• No claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery. See When To Report Gains and Losses, later.