Sweeping changes from the One Big Beautiful Bill Act (OBBBA) are altering how individuals claim personal casualty losses. For tax years beginning after December 31, 2025, more disaster-related losses may qualify, and several rules that were temporary are now permanent. Understanding these updates can make a big difference when disaster strikes.

State Disaster Declarations Now Count

In the past, only losses tied to federal disaster declarations could be deducted by individuals. Starting in 2026, losses from state-declared disasters may also be deductible.

These state-recognized disasters include:

• Severe weather events like hurricanes, tornados and storms
• Earthquakes
• Fires, floods, and explosions declared by state authority

More taxpayers affected by regionally-recognized disasters could now find relief.

Permanent “Declared Disaster Only” Rule

Prior law would have allowed all personal casualty losses to be reinstated starting in 2026, regardless of cause. OBBBA overrides this indefinitely, extending the rule that only losses tied to declared disasters can be deducted.

Personal-use property losses must now stem from a declared disaster — federal or state — to qualify.

$100 Per Event and 10% AGI Limits Locked In

Two long-standing limitations are now permanent features of casualty loss calculations:

• $100 reduction per event: One reduction per disaster occurrence, not per damaged item.
• 10% of Adjusted Gross Income (AGI) floor: Only the amount of total losses that exceeds 10% of AGI is deductible.

Additionally, the deductible amount is limited to the lesser of:

• The property’s loss in value, or
• Its basis

…after insurance reimbursements.

Not Every Disaster Plays by the Same Rules

Congress has enacted special “qualified disaster” rules at times, sometimes, allowing a $500 floor and waiving the 10% AGI test. But labels matter:

Federal disaster does not automatically equal a qualified disaster.

Example: Hurricane Ian (2022) became a “qualified disaster” only when Congress said so in 2024 — two years after landfall.

Always verify the category before calculating the deduction.

Option to Deduct in the Prior Year

A helpful carryover benefit remains in place:

Taxpayers may elect to deduct a disaster loss on the prior year’s tax return, a potentially faster refund opportunity. This election remains exclusive to federal disaster declarations.

Deadline: Within six months after the regular due date (no extensions) for the disaster year return. For example, if the disaster occurred in 2024, the regular due date for the 2024 return is April 15, 2025, so the election must be made by October 15, 2025.

Example: Putting the Numbers to Work

AGI for the year: $120,000
Storm causes damage to home: $18,000
Insurance reimburses: $5,000

Step 1: Actual economic loss
$18,000 – $5,000 = $13,000

Step 2: Reduce by $100 per disaster event
$13,000 – $100 = $12,900

Step 3: Apply 10% AGI floor
10% × $120,000 = $12,000

Final deductible loss:
$12,900 – $12,000 = $900

A big storm… but a small deduction — federal tax relief is more of a safety net than a full recovery plan.

Quick Reference Chart

Disaster Category	Who Must Declare It	$100 Floor	10% AGI Limit	Special Rules May Apply?	Example
State-declared disaster	Governor	Yes	Yes	Usually not	Tornado recognized by Alabama
Federally declared disaster	President	Yes	Yes	Unless later designated as qualified	Major hurricane event
Qualified disaster	President + Federal legislation	Often $500 instead	No 10% AGI limit	Additional relief available	Specific wildfire event with tax law designation

Always check the exact statutory designation before computing a deduction.

Final Word

OBBBA makes disaster tax relief more accessible, especially when emergencies are acknowledged at the state level. But the guardrails aren’t going anywhere: declared-only rules, the $100 reduction, and the 10% AGI requirement are here for the long haul.

Preparing for the rules in advance means being ready when Mother Nature… gets in a mood.