IRS Casualty Loss Deduction for Wildfire-Destroyed Personal Property: How the Item-by-Item Calculation Works

If a wildfire destroyed your household contents, the IRS casualty loss deduction for wildfire personal property may reduce your tax bill, but only if you measure the loss the way the IRS requires. The method is item by item: for each piece of property, the loss is the lesser of its adjusted basis or its decline in fair market value (FMV), reduced by insurance, then trimmed by statutory thresholds. This guide covers who qualifies, how each step works, a worked example, and where a retrospective valuation from our wildfire contents appraisal team strengthens the numbers.

Key takeaway: For personal-use property, the deductible loss is generally the smaller of adjusted basis or FMV decrease, minus insurance and other reimbursements, minus the per-casualty reduction and (for most federal disaster losses) 10% of adjusted gross income.

Who Qualifies for the Wildfire Casualty Loss Deduction?

For tax years 2018 through 2025, a personal casualty loss was deductible only if it was attributable to a federally declared disaster. IRS Topic No. 515 and IRS Publication 547 both describe that limit. A wildfire that received only a state or local emergency declaration generally did not qualify during those years.

Beginning in 2026, the IRS says the One Big Beautiful Bill Act (P.L. 119-21) made the deduction permanent and expanded it to cover state-declared disasters, provided the other Section 165 requirements are met. The IRS explains the change on its "casualty loss deduction expanded and made permanent" page. Check the declaration covering your county and incident date before you rely on it.

The rules in this guide apply to personal-use property such as furniture, clothing, electronics, art, and jewelry. Business and investment property follow different rules under Section 165. You can read the statute itself in 26 U.S.C. §165.

How Is the Loss Measured for Each Item?

The IRS measures personal property loss separately for each item, and each item's loss is the lesser of 2 amounts:

• Adjusted basis: Usually what you paid, plus improvements, minus depreciation or other basis reductions (see IRS Publication 551).
• Decrease in FMV: FMV immediately before the fire minus FMV immediately after.

For an item the fire completely destroyed, the after-fire value is generally zero, so the decrease equals the full pre-fire FMV. That means basis often caps the loss. A painting bought for $12,000 that was worth $30,000 on the day before the fire produces a $12,000 loss, not $30,000.

Example: A sofa bought for $2,500 had a pre-fire FMV of $800 (used furniture sells for far less than new). Its FMV after the fire was $0. The decrease in FMV is $800, which is less than the $2,500 basis, so the loss is $800.

Watch out: The IRS does not treat replacement cost or sentimental value as the measure of FMV decrease. Publication 547 lists these among the items not to consider. The cost of photographs taken to show the damage, and the cost of an appraisal, are also not part of the loss.

How Do Insurance and Other Reimbursements Affect the Deduction?

You must subtract insurance payments and other reimbursements from each loss, including reimbursement you reasonably expect to receive. You cannot deduct the part of a loss that insurance covers or would have covered.

Two related rules matter for survivors:

• File a timely claim: If your property is insured, you must file a timely insurance claim. If you skip it, you lose the deduction for the portion the policy would have paid.
• Reasonable prospect of recovery: While a claim is pending and there is a reasonable prospect of reimbursement, the IRS treats the loss as not yet sustained. The portion you expect to recover is deducted only once you know with reasonable certainty whether you will be reimbursed.

The IRS addresses these points in its wildfire relief payments and casualty losses FAQs. Deductibles and uninsured amounts are not subject to the recovery rule, so they can generally be claimed.

What Limits Apply: The $100 Reduction and the 10% AGI Floor?

After you total the net losses for all items from the same casualty, 2 reductions apply in order. For an ordinary federally declared disaster loss, subtract $100 per casualty event (not per item), then subtract 10% of your adjusted gross income (AGI). Only the excess is deductible, and you generally must itemize to claim it.

Qualified disaster losses work differently. Publication 547 describes qualified disasters as certain federally declared disasters declared between January 1, 2020 and September 2, 2025, with qualifying incident periods listed in the publication. For these losses:

• The reduction is $500 per casualty instead of $100.
• The 10% AGI floor does not apply.
• You can claim the deduction without itemizing, as an increase to the standard deduction.

Whether your wildfire is a qualified disaster depends on its declaration date and incident period, so confirm it in Publication 547 rather than assuming.

A Worked Example: Three Items, Two Scenarios

The table below is an illustration only, using made-up numbers. It shows how 3 destroyed household items flow through the item-by-item method. All 3 items were completely destroyed, so FMV after the fire is $0.

Item	Adjusted basis	FMV before	FMV after	Loss (lesser of basis or FMV drop)	Insurance paid	Net loss
Sofa	$2,500	$800	$0	$800	$500	$300
Original artwork	$12,000	$30,000	$0	$12,000	$8,000	$4,000
Jewelry	$18,000	$15,000	$0	$15,000	$10,000	$5,000
Total				$27,800	$18,500	$9,300

Now apply the thresholds, assuming an AGI of $60,000 and no casualty gains:

• Ordinary federally declared disaster: $9,300 minus $100 equals $9,200. Subtract the 10% AGI floor of $6,000, and the deduction is $3,200 (itemized).
• Qualified disaster: $9,300 minus $500 equals $8,800. There is no AGI floor, so the deduction is $8,800, and itemizing is not required.

Notice what drove the result. The artwork's $30,000 market value did not matter because its $12,000 basis was lower. The jewelry went the other way: its FMV drop of $15,000 was lower than its $18,000 basis, so FMV controlled.

Can You Deduct the Loss in the Prior Year?

Yes, in many cases. Under Section 165(i), if your loss is in a federally declared disaster area, you may elect to deduct it on your return for the tax year immediately before the disaster year. This can produce a refund sooner, which matters when the fire happened late in the year or you need cash for rebuilding.

The election is made on an original or amended return for the preceding year. The IRS explains the procedure in Rev. Proc. 2016-53, and Publication 547 gives the deadline, which is generally 6 months after the due date (without extensions) of the return for the disaster year. Confirm the exact date for your disaster, because the IRS often postpones deadlines for disaster areas. The IRS disaster victim FAQs are a good place to check for relief.

How Do You Report the Loss and Keep Records?

Personal casualty losses are figured on Form 4684, Section A, and then carried to Schedule A when you itemize. Qualified disaster losses are reported on Form 4684 and flow through differently, so follow the form instructions for your situation. IRS Publication 584, the Casualty, Disaster, and Theft Loss Workbook, includes schedules for listing household contents room by room. Preparers often use it as the working paper behind Form 4684.

Keep these records for each item:

• Purchase date, cost, and any improvements
• Photos, videos, receipts, or credit card statements that prove ownership
• The insurance claim file, payment letters, and any itemized inventory you submitted
• Valuation support for the pre-fire FMV

If you are still rebuilding your list, our guide to how to rebuild a household contents inventory after a total-loss wildfire covers practical sources for rebuilding it.

When Do You Need an Appraisal for Wildfire-Lost Property?

The IRS does not require a formal appraisal for every item. Publication 547 says the decrease in FMV may be determined by a competent appraisal, and for ordinary household goods, reasonable estimates backed by records are often enough.

An appraisal is worth considering for items where the pre-fire FMV is hard to defend:

• Fine art and original works
• Jewelry, watches, and gemstones
• Collectibles, antiques, and silver
• Any item where basis is much lower than market value, or where records are thin

For property that no longer exists, we prepare retrospective valuations. Our appraisers work from photos, receipts, insurance schedules, auction results, and comparable sales to establish what each item was worth immediately before the fire. Reports are prepared in accordance with USPAP, and our appraisers hold credentials with leading organizations such as the ASA, ISA, and AAA. Personal property appraisals like these are done online and remotely, so you do not need to hold a site visit in a burned-out home.

Publication 547 also describes safe harbor methods for personal belongings lost in a federally declared disaster, including a de minimis method and a replacement cost method. Ask your CPA whether either method fits your facts, since their use affects whether an appraisal is needed at all.

Step-by-Step: Calculating Your Wildfire Casualty Loss

Here is the sequence a preparer will follow for household contents:

1. Confirm the Disaster Qualifies

• Check that the wildfire has a federal declaration (or, starting in 2026, a state declaration that meets the Section 165 requirements) covering your location and date.
• Determine whether it is a qualified disaster, which changes the $100 and 10% rules.

2. List Every Item and Its Adjusted Basis

• Record cost, date, and improvements for each item, or group substantially similar items reasonably.

3. Establish Pre-Fire and Post-Fire FMV

• Use records, comparable sales, and, for valuable items, a retrospective appraisal. For destroyed items, post-fire FMV is generally zero.

4. Take the Lesser of Basis or FMV Decrease

• Calculate this per item, not on the whole inventory.

5. Subtract Insurance and Expected Reimbursements

• Confirm a timely claim was filed and track pending payments.

6. Total the Net Losses and Apply the Reductions

• Subtract $100 per casualty, then 10% of AGI, or $500 per casualty with no AGI floor for a qualified disaster.

7. Choose the Tax Year

• Decide whether to claim in the disaster year or elect the preceding year under Section 165(i).

8. Report on Form 4684 and Keep Your Workpapers

• Carry the result to Schedule A if required, and retain the Pub 584 workbook, photos, and appraisal reports.

Get the Valuation Support Before Filing

The strongest casualty loss claims rest on item-level records and defensible pre-fire values, especially for art, jewelry, and collectibles. If you or your CPA need retrospective valuations for those items, you can request an appraisal and we will scope it as a fixed-fee engagement quoted before work begins.

This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. Readers should consult a qualified attorney or CPA regarding their specific circumstances.