🌀 Flood Losses in Texas — Can You Deduct Them on Your 2025 Tax Return?

edward59473
Jul 10
2 min read

If your home or property was damaged or destroyed in the recent Texas floods, you may qualify for a casualty loss deduction — but only if the area is federally declared a disaster zone.

Let’s walk through how casualty and theft loss deductions work in 2025 and how you can take advantage of them.

🏚️ What Counts as a Deductible Loss?

To be deductible, your personal loss must be:

Directly related to a federally-declared disaster
Not fully reimbursed by insurance or other aid
Reported on Schedule A (Itemized Deductions) using Form 4684

You can check FEMA’s website to see if your county is officially listed:

www.fema.gov/disasters

💵 How Is the Loss Calculated?

To calculate your deduction:

Start with your adjusted basis (usually what you paid for the property)
Compare it to the drop in fair market value (FMV) from the disaster
Use the smaller of the two, and subtract any insurance or reimbursement received or expected

Then apply:

A $100 reduction per casualty event
A 10% of AGI floor (you can only deduct the amount over 10% of your adjusted gross income)

📅 Timing Options: You Have a Choice

If your area was federally declared a disaster zone, you can:

Deduct the loss on your 2025 return, OR
Elect to deduct it on your 2024 return to get a faster tax benefit (must amend or file before October 15, 2026)

This flexibility can help you get funds back sooner.

⚠️ What Doesn’t Qualify?

Routine wear and tear
Lost or misplaced items
Damage from pests or slow decay
Declines in stock or investment values

🧾 Insurance & Reimbursement Rules

You must subtract any expected reimbursements from FEMA or insurance — even if you haven’t received them yet.

If you’re later reimbursed less than expected, you can claim the extra loss in that year.

If you’re reimbursed more than expected, part of it may become taxable income.

🧠 Final Notes

If your home was destroyed, special rules apply to reduce or delay gain recognition on insurance proceeds
Disaster relief aid and gifts are not taxable and do not reduce your deduction
Use Form 4684 with Schedule A to claim these losses

Need help deciding which tax year to claim your loss on? Or how to document your damage for the IRS?