Tax Planning
Maximizing Savings: How the Expanded Casualty Loss Deduction Under OBBB Helps More Taxpayers
Recent changes under the One Big Beautiful Bill mean that many more people qualify for deductions on casualty losses—here’s how to make the most of them.
By NomadicTax Research Team • 5-8 min read • March 14, 2026
## What Changed with Casualty Loss Deductions
Under the One Big Beautiful Bill (P.L. 119-21), personal casualty loss deductions have been **made permanent**, and their scope has expanded starting in **tax year 2026**. Previously, you could only take such deductions for losses tied to **federally declared disasters**; now, **state-declared disasters** may qualify too, as long as **Internal Revenue Code §165** requirements are met. ([irs.gov](https://www.irs.gov/forms-pubs/casualty-loss-deduction-expanded-and-made-permanent?utm_source=openai))
## Key Implications for Tax Planners and Affected Taxpayers
- Casualty losses resulting from state-declared disasters may now be deductible—if you meet all relevant conditions under §165. ([irs.gov](https://www.irs.gov/forms-pubs/casualty-loss-deduction-expanded-and-made-permanent?utm_source=openai))
- The changes eliminated limitations that used to restrict disaster loss deductions to federally declared events only. ([irs.gov](https://www.irs.gov/instructions/i4684?utm_source=openai))
- For affected disasters (incident dates between **Dec 28, 2019 and July 4, 2025**), special rules apply: no need to itemize deductions, higher thresholds like raising from \$100 loss per event to \$500 for qualified disaster losses, etc. ([irs.gov](https://www.irs.gov/instructions/i4684?utm_source=openai))
## Examples: Applying the Changes
| Scenario | Under Prior Law | Under OBBB & 2026 Changes |
|---|---|---|
| State-declared wildfire destroys home (but no federal disaster declared) | Loss not deductible | Loss may be deductible if the state declaration and other IRC §165 criteria are met |
| Small business owner in a state-declared flood zone files loss | No deduction unless federal declaration | Eligible under expanded rules if meets IRC §165 requirements |
| Standard deduction filer vs itemizer | Must itemize to deduct casualty loss | With qualified disaster loss, you may use standard deduction + get loss benefit |
## Actionable Tips
1. **Track all disaster declarations**, whether federal *or* state—especially those that occurred between Dec 28, 2019 and July 4, 2025. Gather FEMA data and state executive orders.
2. **Document everything**: insurance claims, property appraisals, photos of damage. IRC §165 requires evidence of the loss and either state/federal declarations.
3. **Use correct forms and instructions**: Form 4684 (Casualties and Thefts) and Pub. 547 are key. Form 4684 instructions have already been updated to reflect the new eligibility for state-declared disasters. ([irs.gov](https://www.irs.gov/instructions/i4684?utm_source=openai))
4. **Consider timing**: For disasters whose incident date falls within eligible periods, be alert to the option to deduct losses even if you don’t itemize. This could yield greater tax savings than in the past.
5. **Work with tax professionals**, especially for more complex recovery or business-use property impacts. Reporting thresholds, AGI reductions, and documentation can be tricky.
## Bottom Line
With expanded eligibility under OBBB, many more taxpayers can now deduct personal casualty losses—especially from state-declared disasters—and reap benefits even if they use the standard deduction. Plan well, document carefully, and update your tax-year strategy today.