Insurance Reimbursement After a Deducted Casualty Loss: Disaster and Theft Tax Relief (2025 IRS Guide)
This guide covers “Insurance Reimbursement After a Deducted Casualty Loss” within disaster and theft tax relief. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.
Adapted from Publication 547 (2025), Casualties, Disasters, and Thefts, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.
Context for these rules
If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. You don’t have a casualty or theft loss to the extent you are reimbursed.
If in the year of the casualty there is a claim for reimbursement with a reasonable prospect of recovery, the loss isn’t sustained until you know with reasonable certainty whether such reimbursement will be received. If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. You must reduce your loss even if you don’t receive payment until a later tax year. See Reimbursement Received After Deducting Loss, later.
Insurance Reimbursement After a Deducted Casualty Loss
If you figured your casualty or theft loss using the amount of your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. This section explains the adjustment you may have to make.
Caution:
If you paid amounts to repair damage to a personal residence with a deteriorating concrete foundation and claimed a deduction on an original or amended federal income tax return and payments were made to you (or on your behalf to contractors) by the Connecticut Foundation Solutions Indemnity Company (CFSIC), you must include some or part of the payments in your gross income. See Announcement 2020-5, 2020-19 I.R.B. 796 (available at IRS.gov/irb/2020-19_IRB#ANN-2020-5).
Actual reimbursement less than expected.
If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement.
Example.
Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2024. The accident was due to the negligence of the other driver. At the end of 2024, there was a reasonable prospect that the owner of the other car would reimburse you in full. You didn’t have a deductible loss in 2024.
In January 2025, the court awards you a judgment of $2,000. However, in July it becomes apparent that you will be unable to collect any amount from the other driver. You can deduct the loss in 2025 (to the extent it doesn’t exceed your 2025 personal casualty gains) that is figured by applying the deduction limits (discussed later).
Actual reimbursement more than expected.
If you later receive a larger reimbursement amount than you expected, after you have claimed a deduction for the loss, you may have to include the extra reimbursement amount in your income for the year you receive it. However, if any part of the original deduction didn’t reduce your tax for the earlier year, don’t include that part of the reimbursement amount in your income. You don’t refigure your tax for the year you claimed the deduction. See Recoveries in Pub. 525 to find out how much extra reimbursement to include in income.
Example.
In 2024, a hurricane that was a federally declared disaster destroyed your motorboat. Your loss was $3,000, and you estimated that your insurance would cover $2,500 of it. You didn't itemize deductions on your 2024 return nor did you increase your standard deduction by the amount of your loss. When the insurance company reimburses you for the loss, you don’t report any of the reimbursement as income. This is true even if it is for the full $3,000 because you didn’t deduct the loss on your 2024 return. The loss didn’t reduce your tax.
Note:
If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. You may be able to postpone reporting any remaining gain as explained under Postponement of Gain, later.
Actual reimbursement same as expected.
If you later receive exactly the reimbursement you expected to receive, you don’t have to include any of the reimbursement in your income and you can’t deduct any additional loss.
Example.
In December 2025, your personal car was damaged in a flood that was a federally declared disaster. Repairs to the car cost $950. You had $100 deductible comprehensive insurance. Your insurance company agreed to reimburse you for the rest of the damage. Because you expected a reimbursement from the insurance company, you didn’t have a casualty loss deduction in 2025.
Due to the $100 rule, you can’t deduct the $100 you paid as the deductible. When you receive the $850 from the insurance company in 2026, don’t report it as income.
Using the guidance
Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.
Sources and further reading
- Publication 547 (2025), Casualties, Disasters, and Thefts: Figuring a Loss — Insurance and Other Reimbursements — Reimbursement Received After Deducting Loss — Internal Revenue Service; 2025 edition.
The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.