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Other Disaster Issues: Disaster and Theft Tax Relief (2025 IRS Guide)

This guide covers “Other Disaster Issues” 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

This section discusses the special rules that apply to federally declared disaster area losses. It contains information on when you can deduct your loss, how to claim your loss, how to treat your home in a disaster area, and what tax deadlines may be postponed. It also lists Federal Emergency Management Agency (FEMA) phone numbers. (See Contacting the Federal Emergency Management Agency (FEMA), later.)

A disaster loss is a loss that occurred in an area determined by the President of the United States to warrant assistance by the federal government under the Stafford Act and that is attributable to a federally declared disaster. Disaster areas include areas warranting public or individual assistance (or both). A federally declared disaster includes a major disaster or emergency declaration.

Other Disaster Issues

Disaster loss to inventory.

If your inventory loss qualifies as a casualty loss and is attributable to a federally declared disaster in an area designated by FEMA for public or individual assistance (or both), you may elect to deduct the loss on your return or amended return for the immediately preceding year. However, decrease your opening inventory for the year of the loss so that the loss won’t be reported again in inventories.

Federal loan canceled.

If part of your federal disaster loan was canceled under the Stafford Act, it is considered to be reimbursement for the loss. The cancellation reduces your casualty loss deduction.

Federal disaster relief grants.

Don’t include post-disaster relief grants received under the Stafford Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Don’t deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement Received After Deducting Loss, earlier. Unemployment assistance payments under the Stafford Act are taxable unemployment compensation.

State disaster relief grants for businesses.

A grant that a business receives under a state program to reimburse businesses for losses incurred for damage or destruction of property because of a disaster isn’t excludable from income under the general welfare exclusion, as a gift, as a qualified disaster relief payment (explained next), or as a contribution to capital. However, the business can choose to postpone reporting gain realized from the grant if it buys qualifying replacement property within a certain period of time. See Postponement of Gain, earlier, for the rules that apply.

Qualified disaster relief payments.

Qualified disaster relief payments aren’t included in the income of individuals to the extent any expenses compensated by these payments aren’t otherwise compensated for by insurance or other reimbursement. These payments aren’t subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). No withholding applies to these payments.

Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses.

  • Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster.

  • Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. (A personal residence can be a rented residence or one you own.)

  • Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster.

Qualified disaster relief payments also include amounts paid to individuals affected by the disaster by a federal, state, or local government in connection with a federally declared disaster. These payments must be made from a governmental fund, be based on individual or family needs, and not be compensation for services. Payments to businesses generally don’t qualify.

East Palestine disaster relief payments.

Certain relief payments related to the train derailment in East Palestine, Ohio, on February 3, 2023, are not taxable. The payment can be excluded from income if it was provided by a government agency or Norfolk Southern Railway (including any subsidiary, insurer, agent, or related person) and received on or after February 3, 2023. Further, the amount must have been paid to you to compensate for the following.

  • Loss, damages, or expenses.

  • Loss in real property value.

  • Closing costs with respect to real property (including realtor commissions).

  • Inconvenience (including access to real property).

Note:

For more information about East Palestine disaster relief payments, including frequently asked questions, go to East Palestine train derailment frequently asked questions.

Caution:

Qualified disaster relief payments don’t include:

  • Payments for expenses otherwise paid for by insurance or other reimbursements; or

  • Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.

Qualified wildfire relief payments.

Certain qualified wildfire relief payments are not taxable to the extent your losses, expenses, or damages compensated by these payments were not otherwise compensated for by insurance or other reimbursement. You can exclude qualified wildfire relief payments you received between January 1, 2020, and December 31, 2025, for any forest or range fire declared a federal disaster in 2015 or a later year.

Qualified wildfire relief payments include any amount you receive for losses, expenses, or damages, including compensation for:

  • Additional living expenses,

  • Lost wages (other than compensation paid by an employer who would have otherwise paid your wages),

  • Personal injury or death, or

  • Emotional distress.

You cannot take a credit or deduction, or increase the basis in your property, related to any expense for which you were compensated by a qualified wildfire relief payment.

Note:

For more information about qualified wildfire relief payments, including frequently asked questions, go to Wildfire relief payments frequently asked questions.

Tip:

If you did not exclude from your income certain qualified wildfire relief payments or East Palestine disaster relief payments you received, you may need to file an amended return on Form 1040-X to claim these benefits. Form 1040-X is available at IRS.gov/Form1040X. Prior revisions for Form 4684 are available at IRS.gov/Form4684.

Qualified disaster mitigation payments.

Qualified disaster mitigation payments made under the Stafford Act or the National Flood Insurance Act (as in effect on April 15, 2005) aren’t included in income. These are payments you, as a property owner, receive to reduce the risk of future damage to your property. You can’t increase your basis in the property, or take a deduction or credit, for expenditures made with respect to those payments.

Sale of property under hazard mitigation program.

Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. You report the gain or deduct the loss on your tax return for the year you realize it. (You can’t deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier.) However, if you sell or otherwise transfer property to the federal government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. See Postponement of Gain , earlier, for the rules that apply.

Gains.

Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. For these special rules, see the following discussions.

Table 3. When To Deduct a Casualty or Theft Loss

IF you have a loss...* THEN deduct it in the...
from a casualty* year the loss occurred.
in a federally declared disaster area disaster year or the year immediately before the disaster year.
from a theft* year the theft was discovered.
on a deposit treated as a casualty year a reasonable estimate can be made.
* If you are an individual, casualty and theft losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster or a transaction entered into for profit. An exception applies where you have personal casualty gains.

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

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.

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