Volcanoes, earthquakes, and sonic booms. Fires, floods, and storms. Terrorism, vandalism, and car accidents. All of these fall under the U.S. tax code definition of “Casualty Losses,” and your losses due to these events may be tax-deductible.

Tax Code Definition

According to the IRS, a casualty loss is the “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.”

As you can tell from the lists of events mentioned above, this definition covers a lot. It’s usually easier to describe what casualty losses are not:

• Not sudden: Things that progressively deteriorate over time are not casualty losses. Damage from mold, pests or just the passage of time don’t count under IRS rules. For example, your water heater breaking down after years of use is not a casualty loss, but any sudden water damage to your carpets as a result is.
• Not unexpected: If willful or negligent behavior caused the destruction, that’s not a casualty loss. For example, a fire caused by playing with matches is not unexpected, nor is a car accident caused by drinking and driving.
• Not unusual: The typical breaking of fragile items like china or glass is not a casualty loss; nor is the common destruction of property by a family pet.