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Tax Relief Available – How to Deduct Losses from the July Texas Floods

Our hearts go out to all who have been impacted by the recent floods in South and Central Texas. In times like these, we know that dealing with the emotional and financial aftermath of a disaster can be overwhelming. As your trusted advisors, we want to ensure you’re aware of important tax relief options that may help ease some of the burden and support your recovery.

If you or someone you know was affected by the flooding in South and Central Texas in July 2025, you may be entitled to special tax relief under IRS rules for qualified disaster losses. Here’s what you need to know:

Federally Declared Disaster – Special Rules Apply

Because the floods occurred in a federally declared disaster area, affected individuals may claim a qualified disaster loss, which allows for significantly more favorable tax treatment.

Key Tax Benefits for Qualified Disaster Losses:

  • No need to itemize deductions: You can deduct the loss even if you take the standard deduction.
  • No 10% of AGI threshold: Normally, personal casualty losses are only deductible to the extent they exceed 10% of your adjusted gross income (AGI). With a qualified disaster loss, this rule does not apply.
  • Only a $500 per-event reduction: Instead of the usual $100-per-event reduction, the IRS applies a $500 reduction after subtracting any insurance reimbursements or salvage value.
  • Applies to losses of personal-use property

Losses must relate to personal-use real estate, vehicles, furnishings, etc., not covered or reimbursed by insurance. (Does not apply to rental or business property, which can be claimed under separate rules.)

How to Calculate a Casualty Loss:

  1. Identify the property’s fair market value (FMV) immediately before and after the disaster.
  2. Calculate the decrease in FMV.
  3. Compare that to your property’s adjusted basis (usually what you paid, plus improvements).
  4. Use the lesser of the two amounts.
  5. Subtract any insurance or other reimbursements.
  6. Subtract the $500 per-event reduction.

Example:

  • Home’s pre-flood value: $250,000
  • Post-flood value: $200,000
  • Decline in FMV: $50,000
  • Adjusted basis in home: $240,000
  • Use $50,000 (the lesser of basis and FMV decline)
  • Insurance proceeds: $10,000
  • $50,000 – $10,000 = $40,000
  • Subtract $500 from Deductible loss = $39,500

Note: This applies per casualty event, not per item.

How to Claim the Loss:

  1. Complete Form 4684, Section A, identifying the loss as related to a federally declared disaster.
  2. Report the amount on Schedule A, even if you’re not itemizing other deductions.
  3. Submit with your 2025 tax return, or elect to amend your 2024 return to receive a faster refund.

Deadline to amend 2024 return: October 15, 2026

Documentation Needed:

  • Photos or videos of the damage
  • Repair estimates or receipts
  • Insurance claim records
  • FEMA disaster number (required on Form 4684)

Important Reminders:

  • Losses must be directly attributable to the disaster
  • No deduction is allowed for sentimental value
  • Keep all supporting documents in case of IRS inquiry

We’re Here to Help

Please know that you’re not alone. If you need help navigating your options or have questions about your specific situation, theKFORDgroup is here to support you every step of the way. We’re committed to making this process as clear and stress-free as possible during what we know is a very difficult time.