Deducting Personal Theft Losses Will Soon Get a Little Easier
If you're unlucky enough to suffer a personal theft loss, you may be entitled to a federal income tax deduction. Or you may not. The rules are complex, but there's some good news: Last year's One Big Beautiful Bill Act (OBBBA) makes claiming these write-offs a little easier in the near future.
Ground Rules
Theoretically, you're allowed to claim an itemized federal tax deduction for personal theft losses that aren't covered by insurance. However, you must clear some relatively high hurdles, which isn't always possible.
For the 2025 tax year, personal theft loss deductions are allowed only when the loss is attributable to a federally declared disaster. This is any catastrophic event determined by the president to warrant federal government assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. But even then, you must take into account two subtractions when calculating your allowable deduction, which may negate the write-off entirely. (We'll explain further below.)
The federally declared disaster requirement was added under the Tax Cuts and Jobs Act of 2017. The OBBBA made it permanent and added a new state-declared disaster deduction allowance for theft losses occurring in 2026 and beyond. That's good news for affected taxpayers because it will allow more theft loss write-offs.
Generally, a state-declared disaster is a natural catastrophe that a governor determines has caused damage severe enough to warrant an official disaster declaration. Examples typically include hurricanes, tornadoes, severe storms, unusually high or wind-driven water, tidal waves, tsunamis, floods, and fires. The specific event must meet the tax-law definition of a state-declared disaster, which can require more than just local disruption.
Calculations in Play
So, how might this deduction work in practice? Say a burglar stole your valuable but uninsured coin collection while you were sleeping sometime in 2025. Because you can't attribute the theft to a federally declared disaster, you're not entitled to a personal theft loss deduction.
The good news, so to speak, is if a qualifying theft loss does occur because of a federally declared disaster — or an eligible state-declared disaster in 2026 or beyond — you can potentially claim it as a personal theft loss deduction as long as you itemize and clear the remaining hurdles.
To calculate the amount of a theft loss, you must determine both your tax basis in the property before the theft and the fair market value of the stolen property. Then you need to take the smaller of these two amounts and subtract any insurance or other reimbursement you received or expect to receive.
Assuming your loss is attributable to a federally declared disaster, or a state-declared disaster in 2026 and beyond, the next thing you must do is reduce the uninsured loss amount by $100 for each theft event. Finally, you need to reduce the remaining loss amount by 10% of your adjusted gross income (AGI), which includes all your taxable income items and any so-called above-the-line deductions, such as:
- Write-offs for self-employed retirement plan contributions,
- Health Savings Account contributions, and
- Student loan interest expense.
For instance, let's say your 2025 AGI was $300,000, and you incurred an $80,000 uninsured theft loss when your vacation home was looted while the area was evacuated during a federally declared disaster. Under this scenario, your itemized theft loss deduction is limited to $49,900 ($80,000 – $100 – $30,000). If your loss was $30,100 or less before the two subtractions, you'd get no write-off.
Important: The IRS generally expects the theft to be directly connected to the disaster, not merely to have occurred around the same time.
Insurance-Related Exception
There's an insurance-related exception to the federal theft loss deduction rules well worth noting. That is, you can always deduct a personal theft loss up to the amount of your personal casualty gains, regardless of whether the loss is attributable to a federally declared disaster or a state-declared one in 2026 and beyond. Such gains arise when insurance proceeds exceed the tax basis of damaged, destroyed or stolen property.
To apply this exception, compare your total personal casualty and theft gains to your total personal casualty and theft losses. If your total gains exceed your total losses, subtract your losses — before applying the two subtractions explained above — from your gains. Any remaining gain is treated as a capital gain, which you must report on Schedule D of your federal income tax return.
For example, say you had two personal casualty events in 2025. First, your uninsured painting was stolen, resulting in a $15,000 theft loss not attributable to a federally declared disaster. Then your vacation home was destroyed by a wildfire. You had replacement-value insurance on the vacation home, resulting in a $50,000 personal casualty gain from that event. So, you can offset $15,000 of that gain with the $15,000 theft loss from the painting. The remaining $35,000 vacation home gain ($50,000 – $15,000) is treated as a taxable capital gain.
On the other hand, if your total losses exceed your total gains, you must first reduce each loss by $100 (generally per event) if the loss is attributable to a federally declared disaster. (If it's not, forget the subtraction.) Then you need to subtract your gains and, if the remaining loss is from one or more federally declared disasters, reduce the remaining loss by 10% of your AGI. You can deduct what's left, if anything, as long as you itemize. In the event the remaining loss isn't attributable to a federally declared disaster or a state-declared disaster in 2026 and beyond, the remaining loss isn't deductible.
Let's go back to our previous example involving the stolen painting and destroyed vacation home, but now assume that the theft loss from the uninsured painting is $60,000. Under this scenario, the $50,000 vacation home gain is reduced to zero by the first $50,000 of the theft loss, and the remaining $10,000 of theft loss ($60,000 – $50,000) isn't deductible because it's not attributable to a federally declared disaster.
What if the $60,000 theft loss from the uninsured painting was attributable to a federally declared disaster? In that case, you'd subtract $100 from the theft loss before offsetting $50,000 of the remaining theft loss of $59,900 with the $50,000 vacation home gain. Finally, you'd reduce the remaining theft loss of $9,900 ($59,900 – $50,000) by 10% of your AGI. You could then claim whatever is left, if anything, as a personal theft loss deduction if you itemize.
Note: These "casualty gain" netting rules can be complex — especially when multiple events occur in the same year. Your tax advisor can help ensure everything is handled correctly.
Special Deduction Timing Rule
If you have a potentially deductible personal theft loss that's attributable to a federally declared disaster, you can elect to deduct it in the year before the year in which the loss occurred. This special rule allows you to claim the deduction in the more beneficial year from a tax perspective.
Suppose you suffered a substantial uninsured personal theft loss in 2025 attributable to a federally declared disaster. And your 2024 AGI was much lower than your 2025 AGI because you had significant capital gains last year. Under this scenario, claiming the 2025 loss on an amended 2024 return will give you a bigger itemized theft loss deduction because the "10% of AGI" subtraction will be a lower amount. Plus, if you claim the deduction in 2024, you don't have to wait to collect the tax savings until after you've filed your 2025 return.
Important: Under current tax law, this special deduction timing rule applies only to personal theft losses attributable to federally declared disasters — not to state-declared ones. For theft losses in 2026 or later, the availability of the special deduction timing rule for losses attributable to state-declared disasters will depend on how the IRS implements the OBBBA's changes through future guidance. As of this writing, such losses would generally be deductible only on your current year return, but that could change.
Optimizing Your Tax Outcome
To sum up, itemized deductions for personal theft losses are generally limited to federally declared disasters in 2025. However, if you suffer such a loss in 2026 or beyond, your odds of being able to claim a deduction will improve because eligible state-declared disasters will qualify. As you can see, these provisions involve nuanced calculations and evolving IRS guidance. Consult your tax advisor to avoid missteps and achieve the optimal tax outcome.