Disasters can destroy more than property. They can also destroy the records needed to support an insurance claim or a tax deduction. A recent Tax Court case is a reminder that even when the damage is undeniable, the amount claimed must be documented.
The number of costly U.S. weather and climate disasters has risen sharply. The National Oceanic and Atmospheric Administration (NOAA) recorded an average of 9 billion-dollar disasters per year from 1980 through 2024, compared with 23 per year during 2020–2024. Those figures measure disasters crossing a dollar threshold—not every storm, flood, or fire—but they show why more households and businesses need a plan for protecting their records. The IRS maintains a disaster tax relief page with announcements identifying affected areas and applicable deadlines.
From my perspective as a tax practitioner, IRS disaster-relief notices seem to arrive more frequently than ever and cover more areas of the United States. These announcements can extend tax deadlines and alert affected taxpayers to potential relief, but they do not, by themselves, establish that a disaster-loss deduction is available.
What the Williams case teaches
In Williams v. Commissioner, T.C. Memo. 2026-91, Hurricane Michael left the taxpayers’ home uninhabitable. They reported $182,037 in personal-property losses on their 2018 return, but the Tax Court disallowed the resulting casualty-loss deduction. The problem was not whether the hurricane occurred; it was whether the taxpayers had proved the value of the property lost.
They had no itemized inventory or adequate valuation evidence. Their insurance claim identified approximately $61,000 in personal-property losses, while their tax return claimed $182,037, without a supported explanation for the difference. Receipts for newly purchased furniture did not establish the value of the furniture destroyed, and some claimed items overlapped with property covered by insurance proceeds. The court also upheld accuracy-related penalties.
The practical lesson is document the old property, not just the new purchases. A new sofa may replace one that was ten years old—or maybe an upgrade. Its price does not, by itself, establish what the original sofa was worth immediately before the disaster.
What to do after a disaster
Once everyone (family, friends and pets) is safe, take these tax-related steps:
- Check the applicable IRS announcement. Confirm that your location and circumstances qualify, which filing or payment deadlines have been postponed, and the new dates. Do not assume that every disaster automatically extends every tax deadline. Start with the IRS’s disaster tax relief announcements.
- Preserve evidence before cleanup, when safe. Photograph or video damaged rooms, equipment, inventory, and individual items. Keep inspection reports, repair estimates, invoices, and communications with insurers or relief agencies (make sure there is consistency on your claims). If records were destroyed, the IRS offers guidance on reconstructing them.
- Track insurance and other reimbursements. Keep the original claim, revised inventories, adjuster reports, settlement letters, and payment records. Reconcile them with the tax calculation and explain any legitimate differences rather than leaving two conflicting totals. A loss compensated by insurance cannot also be deducted as an uncompensated loss.
- Review the deduction before filing. A casualty loss generally depends on the property’s adjusted basis, its decline in fair market value, and applicable reimbursements and tax limitations—not simply the cost of replacing it. For a qualifying federally declared disaster, taxpayers may be able to claim the loss in the disaster year or elect to claim it for the preceding year; the election has its own deadline. Use Form 4684 and its instructions with your tax professional to evaluate the options.
The rules also depend on the year of the loss. For 2018–2025, the personal casualty-loss deduction was generally restricted to federally declared disasters. Beginning in 2026, the law also permits certain state-declared disasters to qualify, but a governor’s declaration alone is not sufficient; the statutory requirements include a determination by the Treasury Secretary. Check the rules for the specific event rather than relying on a general description of “disaster relief.”
Build a loss file that holds up
Create a room-by-room inventory for personal belongings, or an item-by-item inventory for business equipment and merchandise. Record what each item was, its age and condition, what you paid or other evidence of its basis, its estimated value immediately before and after the event, and what insurance covered. Save photographs, old receipts, bank or credit-card statements, purchase histories, and comparable used-item prices where relevant. The IRS provides Publication 584 for personal property and Publication 584-B for business property to help organize this work.
For significant losses, consider a qualified valuation professional. A competent appraisal can establish the change in fair market value; under specific conditions, the cost of repairs that restore damaged property without improving it may serve as evidence of that change. Neither a broad photograph of a damaged room nor a stack of replacement receipts tells the whole story.
A disaster is difficult enough without a preventable tax dispute. Good records—kept before an event where possible and carefully reconstructed afterward—give your tax adviser the foundation to evaluate relief and support a claim.
