My apartment flooded. Can I deduct my losses?

Updated May 04, 2026 by David E. Du Val, EA

I lived in an apartment for 6 months this year. While out of town, the hose on the hot water heater blew off and flooded my apartment. I lost everything due to mold and water damage. Insurance paid about half of what I lost. Would the other be considered a loss?

Susan
 

Susan,

We are sorry to hear about the damage to your apartment and belongings. Dealing with a flood is overwhelming enough without the added confusion of tax filings. The answer to your question about whether you can deduct this loss on your tax return depends on the type of disaster. 

For federal tax purposes, the rules for personal casualty losses are currently very strict. Under the Tax Cuts and Jobs Act (TCJA), which was largely extended and modified by the One Big Beautiful Bill Act (OBBBA), the following rules apply for the 2026 tax year:
 

• Federally Declared Disasters: Generally, you can only deduct personal casualty losses if they are attributable to a federally declared disaster. If your apartment flooded due to a localized appliance failure (like a water heater) rather than a large-scale disaster declared by the President, the loss is not deductible on your federal return.
   
• State-Declared Disasters (New for 2026): Starting in 2026, the OBBBA has expanded eligible disasters to include certain state-declared disasters. If your specific area was under a state emergency decree at the time of the flood, you might have a path to a deduction.
   
• The "Casualty Gain" Exception: There is one loophole. If you had a "casualty gain" this year (meaning you received an insurance payout for a different event that was higher than your cost basis for that item), you can use your flood loss to offset that gain.

State Tax Variations

While federal law is restrictive, state tax laws vary significantly. Some states do not follow the federal "disaster area" restriction and still allow deductions for "sudden, unexpected, or unusual" events.

• The "Suddenness" Test: To qualify in states that allow it, the event must be sudden. A pipe bursting is typically "sudden." However, if an audit reveals the leak was caused by slow, long-term corrosion (deterioration) that you or the landlord ignored, the state may deny the deduction.
   
• Landlord Liability: If your landlord was negligent in maintaining the unit, the IRS (and state agencies) prefer you seek damages from the landlord or their insurance company rather than claiming a tax break.

Summary of Requirements (If You Qualify)

If you do meet the criteria (e.g., it was a declared disaster or your state allows it), keep these limitations in mind:

• Insurance First: You must reduce your loss by any insurance reimbursement received.
   
• The $100 Rule: You must subtract $100 from the total loss of each event.
   
• The 10% AGI Floor: You can only deduct the portion of the loss that exceeds 10% of your Adjusted Gross Income (AGI).

Helpful Resources & Forms

To calculate or claim a loss, you will need the following updated IRS documents:

• IRS Form 4684 (2025-2026): Used to report casualty and theft losses.
• IRS Publication 547: The comprehensive guide for Casualties, Disasters, and Thefts.
• IRS Publication 584: A workbook to help you list and value your damaged items.

If you don’t want to calculate these items yourself or aren't sure where to start, we always recommend reaching out to a tax professional for assistance.


The Bottom Line: Unless your flood was part of a larger declared disaster, you likely cannot deduct this on your federal return. However, it is worth checking your specific state’s tax code or consulting a tax professional to see if your state offers relief.


Deductibly Yours,
Dave