What this line means
The total amount of insurance proceeds, FEMA grants, or other reimbursements you received (or expect to receive) for the damaged, destroyed, or stolen property. This includes homeowner’s insurance payouts, auto insurance settlements, and federal disaster assistance. If the reimbursement exceeds your basis, you have a casualty gain, not a loss.
Does this apply to you?
- You filed an insurance claim for property damaged in a casualty or stolen
- You received FEMA disaster assistance for property damage
- You received a settlement or reimbursement from any source for the damaged property
- You have a pending insurance claim that has not been resolved yet
Easy to overlook
You must file an insurance claim to deduct the loss If your property was insured, you cannot claim a casualty loss deduction for the portion covered by insurance unless you actually file a timely claim. The IRS reduces your deductible loss by the amount of insurance coverage available, even if you chose not to file a claim. Skipping the insurance claim to take the tax deduction instead does not work. 1 IRS Publication 547 — Casualties, Disasters, and Thefts
FEMA grants and SBA disaster loans are treated differently FEMA grants for home repair reduce your casualty loss because they are reimbursements. SBA disaster loans are not reimbursements — they are borrowed money you repay with interest. Do not include SBA loan proceeds on line 3. Only include actual grants, insurance payments, and other non-repayable assistance. 2 IRS Form 4684 instructions — Line 3
Watch out for this
Excluding an expected insurance payout because you have not received the check yet. If you have a reasonable expectation of reimbursement, include the expected amount on line 3. You cannot deduct a loss for the portion you expect insurance to cover. If the actual payout later differs from your estimate, amend the return for the year of the casualty.
Footnotes
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IRS Publication 547, Casualties, Disasters, and Thefts, Insurance and Reimbursements. https://www.irs.gov/pub/irs-pdf/p547.pdf ↩
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IRS Form 4684 Instructions, Line 3. https://www.irs.gov/instructions/i4684 ↩