Enrolled Agent Practice Exam 2026 – The All-in-One Guide to Passing with Confidence!

The personal casualty loss deduction for a home lost to a federal disaster is computed as the basis of the home reduced by $100 and further adjusted by a percentage of the taxpayer's adjusted gross income (AGI).

When calculating the casualty loss, taxpayers first determine the amount of loss by taking the lesser of the adjusted basis in the property immediately before the casualty or the fair market value of the property immediately after the casualty. However, for federal disaster losses, the rules allow for additional considerations including the $100 reduction per casualty event, which reflects a threshold that must be exceeded before any loss can be deducted.

Once the loss exceeds $100, the taxpayer can further reduce the loss by 10% of their AGI, which effectively limits the deduction for larger incomes. This process ensures that individuals who experience significant casualties are still able to claim necessary tax relief while also promoting fairness in the tax code.

Thus, the correct approach to computing personal casualty losses involves these specific reductions in order to reach the deductible amount.