Sec. 70109. Extension and modification of limitation on casualty loss deduction | Impact

One Big (not so) Beautiful Bill over the U.S. Capitol

Legislative and Policy Analysis

Section 70109: Extension and modification of limitation on casualty loss deduction

Executive Summary

Section 70109 makes permanent the Tax Cuts and Jobs Act-era limitation on individual personal casualty loss deductions, while expanding the qualifying category from federally declared disasters to include certain State declared disasters. In practical terms, taxpayers with personal-use property losses generally remain unable to deduct ordinary casualty or theft losses unless the loss is tied to a qualifying disaster or offset against personal casualty gains. The new modification is that, beginning with taxable years after December 31, 2025, a taxpayer may also deduct losses tied to a State declared disaster if the Governor, or the Mayor of the District of Columbia, and the Secretary of the Treasury determine that the damage is severe enough to warrant the casualty-loss rules.[1]

The fiscal effect is a tax-revenue increase relative to the present-law baseline. The Joint Committee on Taxation estimated Section 70109’s casualty-loss provision would increase federal revenues by about $1.331 billion over fiscal years 2025 through 2034.[2] That estimate reflects the provision’s net effect: permanently retaining the narrower post-2017 deduction baseline while adding a targeted expansion for qualifying State declared disasters.

For households, the section is mixed. It preserves a restrictive rule that denies many personal casualty or theft loss deductions, but it provides a new route for relief when a disaster is State declared but not federally declared. For businesses, the direct effect is limited because the provision concerns personal casualty losses, not business casualty-loss rules. For the environment and climate, the direct effect is minimal, but the disaster-relief dimension has modest climate-adaptation relevance because it expands tax recognition for some losses caused by storms, floods, fires, droughts, and other disasters.

What Section 70109 Actually Does

Section 70109 amends section 165(h)(5) of the Internal Revenue Code. Before enactment, the TCJA-era rule limited personal casualty loss deductions for individuals during taxable years after 2017 and before 2026. Section 70109 removes the January 1, 2026 sunset and changes the heading from “2018 Through 2025” to “Beginning After 2017,” making the limitation permanent.[3]

The section also expands the disaster category. It adds losses attributable to a “State declared disaster” to the category of disaster-related personal casualty losses that can be deducted under the special rules. The statutory definition includes natural catastrophes such as hurricanes, tornadoes, storms, high water, wind-driven water, tidal waves, tsunamis, earthquakes, volcanic eruptions, landslides, mudslides, snowstorms, and droughts, and also includes any fire, flood, or explosion regardless of cause, if the Governor of the State, or the Mayor of the District of Columbia, and the Secretary of the Treasury determine that the damage is severe enough to warrant application of the rules.[4]

The term “State” is defined broadly to include the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands.[5]

The operative tax rule is still restrictive. For qualifying federally declared or State declared disaster losses, taxpayers may deduct losses only to the extent of the sum of personal casualty gains plus the amount by which aggregate net disaster-related losses exceed 10 percent of adjusted gross income.[6] Personal casualty losses also remain subject to the $100-per-casualty reduction unless another special qualified-disaster rule applies.[7] Other personal casualty losses remain deductible only to the extent they do not exceed personal casualty gains.[8]

Fiscal element	Amount	What it supports or changes
Estimated 2025-2034 revenue effect relative to present law	$1.331 billion revenue increase	Net federal revenue effect of permanently extending the limitation while adding State declared disasters
2026 estimated effect	$86 million revenue increase	First full taxable-year implementation period reflected in JCT’s fiscal-year table
2027 estimated effect	$128 million revenue increase	Continued revenue effect from permanent limitation
2028 estimated effect	$137 million revenue increase	Continued revenue effect from permanent limitation
2029 estimated effect	$144 million revenue increase	Continued revenue effect from permanent limitation
2030 estimated effect	$152 million revenue increase	Continued revenue effect from permanent limitation
2031 estimated effect	$160 million revenue increase	Continued revenue effect from permanent limitation
2032 estimated effect	$168 million revenue increase	Continued revenue effect from permanent limitation
2033 estimated effect	$175 million revenue increase	Continued revenue effect from permanent limitation
2034 estimated effect	$182 million revenue increase	Continued revenue effect from permanent limitation

This is a tax-expenditure and revenue-estimating provision, not a direct appropriation. It does not appropriate money to FEMA, Treasury, the IRS, States, or disaster-response agencies. Its financial effect comes through individual income tax returns, deductions claimed or denied, IRS administration, and revenue estimates by JCT, Treasury, and CBO.

Legislative Mechanism

The legislative mechanism is a targeted amendment to Code section 165(h)(5). Section 70109 does three main things.

First, it permanently extends the TCJA-era limitation by removing the statutory end date. The prior rule was temporary because it applied to taxable years beginning after December 31, 2017, and before January 1, 2026. Section 70109 strikes the expiration language.[9]

Second, it expands the disaster category by adding State declared disasters alongside disasters declared by the President under the Stafford Act. This matters because not every severe local disaster receives a federal disaster declaration, even when a State or territory experiences major property losses.[10]

Third, it adds a statutory definition of State declared disaster. The definition requires both a State-level executive determination and a determination by the Secretary of the Treasury that the damage is severe enough to warrant applying the personal casualty-loss rules.[11]

The effective date is taxable years beginning after December 31, 2025.[12]

Expenditure Tracking and Reporting Protocol

Section 70109 affects federal finances through the income-tax system rather than through direct spending. The primary administering agency is the Internal Revenue Service, within the Department of the Treasury. Taxpayers report casualty and theft losses on Form 4684, with itemized deductions flowing through Schedule A and Form 1040 where applicable.[13] The public fiscal effect is not tracked as a grant, contract, or Treasury outlay. It is tracked indirectly through tax-return administration, tax-expenditure analysis, revenue estimates, and aggregated tax data.

Section-specific public visibility is likely to be limited. Individual returns are confidential, and publicly available tax data generally aggregates deductions rather than showing a clean, real-time Section 70109 amount. JCT and CBO estimates can show projected federal budget effects, while IRS forms and publications show administrative implementation. Treasury and IRS may also issue forms, instructions, notices, or guidance addressing State declared disaster implementation.

flowchart TD
  A[Section 70109] --> B[Code section 165]
  B --> C[IRS administration]
  B --> D[State disaster determinations]
  D --> E[Treasury review]
  C --> F[Form 4684]
  F --> G[Schedule A]
  G --> H[Form 1040]
  C --> I[IRS guidance]
  C --> J[Aggregated tax data]
  A --> K[JCT revenue estimates]
  A --> L[CBO budget estimates]
  J --> M[Public visibility limited]
  K --> N[Congressional oversight]
  L --> N
  I --> O[Taxpayer and preparer compliance]

Likely tracking sources include IRS forms and instructions, IRS Publication 547, Treasury and IRS guidance, JCT revenue estimates, CBO budget estimates, and aggregated IRS Statistics of Income data if available. Public tracking may be delayed and difficult to isolate because the deduction is claimed on individual tax returns and because State declared disaster losses may be reported within broader casualty-loss categories unless forms or instructions create a separately identifiable reporting field.

Day-to-Day Government Process Changes

For the IRS and Treasury, Section 70109 requires implementation beyond simply extending an existing limitation. The permanent extension means forms, instructions, publications, tax software schemas, taxpayer assistance materials, and compliance filters must treat the limitation as ongoing rather than expiring after 2025.

The more important operational change is the new State declared disaster category. Treasury and IRS must determine how taxpayers identify a State declared disaster, what documentation is sufficient, and how the Secretary’s required determination will be communicated. The statute requires both State-level action and Treasury-level determination, so the day-to-day process may involve notices, lists, FAQs, or other guidance identifying qualifying disasters.

For State and territorial governments, the provision creates a new federal tax significance for State disaster declarations. A Governor’s declaration alone is not enough under the statutory language, but the State declaration becomes the starting point for possible federal tax recognition. States may need to coordinate with Treasury or provide documentation showing severity and magnitude.

For taxpayers and preparers, the rule adds a new factual question: whether the loss was attributable to a qualifying State declared disaster. Preparers will need to document the event, the taxpayer’s loss, insurance reimbursements, adjusted basis or fair-market-value decline, the $100 event reduction, the 10 percent AGI floor, and whether the taxpayer has personal casualty gains.

Effects on Consumers

The consumer impact is mixed and uneven.

The benefit is targeted relief for some disaster victims. A household that suffers uninsured or underinsured damage from a State declared disaster may have a deduction pathway even if the event does not receive a Presidential disaster declaration. That can matter for localized flooding, fires, storms, drought-related damage, or other events severe enough for State and Treasury recognition but not federally declared.

The limitation is that the deduction remains narrow. Taxpayers generally must itemize to benefit, and many households do not itemize because the standard deduction is larger. Even when a household itemizes, the deductible amount is reduced by the $100-per-casualty rule and the 10 percent AGI floor unless another special qualified-disaster rule applies.[14] Insurance reimbursements also reduce the deductible loss. As a result, many households with real property damage may receive little or no federal income-tax benefit.

The provision also does not provide immediate cash assistance. A deduction reduces taxable income, not dollar-for-dollar tax liability, and the benefit often arrives only when a tax return is filed or amended. Lower-income households with limited taxable income, limited itemized deductions, or insufficient cash to repair damage before filing may see little practical relief.

Consumers who experience non-disaster theft or casualty losses remain largely outside the deduction unless they have personal casualty gains that can be offset. That preserves the post-2017 narrowing of relief for events such as ordinary theft, isolated fires, or accidents that are not part of a qualifying disaster.

Effects on Businesses

The direct business impact is limited because Section 70109 addresses personal casualty losses of individuals for property not connected with a trade or business or a transaction entered into for profit.[15] Business casualty losses, income-producing property losses, and insurance-recovery issues for business property are governed by other rules.

The indirect business effects are more meaningful for tax preparers, tax software companies, insurers, appraisers, and disaster-recovery professionals. Tax-preparation workflows will need to distinguish federally declared disasters, State declared disasters, qualified disaster losses, ordinary personal casualty losses, and casualty gains. Software will need updated prompts, validation rules, and documentation logic for State declared disaster claims.

Insurance companies may see taxpayers requesting clearer documentation of unreimbursed losses, claim denials, deductibles, and reimbursement timing. Appraisers and contractors may see demand for valuations, repair estimates, and documentation of fair-market-value decline, especially for homeowners trying to substantiate large disaster losses.

For businesses in disaster-affected communities, the provision may provide modest indirect support if affected households receive tax relief that helps finance repairs. But because the benefit is delayed and limited by itemization, AGI thresholds, and taxable income, it is not a major business stimulus tool.

Environmental and Climate Impact

The environmental and climate impact is minimal to modestly positive for disaster recovery, with limited direct environmental effect.

Immediately as law, Section 70109 does not fund climate adaptation, reduce emissions, regulate pollution, change permitting, or alter environmental safeguards. It changes federal tax treatment for certain personal casualty losses. It does not approve construction, alter land use, weaken NEPA, or expand fossil-fuel extraction.

What it makes easier is federal tax recognition of some household disaster losses arising from State declared disasters. Because the definition includes hurricanes, tornadoes, storms, high water, tidal waves, tsunamis, earthquakes, volcanic eruptions, landslides, mudslides, snowstorms, droughts, fires, floods, and explosions, the provision can apply to events that overlap with climate-amplified hazards such as flooding, wildfire, extreme storms, and drought.[16] That gives the section modest climate-adaptation relevance: it may help some households absorb financial losses from disasters, especially when a federal disaster declaration is unavailable.

The effect remains limited because the section is not a resilience program. It does not require rebuilding to stronger standards, fund mitigation, support buyouts, improve floodplain management, reduce wildfire risk, or require environmental restoration. A tax deduction after a loss can help recovery, but it does not itself reduce future disaster risk.

The environmental justice implications are mixed. Communities with lower incomes, lower rates of itemization, limited tax liability, or less access to professional tax help may benefit less from a deduction-based structure than higher-income homeowners with larger itemized deductions. Disaster-prone communities may see some added recognition of State-level disasters, but the relief mechanism remains more accessible to households that can document losses and benefit from itemizing.

Existing environmental safeguards are not weakened or bypassed. The section does not affect permitting, public participation, environmental review, mitigation requirements, or enforcement. The main uncertainty is administrative: how Treasury will determine qualifying State declared disasters and how clearly IRS forms and guidance will let taxpayers identify eligible events.

Impact Summary

Section 70109 permanently preserves a restrictive personal casualty-loss deduction regime while adding a narrower expansion for State declared disasters. Its fiscal effect is a projected $1.331 billion federal revenue increase over fiscal years 2025 through 2034 relative to the present-law baseline, according to JCT.[17]

For consumers, the provision offers meaningful but limited relief to some disaster victims whose losses are tied to State declared disasters. The benefit is constrained by itemization, the $100-per-casualty reduction, the 10 percent AGI floor, insurance offsets, and the fact that deductions are less valuable to households with low or no taxable income.

For businesses, the provision does not materially change ordinary business casualty-loss treatment, but it increases compliance and documentation work for tax preparers, software providers, insurers, appraisers, and disaster-recovery professionals.

The environmental and climate effect is minimal to modestly positive in a disaster-recovery sense because the section recognizes some State declared disaster losses, including losses from climate-relevant hazards such as storms, floods, fires, and droughts. It does not reduce emissions, fund resilience, or strengthen environmental protections, and its benefits are likely uneven across income levels and communities.

Key References and Sourcing

Source	Relevance
Congress.gov, Public Law text for H.R. 1, Section 70109	Primary statutory text showing the amendments to Code section 165(h)(5), the State declared disaster definition, and the effective date.
Joint Committee on Taxation, General Explanation of the Tax Provisions of Public Law 119-21, JCS-1-26	Official explanation of present law, the provision, and effective date for Section 70109.
Joint Committee on Taxation, JCX-35-25	Revenue estimate showing the projected fiscal effect of the casualty-loss provision over fiscal years 2025 through 2034.
IRS Publication 547, Casualties, Disasters, and Thefts	IRS administrative guidance on casualty and theft losses, deduction limits, federally declared disaster rules, personal casualty gains, and reporting concepts.
IRS Topic No. 515, Casualty, Disaster, and Theft Losses	IRS taxpayer-facing explanation of casualty, disaster, and theft loss deduction mechanics.
Congressional Research Service, Tax Provisions in H.R. 1, the One Big Beautiful Bill Act	Secondary congressional analysis explaining the House-passed version’s casualty-loss deduction extension and its relationship to TCJA.

[1] Congress.gov, “H.R.1 - 119th Congress (2025-2026): An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14,” Section 70109, https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[2] Joint Committee on Taxation, “JCX-35-25, Estimated Revenue Effects Relative To The Present Law Baseline Of The Tax Provisions In ‘Title VII - Finance’ Of The Substitute Legislation As Passed By The Senate,” July 1, 2025, https://www.jct.gov/publications/2025/jcx-35-25/.

[3] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(a), https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[4] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(b), https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[5] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(b), definition of State, https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[6] Joint Committee on Taxation, “General Explanation Of The Tax Provisions Of Public Law 119–21,” JCS-1-26, May 28, 2026, Section 70109 explanation, https://www.jct.gov/publications/2026/jcs-1-26/.

[7] IRS, “Publication 547, Casualties, Disasters, and Thefts,” deduction limits and $100 rule, https://www.irs.gov/publications/p547.

[8] Joint Committee on Taxation, “General Explanation Of The Tax Provisions Of Public Law 119–21,” JCS-1-26, Section 70109 present-law discussion, https://www.jct.gov/publications/2026/jcs-1-26/.

[9] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(a), https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[10] Congressional Research Service, “Tax Provisions in H.R. 1, the One Big Beautiful Bill Act: House-Passed Version,” discussion of extension of limitation on casualty loss deduction, https://www.everycrsreport.com/reports/R48550.html.

[11] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(b), State declared disaster definition, https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[12] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(c), https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[13] IRS, “Publication 547, Casualties, Disasters, and Thefts,” reporting casualty and theft losses, https://www.irs.gov/publications/p547.

[14] IRS, “Topic No. 515, Casualty, Disaster, and Theft Losses,” https://www.irs.gov/taxtopics/tc515.

[15] Joint Committee on Taxation, “General Explanation Of The Tax Provisions Of Public Law 119–21,” JCS-1-26, Section 70109 present-law discussion, https://www.jct.gov/publications/2026/jcs-1-26/.

[16] Congress.gov, “H.R.1 - 119th Congress (2025-2026),” Section 70109(b), examples of natural catastrophes included in State declared disaster definition, https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[17] Joint Committee on Taxation, “JCX-35-25,” revenue estimate for extension and modification of limitation on casualty loss deduction, https://www.jct.gov/publications/2025/jcx-35-25/.