Casualty loss is limited to loss caused by some sudden, unexpected, and external force such as fire, storm, shipwreck, or similar event or accident. According to the Internal Revenue Code, a “personal casualty loss” means any losses of property connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, shipwreck, or other casualty, or from theft (26 USCA §165(c)(3)). The tax code treats these losses under 26 USCA §165(h), which provides for certain deductions depending on both the casualty gains and losses.
[Last updated in June of 2021 by the Wex Definitions Team]