Can You Claim a Totaled Car on Your Taxes?

Whether you can claim a totaled car on your taxes depends on how the vehicle was used and the circumstances of the loss. Recent tax law changes have narrowed the instances in which a deduction is permissible for individuals. For most taxpayers, the deduction for a personal vehicle loss has been suspended through 2025. The rules differ for personal and business vehicles, so it is important to understand the specific conditions that must be met.

The General Rule for Personal Vehicles

A financial loss from a totaled personal vehicle is no longer tax-deductible for most individuals. The Tax Cuts and Jobs Act of 2017 (TCJA) suspended the deduction for personal casualty and theft losses for tax years 2018 through 2025. If your personal car is totaled in a standard accident, you cannot claim that loss on your federal tax return.

An exception to this rule exists for losses that occur in a federally declared disaster area. If the President declares your location a major disaster area due to an event like a hurricane or wildfire, you may be able to deduct your vehicle loss. The damage to your car must be a direct result of the disaster, and you can verify an event’s status on the Federal Emergency Management Agency (FEMA) website.

This exception does not apply to common incidents like a typical car collision. A qualifying event must be sudden, unexpected, and unusual to be considered a casualty. Progressive deterioration or normal wear and tear does not qualify as a casualty event for tax purposes.

The Exception for Business Vehicles

The TCJA limitations on casualty losses do not extend to property used for business. If a vehicle was used exclusively for business purposes, the entire unreimbursed loss from it being totaled is deductible. This loss does not need to occur in a federally declared disaster area to be claimed.

For vehicles with mixed personal and business use, you must prorate the loss based on the percentage of business use. For example, if you used your car 60% for business and 40% for personal trips, you could only deduct the business-use portion of the loss. The personal portion of the loss is not deductible unless it resulted from a federally declared disaster.

Calculating the business-use percentage involves tracking mileage for both business and personal travel throughout the year. This documentation is needed to substantiate the portion of the loss claimed as a business expense.

Calculating Your Deductible Loss

To determine your deductible loss, you must first identify the car’s adjusted basis. The adjusted basis is the original cost of the vehicle plus the cost of any significant improvements, less any depreciation you may have claimed for business use. For personal vehicles, the basis is the cost, as depreciation is not taken.

For a personal vehicle, your loss is the lesser of your adjusted basis or the decrease in the car’s fair market value (FMV). The decrease in FMV is calculated by comparing the value of the car immediately before the event to its value immediately after. For a totaled car, the “after” value is its salvage value.

The calculation is different for a business vehicle that is completely destroyed. In that case, the loss is the vehicle’s adjusted basis. The decrease in fair market value is not part of the calculation for a totaled business asset.

After calculating this initial loss amount, you must reduce it by any salvage value and any insurance reimbursement you received or expect to receive. If your insurance payout is more than your adjusted basis, you may have a taxable gain. You cannot deduct any loss for which you did not file a timely insurance claim if the loss was covered by your policy.

For personal losses qualifying under the federally declared disaster exception, two additional limitations apply. First, you must reduce the loss by $100 per casualty event. After that reduction, you can only deduct the portion of the total loss that exceeds 10% of your Adjusted Gross Income (AGI).

Required Information and Tax Forms

To claim a qualifying casualty loss, you must gather documentation to support your figures. This includes:

• Purchase receipts to establish the vehicle’s original cost and basis
• Records of any improvements
• The insurance settlement statement showing the reimbursement amount
• Appraisals or other credible evidence establishing the car’s fair market value both before and immediately after the event
• A police report to substantiate the circumstances of the loss

The primary document for reporting this loss to the IRS is Form 4684, Casualties and Thefts. For business property, the calculations are completed in Section B of the form.

The final calculated loss is then transferred to another part of your tax return. For a personal loss in a federally declared disaster, the amount from Form 4684 flows to Schedule A (Itemized Deductions). For a loss on a business vehicle, the result from Form 4684 is carried over to Form 4797, Sales of Business Property.