Disaster Losses
Victims of 2025 disasters: Know the rules for deducting personal losses. The loss must be suffered in a federally declared disaster. Your loss amount is equal to the smaller of the damaged property’s adjusted basis or decline in value, less any insurance proceeds received or expected to be received in the future.
In the OBBB, Congress passed easings for personal disaster loss write-offs similar to those given to victims of federally declared disasters in 2018-24. The relief involves losses incurred in disasters that began before July 5, 2025. More specifically, the Form 4684 instructions say the rules apply to major disasters declared between Jan. 1, 2020, and Sept. 2, 2025, with the incident period beginning on or after Dec. 28, 2019, and on or before July 4, 2025. Additionally, the incident period of the disaster must have ended no later than Aug. 3, 2025. IRS refers to these losses as “qualified disaster losses.” If you had such a loss during 2025, you can deduct it even if you don’t itemize on Schedule A. Individuals can deduct uninsured personal qualified disaster losses in excess of a $500 threshold without regard to the 10%-of-adjusted-gross-income offset that generally applies. This “qualified disaster loss” is treated as an additional standard deduction.
Here’s how you would report the loss on your 2025 Form 1040. First, use Form 4684 to calculate the loss. Then, if you are itemizing on Schedule A, transfer the amount to Schedule A, line 16, and write “Net Qualified Disaster Loss.” If you are not itemizing, follow the Form 4684 instructions for line 15.
The rules differ for personal losses from a disaster that began after July 4. Only itemizers can claim a deduction. And two offsets apply. The loss is first reduced by $100. The balance is deductible only to the extent it exceeds 10% of AGI. See the instructions to Form 4684 and IRS Publication 547 for more information.
Education
Know the rules if planning to claim the American Opportunity Tax Credit. It’s worth up to $2,500 per student for each of the first four years of college. Up to $1,000 is refundable. The AOTC is based on 100% of the first $2,000 spent on qualifying college expenses and 25% of the next $2,000. It starts to phase out at modified AGIs over $160,000 for couples…$80,000 for singles and household heads. Credit-eligible expenses include tuition, books and fees for at least half-time students.
If you are also using tax-free 529 funds to help pay for college… Coordinating the 529 education tax break and the AOTC can be tricky because you cannot use the same college expenses for both these tax benefits.
Starting in 2026, filers taking the AOTC must have a Social Security number. And the college student must also have a valid SSN. This new requirement, enacted in last July’s OBBB kicks in beginning with 2026 1040 forms filed in 2027. For 2025 returns filed this year, the filer and the eligible student must have an SSN or an individual tax identification number. These ITINs won’t be accepted next year.