A Major Disaster Declaration was approved for the state of Tennessee for the severe winter storms on Jan. 22-27, 2026. Per the FEMA website, all Tennessee counties are currently authorized for “Public Assistance.” This event meets the IRS definition of a “Disaster Loss” because the disaster is federally declared, and the counties are eligible for assistance.
Under Internal Revenue Code Section 165(i), taxpayers who suffer a disaster loss in a federally declared area have a unique option: You may elect to deduct the casualty loss on your return for the preceding tax year (2025).
This election can provide immediate relief by reducing the 2025 tax liability or generating a larger refund during the current filing season. This applies to individual personal-use property, business/income-producing property, corporations, S-Corps, and partnerships.
Key Resources for Tax Preparation
To properly advise clients and prepare returns, please review the following technical guidance:
- IRS Publication 547: Definitions of casualty, federal and qualified disaster losses (see page four).
- Form 4684: Used to report the loss. See page four on the instructions for the specific “Election to Deduct Federally Declared Disaster Loss in Preceding Tax Year.”
- Regulations: Refer to Tres. Reg. §1.165-7 and §1.165-11 for specific rules on timing and valuation.
Please ensure you are familiar with these citations before finalizing 2025 returns for affected clients. Accurate documentation of the loss and the specific FEMA declaration area will be required for the Section 165(i) election.
