Casualty losses from fires, floods, earthquakes and other disasters are deductible from both state and federal income taxes. A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. Causes range from earthquakes, tornadoes, floods and storms to vandalism and fires. In contrast to fire insurance, which often covers extensive replacement cost, Lank goes on to write, IRS deductions for casualty losses never can exceed fair market value before the casualty. Your loss of personal property is figured separately.