To be a deductible casualty loss, property must be damaged or destroyed as the result of a sudden, unexpected, or unusual event. A sudden event is one that is swift, not gradual or progressive. An unexpected event is one that is ordinarily unanticipated and unintended. An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Chance or a natural phenomenon must be present. Examples include earthquakes, hurricanes, tornadoes, floods, severe storms, landslides, and fires. Loss due to vandalism during riots or civil disorders also is treated as a casualty loss. Damage to your car from an accident is generally deductible (18.7). Courts have allowed deductions for other types of accidents; see Example 2 below. The requirement of suddenness is designed to bar deductions for damage caused by a natural action such as erosion, corrosion, and termite infestation occurring over a period of time.
The IRS and the courts have generally disallowed casualty deductions based on a loss in property value due to permanent buyer resistance rather than actual physical damage; see Examples 4 and 5 below.