Casualty Loss Appraisals in California: Before-and-After Values After a Fire, Flood or Earthquake

This article is general information, not legal or tax advice. Talk to your CPA or attorney about your situation.

California owners know the list: wildfires in the foothills and the canyons, winter floods behind the levees, earthquakes, mudslides after the rains. When a building, an orchard or a whole site is damaged, two questions follow quickly. What is the loss worth for tax purposes, and does the property tax bill still make sense? Both come back to value: what the property was worth just before the event, and what it is worth now.

What is a casualty loss appraisal?

It is an appraisal with two effective dates that sit side by side: immediately before the casualty and immediately after it. The “before” value is a retrospective appraisal, because it describes the property as it was on a date that has already passed. The “after” value describes the property in its damaged condition.

The IRS treats a casualty as damage from a sudden, unexpected or unusual event, such as a flood, fire or earthquake. Normal wear and tear and slow deterioration are not casualties (IRS Topic 515).

When does the IRS want a before-and-after appraisal?

The rule is in Treasury Regulation 1.165-7. It says the fair market value of the property “immediately before and immediately after the casualty shall generally be ascertained by competent appraisal.” The regulation also allows the cost of repairs as evidence of the loss, but only if the repairs are necessary to restore the property to its pre-casualty condition, the amount spent is not excessive, the repairs fix only the damage, and the property is not worth more after the repairs than it was before.

How the numbers are used depends on the kind of property, and your CPA does that part:

• Partly damaged property. The loss is generally the lesser of the decline in fair market value and the property’s adjusted basis, reduced by insurance or other reimbursement.
• Business or income-producing property that is completely destroyed. According to IRS Publication 547, the decline in fair market value is not considered. The loss is figured from adjusted basis, less salvage value and insurance.
• Insurance comes first. Publication 547 says that if property is insured, you should file a timely insurance claim. If you do not, you cannot deduct the part of the loss the policy would have covered.

What changed for disaster losses in 2026?

For personal-use property, casualty losses from 2018 through 2025 were generally deductible only if they came from a federally declared disaster. The One Big Beautiful Bill Act made that limit permanent and widened it. For tax years beginning after December 31, 2025, losses from a state-declared disaster count too (IRS: casualty loss deduction expanded and made permanent). Under the amended Internal Revenue Code Section 165(h)(5), a state-declared disaster is a natural catastrophe, or any fire, flood or explosion regardless of cause, that the Governor and the Secretary of the Treasury determine is severe enough to warrant the rule (26 U.S.C. 165).

The IRS’s wildfire casualty loss FAQ adds that losses from a state-declared disaster are subject to the $100 per casualty and 10 percent of adjusted gross income limits, and cannot be treated as “qualified disaster” losses, which only the President can declare.

These limits are about personal-use property. Losses on business and income-producing property, such as a rental building, a warehouse or an orchard, follow different rules. For a loss in a federally declared disaster area that qualifies for public or individual assistance, there is also an election to deduct it on the prior year’s return (IRS Topic 515). Your CPA decides which rules apply and when to claim the loss. Our job is the value evidence.

Why must the appraisal separate damage from a market drop?

Because the regulation says so, and it is where weak casualty appraisals fall apart. Section 1.165-7(a)(2)(i) says the appraisal “must recognize the effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty.” In plain terms: if a fire or flood pushed down values across a whole area, including buildings that were never touched, that area-wide drop is not your casualty loss.

So the after value has to be built carefully. It reflects the physical damage to your property, the cost and time to cure it, and any lasting effects on that property, while the “before” value reflects the market immediately before the event. Publication 547 lists what the IRS looks at when it weighs an appraisal: the appraiser’s familiarity with your property before and after the casualty, knowledge of comparable sales in the area, knowledge of conditions in the area of the casualty, and the method used.

Are buildings, trees and land valued separately?

For business and income-producing property, yes. The regulation measures the loss by reference to “the single, identifiable property damaged or destroyed.” Its own example values a building and the ornamental or fruit trees on the same site separately, not as one piece of real estate. That matters a great deal in California, where a single fire can damage an office building and its landscaping, or a farmhouse, barns, orchard rows and vineyard blocks on one parcel. For personal-use property, the land and improvements are generally treated as one integral property.

An appraiser who understands agricultural property, vineyards and improved commercial sites can allocate the before and after values the way the rule expects. We appraise vineyards, wineries and agricultural property alongside every commercial property type.

Can a damaged property get California property tax relief?

Often, and the evidence overlaps with the casualty appraisal. Three sections of the Revenue and Taxation Code are worth knowing:

• Disaster reassessment (RTC Section 170). If the county board of supervisors has adopted an ordinance, an owner whose property was damaged or destroyed without the owner’s fault can apply for reassessment, generally within 12 months of the event (or longer if the ordinance allows). The application shows the condition and value of the property immediately after the damage and the dollar amount of the damage. If the loss is $10,000 or more, the assessor reduces the roll values by the percentage of damage. The lower value stays until the property is repaired or rebuilt. For several 2024 and 2025 Southern California fires named in the statute, including the Palisades and Eaton fires, the window is 24 months.
• Base year transfer in the same county (RTC Section 69). Property substantially damaged or destroyed in a Governor-declared disaster can transfer its base year value to comparable replacement property in the same county acquired or built within five years. “Substantially damaged” means physical damage of more than 50 percent of the land’s or the improvements’ value immediately before the disaster.
• Transfers to another county (RTC Section 69.3). This one is narrower: it covers only an owner’s principal residence. Where the receiving county has adopted an ordinance, the base year value can move to a replacement home in that county within three years, subject to value limits.

Each of these turns on values immediately before and after the damage. If the county’s number looks wrong, a supported appraisal is the evidence an assessment appeal is built on. Ask your county assessor and your tax advisor which programs apply to your property.

Is this the same as an insurance estimate?

No. An insurance adjuster or contractor estimates what it costs to repair or replace what was damaged, under the terms of the policy. A casualty loss appraisal measures market value before and after the event. The two can be very different: a repair estimate does not capture lost land value, damaged trees and crops, access problems or a change in highest and best use, and market value does not track replacement cost dollar for dollar. Many owners end up needing both. The appraisal does not replace your adjuster, your public adjuster or your contractor.

What should you send the appraiser?

• The date and type of the casualty, and the county
• Who the appraisal is for (your CPA, attorney or lender) and how it will be used
• Photos and video of the property before the event, if you have them, and after it
• The vesting deed, a site plan and building sizes
• Leases, rent rolls and operating statements for income property, as of just before the event
• Insurance claim documents, adjuster reports and contractor or engineer estimates
• Any assessor correspondence or Section 170 application
• For agricultural property: crop and planting records, block maps, water source information

Your appraiser will confirm the list on the first call. A single damaged building needs less than a ranch with several improvements and orchard blocks.

How do CPAs and owners work with PM Appraisal?

Call or text (805) 990-9700. You talk directly to the appraiser on your assignment, not a coordinator or an appraisal management company. We pick up the phone, and we are your ears and eyes on the property. We confirm the effective dates, the property rights, the intended use and who will rely on the report before anyone engages, so the appraisal fits what your CPA or attorney needs.

Rush commercial appraisals take 5 to 7 business days. Standard timing depends on the property and scope. Our opinions are independent: we never take an assignment that requires a predetermined value, and our fees are never tied to the result.

Casualty loss work is one example of what we do. Our team writes every kind of commercial appraisal, including retroactive, estate and trust, date of death, divorce, litigation, partition, eminent domain, tax appeal, fractional interests, hard money lending and multi-property portfolios, for every commercial property type: office, retail, industrial and warehouse, multifamily, mixed-use, gas stations, hotels and motels, land, vineyards and agricultural property, medical, care facilities, religious facilities and special-use property. See the full list of property types and our statewide coverage, from San Diego to Sacramento and beyond.

Keep reading

• Retroactive and retrospective appraisals
• Property tax appeal appraisals
• Commercial appraisal services
• Estate and trust appraisals
• Multi-property portfolio appraisals
• Commercial appraisal in Sacramento

This article is general information, not legal or tax advice. Talk to your attorney or CPA about your situation.