Cutting leads to a certain local magnetic material degradation of the electrical steel sheet. Moreover, the material properties near the cutting edge contribute significantly to the global performance. This material degradation mostly occurs in the vicinity of critical parts of electromagnetic devices, such as stator and rotor teeth. Therefore, the need exists to characterize the local magnetic hysteresis properties due to cutting. We couple the non destructive measurements of needle signals, which are dependent on the local variations in magnetic hysteresis properties, with a numerical inverse algorithm. The inverse algorithm interprets the needle signals so that the unknown magnetic hysteresis properties can be reconstructed. The paper mainly deals with the construction of an accurate material model (numerical forward model), the correct solution of the inverse procedure and the validation of the obtained results. We reconstructed local magnetic hysteresis properties of differently cut steel sheets and we observed that it is possible to recover the material characteristics using a material model, which fully characterizes the hysteresis properties.