New Tax Relief in Federal Disaster Areas: Learn the Benefits

  • Regulations
  • 1/28/2025
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Key insights

  • The newly enacted Federal Disaster Tax Relief Act of 2023 allows individual taxpayers affected by federally declared disasters to deduct personal casualty losses without itemizing deductions and without the typical reduction of $100 per casualty loss and 10% of adjusted gross income.
  • The IRS announced new tax relief for taxpayers impacted by current wildfires in California, where various deadlines are postponed to October 15.
  • California has also recently announced certain tax relief for taxpayers located in Los Angeles County due to the wildfires.

Get help filing for new federal disaster relief tax benefits.

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Were you affected by a recent federally declared disaster? There’s new tax relief that could help.

What is the Federal Disaster Tax Relief Act?

The newly enacted Federal Disaster Tax Relief Act of 2023 allows individual taxpayers affected by federally declared disasters to deduct personal casualty losses without itemizing deductions and without the typical reduction of $100 per casualty loss and 10% of adjusted gross income. Instead, the deduction would be reduced by $500 per casualty loss.

The relief covers any area where the president declared a major disaster between January 1, 2020, and February 10, 2025. The IRS recently clarified in its 2024 Form 4684 instructions these disaster relief benefits only apply to presidentially declared disasters between December 28, 2019 and December 12, 2024 (inclusive of each date) and ended no later than January 11, 2025.

CLA insight: The disaster relief covers personal casualty losses incurred by victims of Hurricanes Ian, Idalia, Nicole, Fiona, Debby, Helene, and Milton, among other disasters. If you need help determining whether you’re within a federally declared disaster area, contact us or refer to the IRS disaster relief page.

CLA insight: Given the recent IRS update referenced above, it appears taxpayers experiencing personal casualty losses from the California wildfires (discussed below) may not benefit from the Federal Disaster Tax Relief Act of 2023. According to FEMA, the California wildfires began on January 7, 2025, which falls outside the latest start date (i.e., December 12, 2024) prescribed by the act. It appears the IRS believes federal disasters beginning after December 12, 2024 (including the California wildfires) are not covered by this legislation and it will require another act of Congress to extend the special casualty loss relief to those events.

New tax relief for California wildfires

IRS tax relief available to victims of wildfires in California began on January 7, 2025. Generally, individuals who reside or have a business in Los Angeles County have until October 15, 2025, to file returns and pay taxes covered by this relief announcement.

Certain deadlines falling on or after January 7, 2025, and before October 15, 2025, are granted additional time to file. As a result, affected individuals and businesses will have until October 15, 2025, to file returns and pay any taxes originally due during this period.

The October 15, 2025, deadline applies to individual income tax returns and payments normally due on April 15, 2025. This relief also applies to the 2024 estimated tax payment normally due on January 15, 2025, and estimated tax payments normally due on April 15, June 16, and September 15, 2025. Penalties on payroll and excise tax deposits due on or after January 7, 2025, and before January 22, 2025, will be abated if the tax deposits are made by January 22, 2025.

The October 15, 2025, deadline also applies to affected businesses:

  • Quarterly payroll and excise tax returns normally due on January 31, April 30, and July 31, 2025
  • Calendar-year partnership and S corporation returns normally due on March 17, 2025
  • Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025
  • Calendar-year tax-exempt organization returns normally due on May 15, 2025

Moreover, estate, gift, and generation-skipping transfer tax returns having either an original or extended due date occurring on or after January 7, 2025, and before October 15, 2025, are granted additional time to file through October 15, 2025.

Relief may also be available for certain like-kind exchanges and Form 5500 series filings. Work with a tax professional to help determine if you qualify and how to proceed.

The act also permits individual taxpayers to exclude from gross income any amount received as compensation for expenses or losses resulting from certain wildfires, thus excluding that compensation from taxable income. This applies to qualified wildfire relief payments received during taxable years beginning after December 31, 2019, and before January 1, 2026.

CLA insight: It’s still unclear whether qualified wildfire relief payments received through a pass-through entity can be excluded from the gross income of individual partners, S corporation shareholders, or trust beneficiaries. We’ll keep you apprised of any clarifications from the IRS on this topic.

State of California tax relief

Governor Newsom and the California Franchise Tax Board (FTB) recently announced that taxpayers in Los Angeles County will be granted a postponement to October 15, 2025 to file their 2024 California tax returns on income and make tax payments that would have been due January 7, 2025, through October 15, 2025. This generally aligns with the federal extension recently granted by the IRS.

In addition, according to the FTB, taxpayers may deduct losses caused by the wildfires and report those losses on their 2024 tax return (rather than on their 2025 tax return).

The California Department of Tax and Fee Administration (CDTFA) has automatically extended the tax filing deadline for returns and payments due on or before January 31, 2025 to April 30, 2025 for certain taxpayers. This includes sales and use taxes, as well as most other tax programs administered by the CDTFA.

In addition, the California State Board of Equalization announced property tax relief for property owners in Los Angeles County affected by the January 7 Palisades fire.

It is uncertain, at this time, if the relief will be expanded to other California counties. Taxpayers located in California but outside of Los Angeles County affected by the wildfires could potentially seek California tax relief, depending on their circumstances. At this time, we’re not aware of any other state tax authority announcing relief with respect to the wildfires.

Tax relief related to the East Palestine, Ohio train derailment

The act also allows individual taxpayers to exclude from gross income any disaster relief payments received on or after February 3, 2023, by people affected by the February 2023 train derailment in East Palestine, Ohio.

Deduction for damaged or lost property

If you sustained damage to your business, home, or property, consider whether a casualty loss deduction could help.

Disaster losses — not covered by insurance or other reimbursements — are generally deductible in the year incurred. However, under Section 165(i), taxpayers may elect to deduct any loss occurring in a disaster area and attributable to a federally declared disaster in the tax year immediately preceding the tax year when the disaster occurred on an original or amended return for such preceding tax year.

Work with a tax professional to help determine if you qualify and how to proceed.

Disaster relief to employees may be tax-free

If you have employees affected by natural disaster, Section 139 allows business owners to help employees during a federally declared disaster through tax-free qualified disaster relief payments. Typically, any gift from an employer is taxed; however, Section 139 qualified disaster relief payments are tax-free to the employee and are fully deductible by the employer.

Qualified disaster relief payments can be used to help employees offset certain expenses such as reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a disaster, and necessary repair or rehabilitation of a personal residence or repair not otherwise compensated for by insurance.

How CLA can help with federal disaster tax relief

Filing for tax relief related to federally declared disasters can be complicated, considering the new rules. If you have questions regarding disaster relief or postponed tax deadlines, CLA’s tax team can help determine if you qualify and help you file correctly.

Contact us

Get help filing for new federal disaster relief tax benefits. Complete the form below to connect with CLA.

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