As detailed in our December 20, 2024 Client Alert, victims of federally declared disasters who previously could not claim a casualty loss deduction may now be able to request a refund under the Federal Disaster Tax Relief Act (FDTRA) due to the expanded definition of “qualified disaster.” Unfortunately, the 2025 California wildfires, declared as a major disaster on January 7, 2025, do not fall within FDTRA’s definition of a “qualified disaster.” Consequently, unless Congress further broadens the definition, you will be able to deduct a personal casualty loss from this disaster only if you itemize your deductions and your loss exceeds the sum of 10% of your adjusted gross income and $100. However, other potential opportunities are available for those affected by this disaster. Continue reading to learn more.
The FDTRA states that “qualified wildfire relief payments,” including those made to Los Angeles County taxpayers impacted by the 2025 California wildfires, can be excluded from gross income for tax purposes. This provision is estimated to return $512 million in taxes to wildfire victims. It will also safeguard payment recipients from losing certain income-based benefits, such as health insurance premium subsidies, Veterans Administration co-pay assistance, and federal student aid.
The exclusion applies to any amount received by or on behalf of an individual as compensation for losses, expenses, or damages. This includes:
- Additional living expenses;
- Lost wages (excluding compensation for lost wages paid by an employer who would otherwise have paid those wages);
- Personal injury;
- Death; and
- Emotional distress.
The compensation must be provided for a federally declared disaster declared after December 31, 2014, resulting from a forest or range fire. Payments must be received during tax years beginning after December 31, 2019, and before January 1, 2026. Compensation from insurance and other reimbursements does not qualify for the exclusion.
The law prohibits double-dipping. Deductions or credits cannot be claimed for any expense excluded from income under this provision. Additionally, if excluded qualified payments are used to purchase or improve property, the basis or adjusted basis in the property cannot be increased by the excluded amount.
The IRS is providing relief for individuals and households affected by the 2025 California wildfires, specifically those in Los Angeles County who reside, operate a business, or maintain business records there. The new deadline for these taxpayers to file federal individual and business tax returns and make tax payments is October 15, 2025.
This new deadline applies to individual income tax returns and payments ordinarily due on April 15, 2025. This relief also includes the 2024 estimated tax payment due on January 15, 2025, and estimated tax payments normally due on April 15, June 16, and September 15, 2025.
Furthermore, it applies to:
- Quarterly payroll and excise tax returns ordinarily due on January 31, April 30, and July 31, 2025;
- Calendar-year partnership and S corporation returns typically due on March 17, 2025;
- Calendar-year corporation and fiduciary returns and payments generally due on April 15, 2025; and
- Calendar-year tax-exempt organization returns customarily due on May 15, 2025.
Next steps for taxpayers
Please contact us with any questions or to potentially take advantage of the opportunities described herein.
For more information, please contact Michael Loesevitz at [email protected] or your ORBA advisor at 312.670.7444. Sign up here to receive our blogs, newsletters and Client Alerts.
Related Services
Related Industries
Dental
Health Care
Law Firms and Lawyers
Manufacturing and Distribution
Not-For-Profit
Real Estate
Restaurant
Sports & Entertainment
