January of 2025 has seen multiple Los Angeles wildfires rip through the county and destroy thousands of homes and businesses. On January 8, 2025, President Biden declared Los Angeles County as a major disaster area. This declaration provides some tax relief for residents of Los Angeles County and those affected by the wildfires.
Filing Extension for 2024 Tax Returns
The IRS has given an automatic extension for all Los Angeles taxpayers for both personal and corporate 2024 tax returns and payments. The extended deadline is now October 15th, 2025. This extension also includes all quarterly estimated payments that are due through September 2025, quarterly payroll and excise payments due July 2025, and IRA or health savings account contributions for 2024.
The same filing extensions apply to California state tax returns. All are extended until October 15th, 2025.
For more information, you can go to: Federal Tax Relief and CA Tax Relief
Tax Deductions for Disaster Losses
Disaster losses, which are also referred to casualty losses, may be deductible on your tax return. Disaster losses include personal-use property, such as your home, your car, and/or household items that were lost or damaged within the home (e.g., furniture, jewelry, appliances, televisions, computers, etc.) These deductions may also be claimed for businesses or income-producing property as well.
How to Calculate the Deductible Amount
Home Declared Unsafe
If your home is declared unsafe to return to by state or local government order, then the amount you can deduct is the decrease in the fair market value (FMV) of the home, which is the FMV of the property before the disaster minus the FMV of the property after the disaster. Example: The FMV of your home prior to the disaster was $225,000. After the disaster, it was appraised for $70,000. The decrease in your FMV is $155,000. You will then subtract any insurance or other reimbursements you received. If you received $110,000 in reimbursements, then the amount you may be able to deduct $45,000.
To take this deduction, the unsafe order must be given 120 days after the disaster was declared.
Home Damaged But No Unsafe Order
In this case, the amount that you can deduct for a home or other property is the smaller amount of the following two scenarios:
- The adjusted basis of the property before the loss. In other words, what you originally paid for the property, as well as closing costs, refinance costs, and/or any major improvements to the property.
Example for 1: You paid $200,000 for your home, had $5,000 in closing costs, and made major improvements for $15,000. Your total adjusted basis is $220,000.
- The decrease in the fair market value (FMV) of the property, which is the FMV of the property before the disaster minus the FMV of the property after the disaster. Please note: You may have to get an appraisal of your home.
Example for 2: The FMV of the same home prior to the disaster was $225,000. After the disaster, it was appraised for $70,000. The decrease in your FMV is $155,000.
Once you have the smaller of the above scenarios, you will then subtract any insurance or reimbursement payments that you received. Using our example, the decrease in FMV $155,000 is smaller than the adjusted cost basis $220,000, so you will use the $155,000 when you subtract any reimbursements you received. If you received $110,000 in reimbursements, you may be able to deduct $45,000.
Any payments received through an employer emergency disaster fund or as a cash gift or through insurance for living expenses cannot be subtracted as a reimbursement for these deductions.
Please Note: If you receive an insurance reimbursement that is more than your disaster loss, you may have to pay taxes on the extra amount, known as a casualty gain.
When to Claim Disaster Loss Deductions
Both individuals and businesses can claim these deductions in the year the loss occurred or the prior year. Since the Los Angeles wildfires were declared a federal disaster in 2025, anyone affected can claim the deductions on their 2024 tax return or their 2025 tax return. The benefit of claiming it on your 2024 return is that you would get your refund sooner, however you may need to estimate the reimbursement you expect to get and amend that return later if the amount is different.
Disaster Relief Payments That Are Not Taxable
Some payments you receive after the disaster may not be taxable. They include:
- Qualified disaster relief payments from a government agency for food, medical supplies, or other reasonable living expenses.
- Some early IRA distributions may not be taxable if your plan has a special disaster policy or a hardship withdrawal. You will have to check with your plan.
- If you receive money from a crowdfunding campaign, such as GoFundMe, it is considered a gift and is not taxed as long as those donating do not receive anything in return for the donation.
Disaster Relief Payments That Are Taxable
On the other hand, you may receive a payment after a disaster that is still taxable. These include:
- Disaster unemployment payments are considered taxable unemployment benefits.
- Disaster relief grants for businesses are taxable.
- Any amount of insurance payments for living expenses that are more than your temporary increase in living expenses.
Important Documents and Records to Keep
You’ve just experienced a disaster and the last thing you want to think about is paperwork. We get it. But to claim deductions related to the Los Angeles wildfires, you do need to keep important records and documents. These include records of all of the property you lost and the cost basis and FMV of that property. The IRS provides a workbook that will help you organize and keep track of these losses. You can find it here: https://www.irs.gov/pub/irs-pdf/p584.pdf
Also any appraisal for your damaged property, as well as any and all paperwork regarding insurance reimbursements that you receive for your property and/or living expenses.
We know this is a lot of information to take in while you’re still reeling from the effects of wildfires. When the time comes to do your 2024 tax return, please reach out to Moore & Paquette Tax Group, and we will help you through it.
Disclaimer: Tax laws can change at any time. Please contact a tax preparer for the most up-to-date information.