Victims of presidentially declared disasters in recent years who couldn’t previously claim a casualty loss deduction may now qualify for a refund. Additional tax relief may also be available. Read on to learn more about potential opportunities for disaster victims.

Loosened Restrictions for Casualty Losses

The Federal Disaster Tax Relief Act (FDTRA), signed into law by former President Biden in December 2024, expands access to deductions for disaster-related personal casualty losses. The law removes previous barriers, making it easier for taxpayers to claim relief.

Previously, only taxpayers who itemized deductions could claim casualty loss deductions. Additionally, the deduction was limited by a $100 reduction per loss, and only the amount exceeding 10% of adjusted gross income was deductible. The 10% rule applied after the $100 reduction.

Under the FDTRA, those restrictions no longer apply to casualty losses from presidentially declared disasters(referred to as “qualified disaster losses”) that occurred between December 28, 2019, and December 12, 2024, and ended no later than January 11, 2025. (This relief does not apply to the 2025 California wildfires. See “Wildfire Relief” below for additional information.)

Additionally, the presidential disaster declaration must have occurred between January 1, 2020, and February 10, 2025. The law sets a $500 minimum per separate casualty loss before deductions apply.

Casualty losses are generally deducted in the year they occur. For example, if a qualified disaster happened in 2022, but an insurance company denied the claim in 2024, the loss would be deducted on the 2024 tax return. The FDTRA now allows taxpayers to deduct losses in the tax year before the disaster occurred if they choose.

Wildfire Relief

The FDTRA allows qualified wildfire relief payments—including those made to Los Angeles County taxpayers affected by the 2025 California wildfires—to be excluded from taxable income. Estimates suggest this provision will return $512 million in taxes to wildfire victims. Additionally, the law protects 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 covers compensation for:

• Additional living expenses
• Lost wages (except those paid by an employer)
• Personal injury
• Death
• Emotional distress

The compensation must result from a federally declared disaster due to a forest or range fire declared after December 31, 2014. Payments must be received between tax years 2020 and 2025. However, insurance reimbursements and similar payments do not qualify.

The law prohibits double-dipping—you cannot claim a deduction or credit for an expense that has been excluded from income under this provision. Additionally, if you use excluded qualified payments to purchase or improve property, the excluded amount cannot increase your property’s tax basis.

The IRS has extended filing deadlines for individuals and businesses in Los Angeles County affected by wildfires and straight-line winds beginning January 7, 2025. These taxpayers now have until October 15, 2025, to file federal tax returns and make payments.

The new deadline covers:

• Individual income tax returns and payments due April 15, 2025
• 2024 estimated tax payments originally due January 15, 2025 and quarterly estimated tax payments due on April 15, June 16, and September 15, 2025
• Quarterly payroll and excise tax returns due January 31, April 30, and July 31, 2025
• Calendar-year partnership and S corporation returns due March 17, 2025
• Calendar-year corporate and fiduciary returns due April 15, 2025
• Calendar-year tax-exempt organization returns due May 15, 2025

East Palestine Train Derailment Relief

The FDTRA also provides tax relief to victims of the East Palestine, Ohio, train derailment on February 3, 2023. “East Palestine Train Derailment Payments” can be excluded from taxable income.

These payments include compensation for:

• Loss
• Damages
• Expenses
• Loss in real property value
• Closing costs (including realtor commissions)
• Inconvenience (including access to real property)

To qualify, the compensation must come from a government agency, Norfolk Southern Railway, or any related subsidiary, insurer, or agent.

Next Steps for Taxpayers

If you qualify for tax relief under the FDTRA and already filed a return without claiming the benefits, you must file an amended return to claim them.

We can electronically file your amended return for the current or prior two tax years. For older tax years or if the original return was filed on paper, you must submit Form 1040-X, Amended U.S. Individual Income Tax Return, by mail. If filing electronically, you can choose direct deposit for any refund.

If you have questions or need assistance, contact us today to ensure your return is accurate and takes full advantage of these tax benefits.