In response to a Federally declared disaster, the taxing authorities often work to provide extra relief from tax obligations and deadlines to assist in reducing stress on those affected by disasters. The relief often takes the form of payment and deadline extensions, ability to claim casualty losses on those affected, as well as relief from taxation on payments received related to the disaster. In California, the most recent Federal disaster declaration was in Los Angeles for the wildfires that began in early January. We have compiled some of the more relevant guidelines & limitations available to Los Angeles residents in the Federally-declared disaster areas.
Postponements Allowed & Disallowed Until October 15, 2025
- Tax filings &/or payments originally due between January 7th and October 15th, 2025 are postponed for individuals, businesses, fiduciaries, foundations, and tax-exempt organizations located in LA County until October 15, 2025.
- Federal postponement EXCLUDES information returns (W-2, 1098, 1099, payroll tax, excise tax, etc.).
- In general, Federal relief is automatic based on zip code.
- Quarterly estimated tax payments due January through September 15, 2025 are postponed until October 15, 2025
- IRA and HSA contributions for the tax year ending December 31, 2024 have an extended due date of October 15, 2025.
In addition to the above, California has also implemented the following:
- Relief is NOT automatic based on zip code; postponements must be requested.
- 2025 LLC annual tax payments normally due April 15, 2025 are postponed until October 15, 2025.
- PTET payments due normally due March 15, 2025 & June 15, 2025 are postponed until October 15, 2025
- Non-resident withholding as well as real estate tax withholding filings are postponed until October 15, 2025.
Excludable Income & Exceptions
The following sources of income are not considered taxable for income tax purposes:
- Qualified disaster relief payments (regardless of source) for damages or other expenses NOT covered by insurance can be excluded from taxable income if received in 2025.
- Wildfire settlements are excluded from taxable income if received in 2025 for both Federal and California.
- Qualified disaster recovery distributions from retirement plans up to $22,000 annually receive special treatment:
- The standard 10% early withdrawal penalty is waived.
- Distributions are included in taxable income unless recontributed within 3 years.
- Distributions are recognized ratably over 3 years, unless the taxpayer elects to include all income in the year of distribution.
- To qualify as a disaster recovery distribution the taxpayer must have an economic loss, and the distribution must be made within 180 days of disaster.
- Qualified employment retirement plan loans up to $100,000 excluded if repaid within required timeframe plus an additional year for disaster relief.
* Note: California does NOT conform, and instead loans are limited to $50,000. - Crowdfunding proceeds are excluded by the recipient as non-taxable gifts.
Casualty & Disaster Allowances
- Casualty loss/gain is calculated by subtracting insurance or other reimbursements received from the smaller of (1) the decrease in FMV or (2) Adjusted basis. After this calculation is completed, taxpayers must further reduce their loss by $100 and also by 10% of their Adjusted Gross Income for the Year to determine their overall tax casualty loss.
- If a taxpayer had multiple properties for which they’re claiming casualty and disaster losses, they can do so on their 2024 tax return (even though the damage occurred in 2025) or on their 2025 return.
- Unfortunately, the Federal Disaster Tax Relief Act of 2023, which provided additional relief related to the casualty loss provisions, only applies to Federal declared disasters occurring between January 1, 2020, through December 12, 2024. At this time, we believe that the $100 reduction and 10% Adjusted Gross Income threshold to deduct casualty losses will apply to Los Angles wildfire victims.
- California conforms to the above current provision.
- In certain circumstances, taxpayers may have a casualty gain after considering all of their insurance reimbursements and tax basis in their properties. Primary residence gain exclusion rules were enhanced for homeowners to try to reduce the tax effect:
- Destroyed or condemned properties that are deemed “qualified sale” will qualify for gain exclusions.
- Due to the “unforeseen circumstances” of the fires, taxpayers who have not met the two-year occupancy requirements may still qualify for a prorated exclusion.
- Some taxpayers may also be eligible to defer paying tax on their gain under IRC Section 1033 which allows deferral of the gain if the proceeds are reinvested in the repair, reconstruction or replacement of the damaged property within 4 years.
Property Tax Relief
- Property taxes for specific LA County zip codes have been postponed to April 2026.
- Taxpayers who are considered delinquent as of January 6, 2025, and impounded properties do NOT qualify for the postponement.
- Taxpayers can file a claim with the California County Assessor to have their property reappraised. Timeframes to submit claims may vary based on county ordinance.
Payment Reminders
The IRS and CA Francise Tax Board caution against lumping payments together. When tax payments are made, all payments should clearly indicate the applicable tax year & tax form/type.
Documentation is Key
Unfortunately, many unqualified taxpayers have taken advantage of disaster loss area benefits. As such, this does tend to be an area that both the IRS and California Franchise Tax Board will inspect closely once a return is filed. Documentation is critical when claiming these larger losses:
- Record evidence of before & after disaster property value from appraisals, images, or videos.
- Do not discard, clean up, or begin repairs without documenting conditions.
- Save copies of receipts for expenses paid for housing, food, personal needs, etc.
- Maintain a detailed list of personal property items lost or damaged & their value.
- Save emails, claim submissions, other correspondence with insurance, FEMA, etc.
- Contact mortgage company &/or title company to substantiate ownership records.
- Contact prior repairpersons or construction companies to re-create basis records.
This list is not exhaustive and is intended to offer a general overview of various disaster relief items available. Please note that if you have a residence or business located in a separate Federally declared disaster area, the Realize team will review with you directly the specific provisions that apply in your situation. We are here to help, and we encourage you to speak with us about your specific tax situation.
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