The Southern California wildfires have left many residents facing devastating losses, including damage or destruction to their homes. If you’re among the thousands affected, it’s important to understand the available tax relief options you can access. On Friday, January 10, the IRS announced several tax relief provisions for Los Angeles County residents and businesses to help alleviate the financial impact of the ongoing wildfires.
Here’s what you need to know:
Extended Tax Deadlines
The tax filings and payment deadlines for individuals and businesses affected by the wildfires have been automatically extended, including various tax returns and payments due in the next several months. An October 15, 2025, deadline will now apply to ALL the following individuals and businesses:
- 2024 individual income tax returns and payments normally due on April 15, 2025.
- 2024 contributions to IRAs and HSAs (health savings accounts) for eligible taxpayers.
- 2024 fourth quarter estimated taxes due January 15, 2025, and 2025 quarterly estimated taxes due April 15, June 16, and September 15, 2025.
- Quarterly payroll and excise tax returns due on January 31, April 30, and July 31, 2025.
- 2024 calendar year partnership and S corporate income tax returns due on March 17, 2025.
- 2024 calendar year C corporate and trust income tax returns and tax payments due on April 15, 2025.
- 2024 calendar year nonprofit tax returns due on May 15, 2025.
The California Franchise Tax Board has adopted the same extension periods for all similar state filings and tax payments.
Income Tax Relief
A personal casualty loss sustained in a federally declared disaster area, such as the loss of a residence, is typically allowed to the extent the loss exceeds 10% of adjusted gross income (AGI). However, since these wildfires are considered a qualified disaster (a major disaster declared by the president), the 10% AGI floor is eliminated and a taxpayer may take the loss as a deduction directly off their income. The recent wildfires have been classified as a qualified disaster since President Biden’s declaration on January 7, 2025.
Individual taxpayers can claim this type of casualty loss as an above-the-line deduction, meaning even without itemizing you can still take the casualty loss in addition to the standard deduction.
Unfortunately, the loss (damage to a personal residence) is limited to the lesser of:
- The residence cost basis including all improvements, or
- The residence decline in fair market value (FMV) due to the fire (FMV of the residence immediately before the fire minus FMV immediately after the fire).
This means if your home has increased in value since purchasing it there is a strict limitation on the loss of the property’s cost plus improvements. The bottom line: the FMV of the home before the fire has no bearing on the amount of loss that can be claimed.
In most cases, for personal residences covered by insurance, the coverage is most likely much greater than the original cost-plus improvements to the residence. As long as the insurance payments are used to repair/reconstruct the home or purchase a replacement home within four years of the year end of the loss, there will not be a taxable gain; however, if there is a portion unused to repair/reconstruct or replace, the excess will most likely will be considered taxable income. This deferral period will give those affected homeowners until December 31, 2029, to purchase replacement property if the decision is to replace versus rebuild.
With regards to insurance proceeds for unscheduled personal property that was contained in the principal residence in a federally declared disaster, no taxable gain will result. Most homeowner policies provide for a set value of 20-50% of the building coverage towards personal property contents (furniture, TVs, electronics, clothes, etc.). The exclusion of any taxation related to unscheduled personal property does not apply to scheduled personal property (fine art, coin or stamp collections, firearms, antiques, jewelry, or rare watches).
When to Claim the Disaster Loss
Taxpayers can either claim the loss in the year of the presidential-declared disaster or in the prior tax year. Since the fires are in January 2025, taxpayers can either take the deduction in 2025 or elect to claim the loss in 2024. The advantage to electing to claim the loss in the prior year is that you will receive almost immediate tax relief in possible 2024 tax refunds with the 2024 tax season underway. If you were to wait until early 2026 to file for the loss, you would lose the benefit of the use of a quick tax refund for another year.
The election to adopt a prior year loss must be made within six months of the regular due date for filing of the tax return without regards to any extensions to file.
If the damage to the personal residence creates a deductible loss on your taxes, you may benefit from both the casualty loss deduction as well as a net operating loss (NOL) deduction. This will occur if the loss exceeds your total taxable income in either the prior tax year (2024) or the current year (2025). Any excess loss is carried forward indefinitely.
Property Tax Relief
On January 16, California Governor Gavin Newsom announced the suspension of property tax payments until April 10, 2026, (a one year deferral) for homes in Los Angeles communities impacted by the California firestorms. This applies to properties in the following zip codes:
- 90019, 90041, 90049, 90066, 90265, 90272, 90290, 90402, 91001, 91040, 91104, 91106, 91107, 93535, 93536
If your home has been damaged or destroyed, you should be eligible for property tax relief. In such cases, the county assessor will reappraise the property to reflect its damaged condition. In addition, when it is rebuilt in a like or similar manner, the property will retain its prior value (Proposition 13) for tax purposes.
To qualify for property tax relief, you must file Form ADS-820 (Application for Reassessment: Property Damaged or Destroyed by Misfortune or Calamity) with the county assessor within 12 months from the date of damage or destruction. The loss estimate must be at least $10,000 of current market value to qualify the property for relief. The property will be reassessed according to its damaged state and property taxes will be adjusted downwards accordingly.
Be aware that you must pay all of your property tax bills that are due as you will be entitled to a refund once the reduced property tax assessment is determined through your filing of the Form ADS-820.
Base Year Transfer to Replacement Property
As of April 1, 2021, an owner of a primary residence whose California home has been destroyed by a wildfire or natural disaster in which the California governor has proclaimed a state of emergency can transfer the assessed value of their original primary residence that was damaged to a replacement primary residence anywhere in California that is purchased or newly constructed as that person’s principal residence within two years of the sale or destruction of the original primary residence.
Conclusion
Current reports are that the January 2025 SoCal wildfires may be the most expensive natural disaster in American history. The personal impact is devastating, with loss of life, livelihood, pets, homes, businesses, and cherished possessions. I wrote this article because many of my clients, their families, and friends have been directly or indirectly impacted by this unprecedented event. For advice on your individual tax situation, please feel free to reach out to me directly.