Tax Relief for Californians Impacted by Storms

Following severe winter storms in California, federal and state authorities have announced tax relief measures. These provisions are designed to assist individuals and businesses grappling with the financial aftermath of these federally-declared disasters, allowing affected taxpayers to focus on recovery.

Determining Your Eligibility for Relief

To access this relief, you must be considered an “affected taxpayer” by the IRS, which has specific geographic and situational requirements. The primary determinant is location; individuals who reside in and businesses whose principal place of business is located within the counties designated as disaster areas by the Federal Emergency Management Agency (FEMA) are eligible. For the storms beginning January 21, 2024, this includes San Diego County.

Eligibility is not strictly limited to residents and businesses within the designated counties. Relief workers affiliated with a recognized government or philanthropic organization who are assisting in the recovery efforts also qualify. Individuals who live outside the declared disaster area but whose necessary tax records are located within an impacted county can also receive relief.

Understanding the Available Tax Relief

A primary form of relief was the postponement of tax filing and payment deadlines. For taxpayers in FEMA-designated disaster areas affected by the January 2024 storms, the IRS extended various deadlines that fell on or after January 21, 2024, to June 17, 2024. This extension applied to 2023 individual income tax returns and payments, 2024 first and second quarter estimated tax payments, and returns for business entities, such as calendar-year corporations and S corporations.

Another form of disaster relief is the ability to deduct casualty losses on your federal income tax return. A casualty loss is the damage, destruction, or loss of your property resulting from an identifiable event that is sudden, unexpected, or unusual, such as a storm or flood. To be deductible, these losses must be from a federally-declared disaster and not be reimbursed by insurance or other means.

Taxpayers have a choice when claiming these losses. You can elect to deduct the loss on the tax return for the year the disaster occurred—in this case, the 2024 return that will be filed in 2025. Alternatively, you can choose to deduct the loss on the return for the immediately preceding year by filing an amended 2023 return. This option can provide a quicker tax refund, which can be a source of funds for recovery. The decision depends on your income levels in both years, as deducting the loss in a higher-income year may result in greater tax savings.

Information and Documentation for Claiming Relief

To claim a disaster-related casualty loss, you must compile documentation to substantiate the amount of your loss. This process begins with gathering proof of ownership, such as deeds for real property and receipts for personal property. It is also helpful to have photographs of the property from before and after the disaster to show the extent of the damage.

The financial calculation of the loss requires specific data. You will need to determine your adjusted basis in the property, which is the original cost plus the value of any improvements, minus any depreciation. You must also establish the fair market value of the property immediately before and after the storm; appraisals, contractor repair estimates, and sales of similar property can serve as evidence for these values. Any insurance reimbursements received must be documented, as they reduce the deductible amount.

If your records were destroyed in the disaster, the IRS allows for reasonable reconstruction. This can involve obtaining previous tax returns, using online property assessment data to help establish value, or getting statements from lenders. The goal is to create a credible and supportable record of your property’s value and the financial impact of the storm.

How to Claim Disaster-Related Tax Relief

For many affected taxpayers, the extension of filing and payment deadlines was automatic. The IRS identified taxpayers with an address of record in the FEMA-designated disaster counties and applied the June 17, 2024, deadline to their accounts. If you were eligible but did not have an address of record in the disaster area, such as a relief worker, you may need to call the IRS disaster hotline to request the relief.

Claiming a casualty loss is a more active process that requires specific tax forms. You must complete IRS Form 4684, Casualties and Thefts, to calculate and report your loss. The information gathered, such as your property’s adjusted basis and the decline in its fair market value, will be entered on this form. The resulting loss amount is then carried over to Schedule A of Form 1040.

To ensure the IRS processes your return correctly, you must identify the specific disaster on Form 4684. For the storms that began on January 21, 2024, you must enter the disaster declaration number, DR-4758-CA, and the disaster name, “California Severe Storm and Flooding,” at the top of the form. This notation alerts the IRS to apply the special rules associated with disaster-area losses, such as the option to claim the loss in the prior tax year.