The thousands of Californians who have lost their homes or businesses and the tens of thousands more who have been evacuated during the Los Angeles fires may be able to get some relief from the tax code and its guardian, the Internal Revenue Service.
That help comes in the form of casualty loss deductions, more generous rules on tapping into retirement accounts and delayed deadlines for tax filings and payments. Of course, like just about everything related to taxes, it can get complicated. And the loss of personal records—or the fact that your tax pro, if you have one, may himself be dealing with a burned out home or office–doesn’t make it any easier.
At the same time, those who want to help fire (or other disaster) victims, may be able to claim a charitable deduction. You can read all about how to aid fire victims–and maybe get Uncle Sam to pitch in with a tax break–here.
Tapping Retirement Accounts
One relatively new and little-known relief provision was created by Congress in 2022’s Secure Act 2.0: If you’re living in a federally declared disaster area like Los Angeles and need cash fast for disaster related expenses, you may be able to withdraw up to $22,000 from an IRA or workplace retirement savings account, such as a 401(k) or 403(b), without paying the normal 10% early withdrawal penalty.
This provision is available not only to those who have lost their homes, but also to those who need cash fast to cover evacuation related costs or disaster-related income losses. While you’ll still owe ordinary income taxes on this withdrawal, you can spread the income and taxes over three years and can even repay the withdrawal to your retirement account within that period, reclaiming any taxes you’ve already paid on the distribution. (The IRS has more details here on the new qualified disaster distribution rules. You use IRS Form 8915-F to report disaster distributions and re-contributions.)
A disaster withdrawal could well be a more appealing way to tap retirement funds than the older, broader tax code provision allowing a hardship withdrawal from a 401(k). That’s because a hardship withdrawal is fully taxed in the year you take it and is usually subject to the 10% early withdrawal penalty if you’re taking the money before the age of 59 ½. Plus, you can’t put the money back later, so you’ll be shrinking your tax deferred retirement nest egg.
Another option: a loan from your 401(k). You can borrow up to half your vested balance or $50,000, whichever is less (one quick exception to this rule: if 50% of your balance is less than $10,000, you can borrow up to $10,000). But if you don’t repay the loan, it will be treated as a taxable distribution, possibly subject to that 10% early distribution penalty. Be aware that 401(k) plans aren’t required to offer disaster distributions, hardship distributions or loans. So check with your plan administrator first.
Big IRA custodians Fidelity Investments , Charles Schwab and the Vanguard Group all allow disaster distributions and re-contributions. But the tax law doesn’t allow loans from IRAs.
Casualty Losses
If your home or business has been lost or damaged, $22,000 or even $50,000 won’t go very far.
Since the Trump tax reform (the Tax Cuts and Jobs Act) passed in 2017, most Americans are no longer able to claim casualty loss deductions. But crucially, individuals and businesses who are in a federally declared disaster area–such as L.A. now or disaster areas declared last fall after Hurricanes Helene and Milton– are still entitled to the deduction, with some new restrictions.
In general, you can claim a casualty loss deduction for a disaster either on the return for the year the loss occurred (that’s the 2025 return filed in 2026 for losses due to the L.A. wildfires) or the return for the prior year (that’s the 2024 return normally filed in 2025). The key point: Affluent Californians who paid a lot of federal taxes during 2024 through salary withholding or estimated tax quarterly payments, might now be able to claim a big refund of those payments.
You have up to six months after the due date of your income tax return for the disaster year (without regard to any extension of time to file) to make the election—that means until October 15, 2025. Write the Federal Emergency Management Agency declaration number–4856-DR for the L.A. fires−on any return claiming a loss. You can find all the FEMA declaration numbers (including those for last fall’s Helene and Milton hurricanes) by searching here.
When figuring the amount of your loss, you’ll need to reduce the total by any insurance or other reimbursement you receive or expect to receive. That means you’ll want to keep great records. Sadly, some California homeowners were hit recently with canceled policies or huge premium hikes and didn’t even have insurance.
If you do have insurance, file a claim with your insurance company immediately. (FEMA assistance and special Small Business Administration low-interest rate disaster loans for businesses and homeowners aren’t available for losses already covered by insurance.)
You can estimate what you’ll recover from insurance when you claim a casualty loss on your taxes. If it turns out that you received more or less than expected from insurance, you can amend your return (or otherwise report the adjustment on next year’s return).
Among the changes from the 2017 tax overhaul: you can no longer claim any miscellaneous itemized deductions, including for your unreimbursed employee business expenses. That means that the losses of any equipment you maintain to perform services as an employee (say that second computer or monitor that you use at home solely for work) aren’t deductible as casualty losses either.
To claim a casualty loss on your individual tax return, you must itemize your deductions using Schedule A, Itemized Deductions. The number that goes on Schedule A, line 15, is figured using Form 4684, Casualties and Thefts.
Where you report depends on the kind of property. On Page 1, at Section A of that form, you’ll report any damage or loss of personal-use property like your home or car. On Page 2, at Section B of that form, you’ll report any damage or loss of business or income-producing property. (That’s still deductible if you’re self-employed or own a business.)
If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis. For this purpose, your basis is typically what you paid for the item plus any long term improvements minus any depreciation that you might have previously claimed on that business property.
If your property is personal-use property or is not entirely destroyed, the amount of your loss is the lesser of your adjusted basis or the decrease in the fair market value of your property because of the damage. (You may be able to establish the pre-disaster fair market value of a home by reviewing comparable sales in your neighborhood. Remember, even if your house is destroyed your land is still worth something, so the fair market value isn’t zero now. )
For this purpose, your basis is typically what you paid for the item plus any long term improvements (like a house addition). Improvements can also include decks, fencing, or a new roof. The IRS requires you to be able to substantiate those costs. That’s easy when you have receipts—but what if your records were destroyed in a fire? You can often reconstruct the cost of improvements using canceled checks or credit card statements (your bank may have those records), insurance policies showing additional coverage after the improvements, mortgage statements (if you refinanced to pay for the improvements), and digital photos. If you used a local contractor, they may also have records that they could share. In a pinch, to confirm the original basis, check the county assessor’s office for older records.
For damage to personal-use property not covered or reimbursed by any insurance, subtract $100 for each event (meaning storm or disaster). Next, subtract 10% of your adjusted gross income (AGI) from that amount to calculate your allowable loss.
Here’s a quick example:
Your AGI is $100,000. Your house–with an adjusted basis of $500,000–was destroyed in the L.A. wildfires. You received $400,000 in insurance money. Your initial loss is $100,000 ($500,000 minus $400,000). That amount is reduced to $99,900 ($100,000 less $100). Finally, subtract $10,000 (10% of your AGI). Your casualty loss, for tax purposes, is $89,900. .
Confused? Your tax professional or tax software should be able to figure your deductible losses, and the IRS has a workbook specifically designed to help out with personal-use property.
If, after you figure your loss deduction, it’s more than your income, you may have a net operating loss. It turns out you don’t have to own a business to claim this loss. You can find out more about operating losses here. (You can find out more about losses at IRS Publication 547.)
Filing and Payment Relief
The tax relief associated with the L.A. fires postpones various tax filing and payment deadlines from January 7, 2025, through October 15, 2025. The result is that affected individuals and businesses in those areas will have until October 15, 2025, to file returns and pay any taxes originally due during this period.
For individuals, this means that the new October 15, 2025, deadline applies to individual income tax returns and payments normally due on April 15, 2025, as well as 2024 contributions to IRAs and health savings accounts for eligible taxpayers. It also applies to 2024 quarterly estimated income tax payments normally due on January 15, 2025, and 2025 estimated tax payments normally due on April 15, June 16 and September 15, 2025.
Businesses, including tax-exempt organizations, are also extended to October 15, 2025. That includes calendar-year partnership and S corporation returns ordinarily due on March 17, 2025, calendar-year corporation and fiduciary returns and payments due on April 15, 2025, and calendar-year tax-exempt organization returns due on May 15, 2025.
Quarterly payroll and excise tax returns normally due on January 31, April 30 and July 31, 2025, are extended to October 15, 2025. In addition, penalties for failing to make payroll and excise tax deposits due on or after January 7, 2025, and before January 22, 2025, will be abated so long as the deposits are made by January 22, 2025.
Most taxpayers won’t need to do anything to get this deadline relief. The IRS automatically provides filing and penalty relief to taxpayers with an IRS address of record in the disaster area.
It is possible an affected taxpayer may not have an IRS address of record located in the disaster area—maybe you’ve moved, for example. If you’re entitled to relief but receive a late filing or payment penalty notice from the IRS, you should call the number on the notice to have the penalty abated.
The IRS will work with any taxpayer who lives outside the disaster area but whose records are necessary to meet a deadline occurring during the postponement period if those records are located in the affected area. This also includes relief workers affiliated with a recognized government or philanthropic organization. Those taxpayers need to contact the IRS at 1.866.562.5227.
Disaster area tax preparers with clients located outside the disaster area can choose to use the bulk requests from practitioners for disaster relief option, described on IRS.gov.
Getting Tax And Legal Help
Don’t have a tax pro?
The IRS disaster assistance and emergency relief for individuals and businesses page has details on other returns, payments, and tax-related actions qualifying for relief. Unfortunately, the main source of free human tax help–the IRS-funded Volunteer Income Tax Assistance (VITA) sites–can’t help you claim disaster losses. (It’s considered too complicated.)
California has a statewide legal assistance hotline (1.888.382.3406) that can provide disaster legal services for anyone impacted by the wildfires. The service is free to everyone. Callers will be directed to a DLAC partner in their county for help—if there isn’t a local legal aid office, callers will be directed to the DLAC Helpline voicemail.
Comprehensive information and legal resources for wildfire survivors, including help with insurance, housing, and consumer protection, are also available at DisasterLegalServicesCA.org. To get help, you may need identification documents that you can no longer access, the California State Bar has a list of agencies and the next steps to get a duplicate California driver’s license or identity card, birth certificate, marriage license, or other documents.
Of course some tax pros themselves now need help. The Association of International Certified Professional Accountants (AICPA) Benevolent Fund provides short-term financial relief to support members in the weeks following a natural disaster. To apply, download the application and follow the instructions.
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