Casualty Loss Relief for Victims of Qualified Disasters

Jan 22

Below is an explanation of casualty loss relief afforded by the IRS for victims of federally declared disasters resulting in casualty losses, disaster losses and qualified disaster losses.

Tax Provisions

The IRS provides tax relief in the form of tax provisions by extending deadlines for filing and payment of individual, business and payroll taxes. Quarterly estimated tax payments and deadlines for IRA and HSA contributions are also extended. Additionally, distributions from IRA accounts for qualified disaster relief will not be subject to the 10% early withdrawal penalty.

Funds received by the taxpayer for disaster relief and assistance are excluded from gross income including amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Claiming Losses

A taxpayer may use form 4684 to claim qualified disaster losses to either personal use property or business use property. The taxpayer may claim the loss in the tax year of the event or the tax year immediately preceding the disaster.

If your property is personal-use property or isn't completely destroyed, the amount of your casualty loss is the lesser of:

The adjusted basis of your property, or
The decrease in fair market value of your property as a result of the casualty

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 minus any salvage value or insurance or other reimbursement you receive or expect to receive.

The taxpayer may amend a previous year's return to claim a casualty loss by completing Section D Part 1 of form 4684. The taxpayer will indicate the federally declared disaster using the FEMA declaration number that can be located by going to https://www.fema.gov/disaster/declarations. The most recent disasters are listed below:

Florida Hurricane Milton (DR-4834-FL)

Incident Period: October 5, 2024 - November 2, 2024

Major Disaster Declaration declared on October 11, 2024

Florida Hurricane Helene (DR-4828-FL)

Incident Period: September 23, 2024 - October 7, 2024

Major Disaster Declaration declared on September 28, 2024

Florida Hurricane Debby (DR-4806-FL)

Incident Period: August 1, 2024 - August 27, 2024

Major Disaster Declaration declared on August 10, 2024

California Wildfires and Straight-line Winds (DR-4856-CA)

Incident Period: January 7, 2025 - current

Major Disaster Declaration declared on January 8, 2025