On Dec. 12, 2024, President Biden signed the Federal Disaster Tax Relief Act of 2023 (H.R. 5863) into law (NOTE: “2023” is not a typo).
This legislation, passed by Congress on December 6, provides favorable tax provisions for disaster victims, including the elimination of the requirement that personal casualty losses must exceed 10% of adjusted gross income (AGI). While Congress typically passes a bill to cover major disasters at the scale of Hurricane Ida (2021) and Hurricanes Ian (2022) and Helene and Milton (2024), there have been delays in passing legislation since 2021— even though there appeared to be bipartisan support for such legislation.
The legislation allows taxpayers to file amended returns or seek refunds for losses that were previously nondeductible. Taxpayers suffering losses from federally declared disasters between 2021 and 2023 may be able to amend returns; and taxpayers suffering losses in 2024 may be able to deduct those losses on their 2024 tax returns.
The bill provides relief in three general areas:
- Disaster Loss Relief – Provides disaster relief by extending certain provisions of the Taxpayer Certainty and Disaster Relief Act of 2020 for losses occurring after December 27, 2020.
- Waives the 10% of adjusted gross income limitation.
- Sets casualty loss floor to $500, allowing a deduction for losses exceeding that amount.
- Allows individuals to add the casualty loss deduction to their standard deduction (itemization of deductions is not required to claim the loss).
- Wildfire Relief – Provides that gross income excludes “any amount received by an individual as a “qualified wildfire relief payment.”
- Any amount received by or on behalf of an individual as compensation for losses, expenses, or damages—including compensation for additional living expenses, lost wages (other than compensation for lost wages paid by the employer which would have otherwise paid such wages), personal injury, death, or emotional distress—incurred as a result of a qualified wildfire disaster but only to the extent that the losses, expenses or damages compensated by such payment are not compensated by insurance or otherwise.
- A qualified wildfire disaster is any federally declared wildfire disaster declared after December 31, 2014 as a result of any forest or range fire.
- Applies to qualified wildfire relief payments received by the individual during taxable years beginning after December 31, 2019, and before January 1, 2026.
- Extends statute of limitations for claiming a credit or refund to 1 year after date of enactment
- East Palestine Train Derailment Relief – provides that East Palestine train derailment relief payments are treated as qualified disaster relief payments under IRC §1239; this allows for the exclusion from gross income of compensation-related payments received after February 2, 2023 received from:
- a Federal, State, or local government agency;
- Norfolk Southern Railway, or
- Any subsidiary, insurer, or agent of Norfolk Southern Railway or any related person.
The eligible payments include any amount received by or on behalf of an individual as compensation for (i) loss, damages, expenses, loss in real property value, (ii) closing costs with respect to real property (including realtor commissions), or (iii) inconvenience (including access to real property).
Disaster Tax Relief Declaration Steps
- Determine if a disaster qualifies. Identification of disaster declarations can be found here https://www.fema.gov/disaster/declarations. Taxpayers, and their advisors, can perform various search inquires by state, type of disaster, year, or combinations. For example, tropical storm Debby in 2024 and remnants of Hurricane Ida in 2021 impacted certain Pennsylvania residents and qualify as federally declared disasters; and other tornados occurring in Ohio in March 2024 also qualify.
- Determine if an amended return is warranted.
Please do not hesitate to reach out to your Schneider Downs tax advisor with questions or for more information.
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