Article | by Solomon Lucas

The recent wildfires in Southern California have caused widespread devastation leaving many families, businesses, and communities in distress. Many have experienced displacement, severe property damage, total loss of their homes, and for some even the loss of life itself. As victims grapple with the aftermath, the federal and state governments provide several tax relief measures aimed at reducing the financial burden of those affected. If you are one of the thousands impacted, it is crucial for you to be aware of the tax relief options available to you. At a critical time, these measures both at the federal and state levels, provide a financial lifeline enabling wildfire victims to reduce taxes, access financial resources, and begin the rebuilding process.

Here is what to know:

Federal Tax Relief

Automatic Extension of Tax Filing and Payment

The IRS announced on January 10, 2025, that they will be automatically extending the deadlines for those affected by the wildfire in any disaster area designated by FEMA. Those residing in Los Angeles County qualify for relief. The extended deadline of October 15, 2025, will now apply to the following:

• Individual income tax returns and payments normally due on April 15, 2025.

• 2024 contributions to IRAs and health savings accounts for eligible taxpayers.

• 2024 quarterly estimated income tax payments normally due on January 15, 2025, and estimated tax payments normally due on April 15, June 16 and September 15, 2025.

• Quarterly payroll and excise tax returns normally due on January 31, April 30 and July 31, 2025.

• Calendar-year partnership and S corporation returns normally due on March 17, 2025.

• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025.

• Calendar-year tax-exempt organization returns normally due on May 15, 2025.

Casualty Loss Deduction

Former President Biden signed a major disaster declaration on January 8, 2025, for the wildfires affecting Los Angeles County. This move grants individuals and businesses the opportunity to access and apply for individual assistance programs administered by FEMA and many other programs intended to help cover the expenses of temporary displacement and/or replace destroyed property. This designation is critically important in regard to the tax treatment for losses incurred and would typically treat the wildfires as a “qualified” disaster.

However, the current language of the federal disaster tax relief act of 2023 precludes the 2025 wildfires from meeting the requirements to be considered a “qualified disaster” for tax purposes. The law signed into effect on December 12, 2024 requires the incident date to begin on or before December 12, 2024 and end no later than January 11, 2025. Due to this specific language the recent wildfires do not qualify for the more favorable tax treatment which eliminates the 10% AGI limitation for deductible casualty losses.   

A personal casualty loss that is sustained in a federally declared disaster area, typically allows for a deduction to the extent the loss exceeds 10% of AGI. In the event of a “qualified disaster” (Major Disaster Declaration), the 10% AGI floor is eliminated, and taxpayers can take an above the line deduction if the expense exceeds $500. A taxpayer may make an election to take the loss attributable to a disaster in the tax year immediately prior to the disaster tax year, effectively accelerating tax relief. This election can be made on Form 4684, Section D, Part 1.

Eligible casualty losses must be caused by a sudden, unexpected, or unusual event and the damage must be beyond normal wear and tear. Prior to deducting any casualty losses, you will need to determine the property’s value. For property that is still salvageable, the amount of loss is determined by the lesser of the adjusted basis of property including all improvements or the decline in fair market value due to the fire less any insurance recoveries or other forms of reimbursement.

As the current landscape stands, we are awaiting congressional action to determine whether additional relief will become available for those affected and whether there will be any changes to the current language regarding a “qualified disaster”.   

Qualified Disaster Relief Payments

Employers can make direct payments to affected employees as a means of additional support. Section 139 of the Internal Revenue Code allows for certain disaster-related payments to be excluded from taxable income. If an employer provides financial assistance to an employee due to a federally declared disaster, such as covering costs for temporary housing or replacing lost property, those payments are not considered taxable income.

Qualified Wildfire Relief Payments

Government agencies, and other charitable organizations also offer financial assistance to those affected by the wildfires. These payments are meant to compensate for additional living expenses, lost wages, personal injury, death, or emotional distress. Section 139 also covers qualified wildfire relief payments and the exclusion from gross income.

State and Local Tax Relief

Automatic Extension of Tax Filing and Payment

Governor Gavin Newsom announced on January 11, 2025, that California and the FTB would align with the federal postponement period. This would apply to 2024 tax filings and payments due from January 7, 2025, through October 15, 2025.

Casualty Loss Deduction

Unlike the federal provisions for casualty losses, California requires that the loss exceed a 10% AGI threshold in order to qualify for the deduction. California also decouples from the IRS in terms of carryback options following a more limited approach. Those impacted by the wildfires can apply the losses against future years taxes. As the situation settles stay alert as California is known for enacting special tax relief measures in response to natural disasters such as wildfires. Further guidance from Sacramento and the FTB is expected.

LA County Property Tax Relief

Governor Gavin Newsom announced on January 16, 2025, that Los Angeles County will be suspending property tax payments until April 10, 2026. This applies to property in the following zip codes:

• 90019, 90041, 90049, 90066, 90265, 90272, 90290, 90402, 91001, 91040, 91104, 91106, 91107, 93535, 93536

Another option for property owners in affected areas with decreased property values may be to consider applying through the county assessor’s office for a property tax reassessment, also known as Misfortune and Calamity (M&C) relief. This can result in lower property taxes for 2025, or a refund of prepaid taxes.

To qualify, the estimated property damage must be at least $10,000 and the claim must be submitted on Form ADS 820, to the county assessor within the specified timeframe or within 12 months from the date of damage, whichever comes later. Additionally, if you submit a claim to the county assessor before the next property tax installment payment date, that payment will be deferred without penalty or interest until the property is reassessed. This may be appropriate for real property, business equipment, fixtures, orchards, aircraft, boats, and certain manufactured homes. Property items that are not assessable do not qualify. If you are considering requesting a property reassessment or filing a Misfortune and Calamity claim please visit LA County Office of the Assessor Website, https://assessor.lacounty.gov/tax-relief/disaster-relief.

4 key steps to take now if you have been affected:

1. Document Losses: Those affected should keep detailed records including photographs, written descriptions, property appraisals, insurance documents, and any repair or replacement cost. This is an essential step in claiming any casualty loss deduction.
2. File A Timely Claim: The IRS and FTB have both extended the filing deadlines, offering fire victims within the disaster area a postponement period. Taxpayers will now have until October 15, 2025, to file and pay any taxes originally due with their individual, and business returns  
3.  Consult a Tax Professional: The rules surrounding casualty losses can be complex and the financial situations of those affected may vary widely. Seeking advice from a tax professional can help you navigate the complexities of the special tax relief measures and ensure that you maximize your tax benefits at both the federal and state levels.
4. Identify Additional Relief Options: Affected individuals and business may be eligible for other forms of assistance such as low interest-bearing loans, disaster relief grants and emergency funding. Although not directly related to tax, these may provide additional resources to help aid in the recovery.

Conclusion

The 2025 California wildfires have resulted in an unparalleled level of destruction and still appear to be a threat to numerous areas of southern California. The current damage from the wildfires is now estimated to be between $250 billion and $275 billion dollars, making this one of the most expensive natural disasters in American history. As new wildfires are popping up across the state, stay alert for potentially more tax benefits to come.

By understanding the tax relief measures available and seeking professional guidance, those affected by the wildfires can take full advantage of the tax benefits available. For advice on your individual or business tax situation, please feel free to reach out to our team at Geffen Mesher.

Geffen Mesher’s team is available to assist you with questions related to these updated rules. To learn more, please contact Solomon Lucas for more information at slucas@gmco.com.