For LA 1/25 fires, to include both property AND loss of use relief from insurance, FEMA and charities? OK to claim on 2024 returns?

[Mike9241]

yes casualty losses in federally declared disaster areas can be deducted the year of occurrence or the prior year. 

see this IRS website  - casualty losses section for further guidance

https://www.irs.gov/newsroom/irs-announces-tax-relief-for-taxpayers-impacted-by-wildfires-in-califor... 

[Opus 17]

Any income is reported when paid.  Wildfire relief payments were designated as tax-free, but still need to be reported, they will be reported on your 2025 return.  Payments from charity would usually not be taxable (although there might be exceptions)--they would be taxable when actually paid.  

The loss can be deducted on your 2024 or 2025 return.  However, at this time, it's not obvious which would get you paid faster.  If you never filed your 2024 return (are late or have an extension) then your loss will be handled faster filing on the 2024 return.  But if you already filed your original return, I don't know if an amended 2024 return would be paid faster than an original 2025 return (because of how long amended returns take to process).

You also have to account for any reimbursement in your loss calculation, so if that is not final, you should probably wait to claim the loss, because if you claim a loss now (on an amended or original 2024 return) and then your loss ends up being different because of adjustments, that gets complicated to correct. 

[wkassin]

Thank you, yes I haven't filed yet since 2024 had an auto extension until 10-15.

All reimbursements are in, so that is more simple too.

Are Loss of Use reimbursements required to be included or just Property related? How about from the Red Cross?

Last question, this amount just gets added to the standard deduction if  I don't itemize, and is subject to $100 floor and limited by 2% AGI?

[Opus 17]

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@wkassin wrote:

Thank you, yes I haven't filed yet since 2024 had an auto extension until 10-15.

All reimbursements are in, so that is more simple too.

Are Loss of Use reimbursements required to be included or just Property related? How about from the Red Cross?

Last question, this amount just gets added to the standard deduction if  I don't itemize, and is subject to $100 floor and limited by 2% AGI?

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The IRS deductible for a qualified disaster loss is $500, but there is no AGI limit.  It is added to the standard deduction if you don't otherwise itemize.

[Edited to add] See below.  There is a difference between a disaster loss and a qualified disaster loss.  This is not a qualified disaster loss.  So under the rules, the loss has a $100 deductible and 10% AGI limitation, and is not added to the standard deduction.  You can use your standard deduction (without the loss) or the total of your itemized deductions (including the loss), whichever is larger. 

I can't make a blanket statement about every possible kind of "loss of use" payment, but the IRS says this:

https://www.irs.gov/forms-pubs/about-publication-547

Inclusion in income.

If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Report this amount on Schedule 1 (Form 1040), line 8z. However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. See Qualified disaster relief payments, later, under Disaster Area Losses.

Qualified disaster relief payments

Qualified disaster relief payments aren’t included in the income of individuals to the extent any expenses compensated by these payments aren’t otherwise compensated for by insurance or other reimbursement. These payments aren’t subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). No withholding applies to these payments.

Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses.

• Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster.

• Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. (A personal residence can be a rented residence or one you own.)

• Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster.

Qualified disaster relief payments also include amounts paid to individuals affected by the disaster by a federal, state, or local government in connection with a federally declared disaster. These payments must be made from a governmental fund, be based on individual or family needs, and not be compensation for services. Payments to businesses generally don’t qualify.

[wkassin]

I actually entered it after I posted the message, and Form 4684 on Turbotax is applying a $100 reduction (line 11), and a 10% AGI reduction (line 17). Is that right? I've downloaded all the updates.

[Mike9241]

Not classified as a qualified disaster loss
The Los Angeles fires of January 2025 are not classified as a qualified disaster loss for tax purposes. While the IRS has provided tax relief for affected taxpayers, the fires did not meet the criteria for a qualified disaster loss as defined by the IRS, which requires a disaster to be declared by the president and to have begun on or before a specific date. Therefore, individuals and businesses affected by these fires may not qualify for the same level of tax relief as those affected by "qualified" disasters.
IRS

thus your loss is reduced by $100 and 10% of your adjusted gross income. In addition, you don't also get the standard deduction. 

[Opus 17]

[Removed by author]

[Opus 17]

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@wkassin wrote:

I actually entered it after I posted the message, and Form 4684 on Turbotax is applying a $100 reduction (line 11), and a 10% AGI reduction (line 17). Is that right? I've downloaded all the updates.

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I have not tested this section of the program this year, but I believe there is a question about "Is this a qualified disaster?"  Make sure you answer yes (if it is a qualified disaster.  I see the answer from the other expert but also see the IRS links I provided).  Otherwise the program will use the default rules.   (And in fact, if I remember correctly, losses that are not from a qualified disaster are not deductible at all, so even though the program is filling out the form, it may not appear in your final return.  I admit that I need to refresh myself on the rules in these cases.)

[wkassin]

Was this by chance addressed in the recent tax bill, and/or is it possible that it will be adjusted at some point to classify it as a qualified disaster? Seems completely ridiculous for those of us that have suffered.

The current language significantly limits the benefit.

[Mike9241]

there is no way to know. you have  couple of options

1) file 2024 and amend if the law changes

2) wait to see if the law changes

[Opus 17]

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@wkassin wrote:

Was this by chance addressed in the recent tax bill, and/or is it possible that it will be adjusted at some point to classify it as a qualified disaster? Seems completely ridiculous for those of us that have suffered.

The current language significantly limits the benefit.

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HR1 (the one big beautiful etc.) did not modify the casualty loss rules.  There was a significant modification the year before, which among other things made wildfire relief payments non-taxable, but nothing changed in 2025.

The Tax Cut and Jobs Act of 2017, which raised the standard deduction and cut rates across the board, eliminated all casualty losses except for those related to a federal disaster.

The law in 2024 (I forget the name) updated this to create 3 different kinds or levels of federal disasters. This is discussed in publication 547.

https://www.irs.gov/pub/irs-pdf/p547.pdf

1. Federal casualty loss.  A loss that occurs due to any federally declared disaster.

2. Disaster loss. A loss that occurs due to any federally declared disaster and that is eligible for federal, state or private assistance.

3. Qualified disaster loss.   This is a list of specific disaster losses.  It includes many losses that occurred before the law was signed, and allows taxpayers to file amended returns to get relief for disasters that were long past.  The list of qualified disasters includes some hurricanes, 2017 and 2018 wildfires, and any other major disaster declared by the president that occurred before December 12, 2024. Technically, the disaster event must have started no later than 12/12/24, ended no later than 1/11/25, and was declared by the president no later than February 10, 2025.

It's only the qualified disaster losses that get special treatment.

So in the end, fires that started on 1/25/25 are Federal casualty losses and Disaster losses but not "qualified" disaster losses.  Turbotax probably has the date rule built in, and won't let you claim a qualified loss, and if Turbotax did allow it, the IRS would not.

I can't tell you why Congress made those rules and set those dates, but that's how the law is worded.  Sorry. 

[wkassin]

Got it, I am going to sit tight until 10-15, one never knows if it will be addressed and to avoid the hassle of a return revision.

[VolvoGirl]

Don’t cut it too close.  Efiling closes on Oct 15.   And if you are using the Online version you might not be able to finish or print your return.   

[Opus 17]

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@wkassin wrote:

Got it, I am going to sit tight until 10-15, one never knows if it will be addressed and to avoid the hassle of a return revision.

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In theory, Congress will be working on budget and finance bills in September.  You should know well before 10/15 if changes to the disaster loss rules are on the table or not.