H.R. 5863 Federal Disaster Relief Act

[Bullyk9r]

H.R. 5863 was signed into law on 12/12/24 (Public Law No. 118-148). I received PG&E settlement funds from the CA Wildfires settlement in both 2022 and 2023. Those funds were included in my federal taxable income. I need to file amended returns for 2022 and 2023 to exclude those funds from my taxable income and get refunds. Is Turbo Tax updated to reflect H.R. 5863? If not, will it be or do I need to do my amendments manually?

[Opus 17 · Accepted solution]

You should be able to use TurboTax, since this change does not require any changes to the tax forms or instructions. You simply remove the previously included income. You will have to file by mail, of course. And, it is likely that the amended return for this issue may take longer to process than normal amended returns, because the IRS will take some time to figure out procedures and instructions for this late breaking change in the tax law.

[johnf2]

Bro, if legislation passed 12/12/24, I don't think our 22 software on 1/2/25 has been updated yet.  Checking now... https://steube.house.gov/taxrelief/

[Opus 17]

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@johnf2 wrote:

Bro, if legislation passed 12/12/24, I don't think our 22 software on 1/2/25 has been updated yet.  Checking now... https://steube.house.gov/taxrelief/

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There are 3 provisions in the disaster relief act.  For the non-taxability of fire payments, the program doesn't have to be changed.  All you need to do is remove the income and recalculate your tax and refund.  For non-taxability of hurricane Milton payments, just leave them off your 2024 return.  No programming change is needed.  For the revised casualty loss deduction, Turbotax does need to be reprogrammed, and it has not yet because not even the IRS has revised their forms yet.  

[KuiPeR]

Even though I received a 1099-MISC from the Fire Victim Trust for the payments, I should just amend the return and leave that off? That won't cause any issues?

[Opus 17]

@KuiPeR 

The general procedure to report income as non-taxable when you receive a 1099, is to enter the 1099-MISC, and then enter a negative amount of offset income with an explanation.  For example, if you receive a $5000 fire benefit payment, you would enter that, and then you would enter another item of -$5000 with an explanation like “adjustment for tax-free fire benefit payment.”

The adjustment process is already included in TurboTax. So the only thing you need to do is take your original tax return where you added the income, and amend it to leave the income alone and add the negative adjustment.

[kcastle129]

I'm still not clear on how to do the 1099 Misc.  I understood that the original Fire Victim Trust payment is to be entered on the form and then enter the same figure again as a negative.  I entered the payment in Box 3 under Other Income.  Where do I entered the negative offset amount? 

[AmyC]

Follow the same steps, when you enter the description, explain why you are subtracting. For the income amount, use a negative sign in front to subtract out the income. Great job!

@kcastle129 

[hawker707]

I don't believe TurboTax allows you to enter a negative amount for a 1099. I just tried it and it said the amount must be greater than zero. 

[johnf2]

No need to enter a "negative amount" anywhere in the software.  When you amend, enter the newly amended amount of it being non-taxable by changing the prior positive addition to income to zero.  The Amended return will report zero as opposed to any prior taxable amount.

The 1040X will report the original amount in Col A (as an example, 5000), your correct amount will report in Col C (in this case, zero), and the middle Col B will be generated as the reduction difference or -5000.  No one enters a "negative" amount anywhere in the software, rather the software accommodates the auto-reduction by posting it in Col B.

Cheers.

[Opus 17]

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@hawker707 wrote:

I don't believe TurboTax allows you to enter a negative amount for a 1099. I just tried it and it said the amount must be greater than zero. 

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You don't enter a negative 1099.  You enter a negative amount of "other miscellaneous income not on a 1099".  This puts the adjustment on line 8z of schedule 1 where it belongs. 

[Opus 17]

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@johnf2 wrote:

No need to enter a "negative amount" anywhere in the software.  When you amend, enter the newly amended amount of it being non-taxable by changing the prior positive addition to income to zero.  The Amended return will report zero as opposed to any prior taxable amount.

I don't believe this works the way you think it works.

If you got a 1099 from the state or federal government indicating a taxable payment, and you just delete it from your return, you will almost certainly get an automated letter from the IRS because their computers will detect a mis-match between what is on file and what you report.  What you need to do is report the 1099 as income, then report an adjustment to income.

The correct way to report the adjustment is to enter the adjustment and the reason on line 24z of schedule 1.  This is only accessible in Forms mode of the desktop version of turbotax installed on your own Mac or PC.   If you are using Turbotax online, you can't use line 24z, so the advice from the company is to enter a negative amount of "other reportable income not on a 1099", and the adjustment will be made on line 8z. 

Then, the 1040X will show the reduction in taxable income and the tax refund due as a result of the adjustment to income. 

[johnf2]

The taxpayer asked how to amend the return.  My instructions on how to amend are correct.

[Opus 17]

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@johnf2 wrote:

The taxpayer asked how to amend the return.  My instructions on how to amend are correct.

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Right.  But if you enter a 1099 for a fire relief payment, and change the amount from $X,000 to zero, that's going to get you an automatic IRS letter and will delay processing of the amended return.  The taxpayer needs to acknowledge the 1099 and explain why it is wrong or not taxable.

Now, as an option, if this amended return will be mailed (too old to e-file) the alternative procedure would be to delete the 1099 from the return entirely, then attach a copy of the 1099 to the amended return along with a written explanation of why it is not taxable. 

You can't just zero out the 1099.  The state of California issues all kinds of 1099s for all kinds of payments, and the IRS has no way of detecting that a particular payment is a non-taxable fire relief payment.  If you just zero out the 1099 and don't acknowledge it, the IRS will only see that you are failing to report income, and they will send a letter asking for an explanation.  If you include the 1099 and also include a negative adjustment, that is where you make the explanation.  (Or delete the 1099 but attach a separate written explanation.)