LA County Household Relief Grant Program - 1099G - LA Fires

[wkassin]

Despite their explicit assertions to the contrary at application time, I received a 1099G for a grant provided for temporary assistance after the LA Fires.

1) Is this taxable at the Federal and State levels?

2) How/where can I itemize dislocation expenses against this income if it is indeed taxable, fed/state? What if any limitations are there on this?

Thank you.

[MonikaK1]

Qualified wildfire relief payments are excludable from Federal and California income if they meet the requirements explained below. 

You generally should enter a 1099-G for disaster payments in TurboTax to match IRS records, but you must take steps to ensure they are not taxed if they qualify for exclusion. If the payments are for qualified disaster relief, you can exclude them from income by entering the 1099-G as reported, and then entering a corresponding negative amount in the "Other Common Income" section (often labeled as "Other 1099-G Income") to offset it. 

According to the IRS, qualified wildfire relief payments are excluded from gross income. In general, this means that affected taxpayers can exclude from their Federal gross income amounts received in 2025 for losses, expenses, or damages to the extent these losses, expenses, or damages are not covered by insurance or other reimbursements. 

This includes amounts received 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, lost wages (other than amounts received for lost wages paid by the employer which would have otherwise paid such wages), personal injury, death, or emotional distress. 

See this IRS news release and  Publication 525, Taxable and Nontaxable Income, for additional information. This TurboTax blog also addresses these issues.

For taxable years beginning after December 31, 2019, and before January 1, 2026, the Federal Disaster Tax Relief Act of 2023 allows an exclusion from gross income for any amount received by an individual as a qualified wildfire relief payment. 

Generally, California law does not conform to Federal law on this issue, but there are exceptions:

Wildfire Disaster Settlement Exclusion – For taxable years beginning on or after January 1, 2021, and before January 1, 2030, California law allows a qualified taxpayer an exclusion from gross income for any qualified amount received from a settlement entity in connection with a qualified wildfire disaster in California. If a qualified taxpayer included income for a qualified amount received from a settlement entity in a prior taxable year, the taxpayer can file an amended return for that year within the normal statute of limitations. For more information, see Schedule CA (540), California Adjustments – Residents, specific line instructions in Part I, Section B, line 8z and California Revenue and Taxation Code (R&TC) Section 17138.7.

To be deemed non-taxable, the settlement entity (the paying entity of the relief funds) must be able to provide documentation to the California Franchise Tax Board (FTB) upon request to verify the payments. 

If any qualified amount was excluded from income for federal purposes and California law provides no similar exclusion, include that amount in income for California purposes. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z. For specific wildfire relief payments excluded for California purposes, see the California Form 540 instructions at What's New and General Information.

[wkassin]

Thank you, do I have the option to declare the income and offset with expenses?

[MonikaK1]

I see no provision to elect to report the relief funds as income and then deduct the expenses. Except as expressly allowed, no deduction is allowed for personal, living, or family expenses (26 US Code Section 262).