What is the Federal Disaster Tax Relief Act of 2023?

• Eligible period: If you received payments between January 1, 2020, and December 31, 2025, and reported them on your tax return, you may be eligible for a refund.
• Tax treatment: These payments are now considered nontaxable.
• Action: If you have already paid taxes on these payments, amend the relevant tax return to remove the income. You may be eligible for a refund.

Even if the three-year amendment window would normally be closed for you, it's reopened for one year from the date the bill was signed into law.  

• Eligible period: If you received payments in 2023 or 2024, you may be eligible for a refund.
• Tax treatment: These payments are considered qualified disaster relief payments and are nontaxable.
• Action: Amend the relevant tax return to exclude the payment.

If you reported taxable payments in 2023, you can amend your 2023 return and exclude the payment. ‌If you received payments in 2024, and you also received a 1099-MISC or 1099-G, you can exclude the payment from your income. 

• Eligible period: For losses occurring between January 1, 2020, and February 10, 2025.
• No 10% AGI limit:
  • Old rule: Casualty losses had to exceed 10% of your Adjusted Gross Income (AGI) to be deductible.
  • New rule: You can now claim "qualified disaster losses" without this limitation. A "qualified disaster loss" is a casualty or theft loss not related to a trade or business that is attributable to a major disaster declared by the President.
  • The loss must still be greater than $500 per casualty event to make a claim.
• Above-the-Line Deduction:
  • Old rule: Deduction was limited to itemized deductions.
  • New rule: You can claim this deduction in addition to the Standard Deduction.
• Form to use: To claim a disaster loss, you must complete IRS Form 4684, 'Casualties and Thefts.' TurboTax will automatically generate this form for you.

For losses that occurred between 2020 and 2023, you'll need to amend your prior return to claim the loss under the new rules. Follow these steps to amend your return. The IRS isn’t currently accepting 2024 tax returns that are amended to claim losses under this new rule.

While many states conform to federal tax laws, some states may have different rules regarding disaster relief and casualty loss deductions. This means you may see differences in your state return for these new provisions of the Federal Disaster Tax Relief Act of 2023.

States with pending legislation

Currently, the following states have pending legislation to determine whether or not they will conform to the federal law:

• Arizona (AZ)
• Hawaii (HI)
• Minnesota (MN)
• North Carolina (NC)
• Vermont (VT)
• Virginia (VA)