Federal and California Tax Relief Available to Help Wildfire Victims Rebuild

First, let us say that if you suffered the loss of your home or business in one of the wildfires, we offer our profound condolences, and your JLK Rosenberger advisors are available to answer your questions about federal and state tax relief and other aid programs that may benefit you.


As Californians – specifically residents of Los Angeles County – begin the monumental task of recovering from their losses due to the January 2025 wildfires, it’s important to understand the many tax relief measures available and how to access them.

Specifically, tax relief is available at the federal and state levels, as well as in Los Angeles County, to help fire victims begin the long process of rebuilding their homes, businesses, and lives. Additionally, both the federal government and California offer casualty loss rules, allowing fire victims to reduce taxes and access financial aid.

Following are several tax relief measures for victims of the wildfires, most importantly, filing and payment deadline extensions for both federal and California state tax returns:

Tax Filing and Payment Deadline Postponement

The Internal Revenue Service announced on January 10, 2025, tax relief for individuals and businesses in Los Angeles County affected by wildfires and straight-line winds that began on January 7, 2025. The relief applies to any individuals or households that reside or have a business in Los Angeles County. These taxpayers now have until October 15, 2025, to file various federal individual and business tax returns and make tax payments.

Governor Gavin Newsom announced on January 11, 2025, that California would align with the federal postponement period for 2024 income tax returns as well as tax payments that would have been due between January 7 and October 15, 2025.

Taxpayers outside the disaster area, whose records are located in the affected area, are able to apply for postponement. Consequently, a taxpayer whose CPA or tax preparer is located in Los Angeles County qualifies for tax relief, even if the taxpayer does not reside or have a business in the county.

Casualty Losses

Both the federal tax code and California tax law allow taxpayers to take deductions for “casualty losses” that are not covered by insurance or other disaster-related benefits such as cash grants. Casualty losses are considered to be losses due to property damage or economic loss caused by unexpected events such as fire, flood, earthquake, theft or insolvency of a financial institution.

Individuals and businesses affected by the January 2025 wildfires may be eligible to claim casualty loss deductions, reducing taxable income and providing financial relief by lowering the amount of taxes owed, or recovering taxes paid in prior years.

Federal Casualty Loss Rules

Prior to leaving office, President Joseph R. Biden on January 8, 2025, signed a major disaster declaration for the wildfires impacting communities in Los Angeles County. This will enable affected individuals and businesses to access federal programs, including FEMA individual program assistance, to cover expenses such as temporary accommodations and financial assistance for lost real and personal property.

President Biden’s federal disaster designation is critically important to the tax treatment for fire victims. On December 12, 2024, President Biden signed the Federal Disaster Relief Act of 2024 into law, eliminating the 10% AGI threshold that taxpayers were previously required to exceed in order to claim a deductible expense. Taxpayers are generally no longer required to itemize their deductions (Schedule A) in order to claim a casualty loss, but Congress increased the $100 “floor” to $500. This more favorable federal treatment is applicable to any presidentially declared disasters occurring between January 1, 2020 and January 11, 2025 (provided the disaster is designated by February 9, 2025). California has not yet aligned its rules with the new federal floor.

At the federal level, the IRS allows taxpayers to deduct casualty losses if specific criteria are met. The current key rules regarding casualty losses include:

  • Eligible losses: Casualty losses must be caused by a sudden, unexpected, or unusual event, and the damage must be beyond normal wear and tear. This includes fire, flood, and other natural disasters.
  • Determining amount of federal loss :Before deducting any casualty losses, a property’s value must be determined. For all personal-use property and business property not completely destroyed, the amount of loss is determined by the lesser of the adjusted basis of your property or the decrease in fair market value (FMV) of your property as a result of the casualty (for businesses that are destroyed, including rental properties, the amount of loss is the adjusted basis minus any salvage value). To determine a deduction, you must determine the adjusted basis in the property before the casualty, determine the decrease in FMV due to the casualty, and subtract insurance or other reimbursements received now or in the future from the smaller of the two amounts.
  • Determining amount of California loss: The IRS allows taxpayers to deduct the portion of their casualty losses that exceed $500 per event, per year. As mentioned above, for federal purposes the taxpayer simply reduces their loss by $500. However, for California purposes, the total loss must still exceed $100 per event plus 10% of the taxpayer’s adjusted gross income (AGI) to qualify for a tax deduction.
  • EXAMPLE: If a taxpayer’s AGI is $300,000 and the casualty loss (after insurance proceeds) amounts to $100,000, the deductible amount would be $100,000 reduced by $100 as well as $30,000 (10% of the taxpayer’s AGI). The $10,100 reduction to the $100,000 loss would result in a net California casualty loss deduction of $69,900. The 10% California exclusion applies only to personal-use property (including primary residences) and does not apply to business property or any portion of the home that is taken as a home office deduction. Therefore, California business casualty loss deductions will generally be higher than business property casualties.
  • Claiming the deduction: The presidential disaster declaration enables victims of the California wildfires to claim casualty losses in the tax year the damage occurred, which is 2025. Alternatively, they may claim the loss in the previous tax year – on their 2024 tax returns – allowing for a faster refund of taxes paid in that year. This flexibility is specific to federally declared disasters and can be beneficial for victims who are facing immediate financial challenges.
  • Insurance proceeds: Casualty loss deductions are limited to amounts not covered and compensated by insurance proceeds. If the victim has insurance coverage for the losses, the amount of any insurance payout must be subtracted from the loss claim. If the insurance payout does not cover the entire loss, the taxpayer can still claim a deduction for the remainder of the loss. It is important to note that a timely insurance claim for reimbursement of loss must be made for it to be deducted as a casualty loss. While there is no deadline imposed by the IRS for submitting insurance claims in order to deduct the casualty loss, it is best to file any claims as soon as possible after the loss is incurred.
  • As mentioned previously, the Federal Disaster Tax Relief Act of 2024 also allows taxpayers to generally exclude from federal gross income all compensation from losses or damages resulting from qualified wildfire relief payments (other than lost wages). Congress eliminated from this exclusion amounts paid by insurance companies “or otherwise,” and California also conforms to this gross income exclusion for fire-related payments coming from parties other than insurance companies.
  • IRC Section 121, 1031, and 1033: These are various federal code sections that may be available for California fire victims to exclude (IRC Section 121) or defer (1031 and 1033) any gain that may be realized from the disposition of their residential or business properties. In the case of a sale or non-replacement of a personal residence, the taxpayer can claim a $250,000 (single or married filing separate) or $500,000 (married filing jointly) exclusion under IRC Section 121. In the event the sales proceeds and/or insurance proceeds received by the property owner exceed the tax basis of the victim’s property, the taxpayer can find a replacement property and invest those proceeds into a new property. The 1031 rules have a very short identification (45 days) and replacement period (180 days), while the 1033 rules applicable to Involuntary Conversions allow up to two years from the end of the year that the taxpayer first received proceeds to acquire replacement property.

California Casualty Loss Rules

California currently offers tax relief for wildfire victims, but as previously discussed, there is a 10% AGI threshold that the taxpayer must exceed. Disaster-related payments received from insurance companies, government agencies, or from lawsuits may incur more California tax than under the new, more favorable, federal provisions.

  • California’s approach: In California, casualty loss deductions are handled through the state income tax system, similar to the federal system. Taxpayers can deduct the portion of their loss that exceeds a set threshold and impacts their overall income.
  • State-specific rules: Unlike the federal tax rules, California does not have a standard $100 threshold for each casualty event. Instead, California requires that the taxpayer’s loss exceed 10% of their adjusted gross income before it can be deducted.
  • No limit on carrybacks: While the IRS allows taxpayers to carry their casualty loss claims back to previous tax years, California is less generous. This means that those affected by the January 2025 wildfires can apply their casualty losses against future years’ California taxes, but retroactive claims may be more restricted than at the federal level. As yet, there is no guidance from Sacramento and the Franchise Tax Board as to whether California will allow taxpayers to claim the loss in 2024 or allow a carryback of a loss incurred in 2025.
  • Special disaster provisions: California often enacts special tax relief measures in response to major disasters, such as wildfires, and we will keep you informed of any such measures. These measures can include more generous deductions, suspension of certain filing deadlines and other forms of assistance to help victims recover.

How to Claim Income Tax Deductions

To claim a casualty loss on your federal and California state tax returns, you will need to complete the following federal and California state specific forms:

For detailed guidance on claiming a disaster loss in California, refer to the IRS Publication No. 515 and the California Franchise Tax Board’s Publication 1034.

Los Angeles County Property Tax Relief

Los Angeles County property owners whose property has decreased in value due to disaster can request a property tax reassessment, or Misfortune and Calamity (M&C) relief, and reduce property taxes for 2025 or even refund property taxes that may have been prepaid. In order to qualify, the estimated property damage must be at least $10,000 in market value and claims must be filed with the county assessor within the specified time or within 12 months of the date of damage, whichever is later.

Additionally, if you file a property tax deferral claim with the county assessor before the next property tax installment payment date, that payment will be postponed without penalty or interest until the county assessor has reassessed the property and you receive a corrected tax bill.

Property tax reassessment is available for real property, business equipment, fixtures, orchards, aircraft, boats, and certain manufactured homes. It is not available to property that is not assessable, such as state licensed manufactured homes or household furnishings.

Use this form to apply for M&C relief.

Important Steps for Fire Victims Seeking Tax Relief

  • Document losses: Proper documentation is essential for claiming a casualty loss deduction. Fire victims should keep detailed records of the damage, including photographs, written descriptions and any repair or replacement costs. Victims should also keep receipts and statements from their insurance companies, and if necessary, work with a company that specializes in assisting fire victims with the overwhelming task of documenting their losses.
  • File a timely claim: Victims should file casualty loss claims as part of their annual tax returns. If they missed the tax filing deadline, the IRS and California’s FTB provide provisions for late filing and special disaster-related extensions. It is also important to stay updated on any additional emergency extensions or programs that may be introduced in response to the 2025 wildfires.
  • Consult a tax professional: Every wildfire victim’s circumstances are different, and the rules surrounding casualty loss deductions are complex. This is likely the biggest financial loss you have ever experienced. Don’t go it alone. Seek guidance from a tax professional who understands both federal and California tax laws. This is the best way to ensure that you can access all possible benefits and navigate any special tax relief measures available.
  • Consider other relief options: Wildfire victims may be eligible for other forms of financial assistance, such as disaster relief grants, low-interest loans and emergency funding. While these programs are not directly related to taxes, they can complement the tax benefits and provide additional relief for those struggling to rebuild.
We’re here to help

Victims of the 2025 California wildfires have a long road ahead as they rebuild homes, businesses and lives. Tax relief offered by the IRS and California’s FTB can help reduce the financial challenges along the way and, hopefully, expedite the process.

Understanding the rules, filing timely insurance claims, and seeking professional tax guidance are critical to accessing the tax relief that is available.

If you suffered losses in the California wildfires, contact your JLK Rosenberger team member as soon as possible, or click here to contact us. We look forward to speaking with you and helping you recover.