California Wildfires: Understanding Your IRS Tax Relief Options
As of the time of this writing, California wildfires reported to have more than 150,000 people under evacuation notices. The insured losses might exceed $20 billion and total economic losses could reach $50 billions, according to JP Morgan’s preliminary estimates.
On January 8,2025, FEMA announced the approval of federal disaster area declaration for the areas affected by these unprecedented wildfires in California.
The IRS also offers tax relief For the affected individuals and businesses in Southern California, summarized below, as released on IR-2025-10, Jan. 10, 2025. For more details, check out the Disaster assistance and emergency relief for individuals and businesses page on the IRS website.
Filing and payment relief
The tax relief postpones various tax filing and payment deadlines that occurred from Jan. 7, 2025, through Oct. 15, 2025 (postponement period). As a result, affected individuals and businesses will have until Oct. 15, 2025, to file returns and pay any taxes that were originally due during this period.
This means, for example, that the Oct. 15, 2025, deadline will now apply to:
Individual income tax returns and payments normally due on April 15, 2025.
2024 contributions to IRAs and health savings accounts for eligible taxpayers.
2024 quarterly estimated income tax payments normally due on Jan. 15, 2025, and estimated tax payments normally due on April 15, June 16 and Sept. 15, 2025.
Quarterly payroll and excise tax returns normally due on Jan. 31, April 30 and July 31, 2025.
Calendar-year partnership and S corporation returns normally due on March 17, 2025.
Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025.
Calendar-year tax-exempt organization returns normally due on May 15, 2025.
In addition, penalties for failing to make payroll and excise tax deposits due on or after Jan. 7, 2025, and before Jan. 22, 2025, will be abated as long as the deposits are made by Jan. 22, 2025.
What should I do to request for IRS relief?
If your last known address with the IRS (address on the IRS record) is located in the disaster area, you do not need to do anything. The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.
However, it is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these kinds of unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.
This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization. Disaster area tax preparers with clients located outside the disaster area can choose to use the bulk requests from practitioners for disaster relief option, described on IRS.gov.
Additional tax relief
Qualified disaster personal casualty losses
Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2025 return normally filed next year), or the return for the prior year (2024). Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election. For individual taxpayers, this means Oct. 15, 2026. Be sure to write the FEMA declaration number – 4856-DR − on any return claiming a loss. See Publication 547, Casualties, Disasters, and Thefts, for details.
Limitation on personal casualty and theft losses
Personal casualty and theft losses attributable to a federally declared disaster are subject to the $100 per casualty and 10% of your adjusted gross income (AGI) reductions unless they are attributable to a qualified disaster loss. Personal casualty and theft losses attributable to a qualified disaster loss are not subject to the 10% of the AGI reduction and the $100 reduction is increased to $500. An exception to the rule above, limiting the personal casualty and theft loss deduction to losses attributable to a federally declared disaster, applies if you have personal casualty gains for the tax year.
Qualified disaster relief payments
Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency 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. See Publication 525, Taxable and Nontaxable Income, for details.
Relief for retirement distributions/contributions
Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.
Start documenting your losses
The IRS provides workbooks that include instructions for the loss claiming on your tax return and sample documentation of losses as part of your substantiation. See IRS Publication 584 for personal casualty losses) an IRS Publication 584-B for business casualty losses. Example schedules from the publication are shown below:
IRS Publication 584 (February 2019) Schedule 1 - Personal casualty/disaster loss documentation
IRS Publication 584 (February 2019) Schedule 2 - Personal casualty/disaster loss documentation
IRS Publication 584B Schedule 1 - Business casualty/disaster loss documentation
IRS Publication 584B Schedule 2 - Business casualty/disaster loss documentation
The disaster-related loss claim often takes time. Documentation is often a lengthy process as one identifies the loss items and puts together the necessary information. Disaster-related losses to a main property like a home takes time to calculate due to the loss assessment, reimbursements from insurance or other policies, lengthy recovery time. Also keep in mind that the casualty/disaster loss claims for tax may not always provide a meaningful relief, especially when there is a substantial insurance reimbursement towards to the losses, when the loss is not adequately substantiated (for example, personal properties with no proof for their values), or when the taxpayer does not itemize their deductions. Good documentation will help optimize the tax relief from loss claims.
Seek help and take the first step
The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit DisasterAssistance.gov.
The IRS may provide additional disaster relief in the future. Please keep an eye on the government or community announcement boards.
Feel free to contact us for a free consultation. Let us know how we can help through this difficult time.
