The Tax Blotter is a round-up of recent tax news briefs and tax court rulings.
A new law passed late in 2024 provides enhanced tax relief to individuals suffering damage to personal property in federal disaster areas.
Max out tax deduction. Previously, itemizers could deduct casualty and theft losses above a threshold of 10% of adjusted gross income (AGI) after subtracting a $100 per-event floor. This deduction is suspended for 2018 through 2025 except for disaster-area losses. But the Federal Disaster Tax Relief Act (FDTRA) provides that victims with losses in federal disaster areas can write off the entire amount without regard to the 10%-of-AGI threshold, except with a $500 floor. Icing on the cake: The deduction is available whether you itemize or not.
Time your tax benefits. The effective date for the new law isn’t crystal clear. The general interpretation is that the disaster-area loss provisions apply to losses in designated disaster areas beginning between December 28, 2019, and December 12, 2024, and ending no later than January 11, 2025. This includes numerous hurricanes and other natural disasters that caused significant damage the last few years. But the legislation may also be modified to ensure coverage for losses caused by California wildfires beginning after the end date.
Obtain faster tax relief. Regardless of the tax year of a casualty event, victims who suffer losses in an area designated as a federal disaster area can take advantage of a special tax return election. If you qualify, you can deduct your loss on the return of the tax year prior to the actual year of the event. Therefore, if you incurred a loss in early 2025—say, from the January wildfires—you may deduct it on the 2024 return you’re about to file. Similarly, you may claim a loss on amended 2024 return for a loss occurring later this year.
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Tags: Income Taxes, Taxes
