The members of the North Bay Enrolled Agents and the members of CSEA mourn with our neighbors the losses incurred with the California wildfires. We can’t turn back time but what we can do is bring you the latest tax information available on dealing with this loss. We will be adding information on how to deal with the requirements for reporting this loss as well as any relevant information we find to help you through this period. We will provide links to additional resources that may be appropriate and the members of CSEA will be available at no charge to provide you with guidance.
Latest Tax Information for Victims of California Disasters
What is a Federally Declared Disaster?
I.R.C. §165(i)(5) states that the term “Federally declared disaster’ means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. The term ‘disaster area’ means the area so determined to warrant such assistance.
There are two types of federal disaster declarations provided for in the Stafford Act: Emergency Declarations and Major Disaster Declarations. Both declaration types authorize the President to provide supplemental federal disaster assistance. However, the event related to the disaster declaration and type and amount of assistance differ:
- Emergency Declarations: An Emergency Declaration can be declared for any occasion or instance when the President determines federal assistance is needed. Emergency Declarations supplement State and local efforts in providing emergency services, such as the protection of lives, property, public health, and safety, or to lessen or avert the threat of a catastrophe in any part of the United States.
- Major Declaration: The President can declare a Major Disaster Declaration for any natural event, including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought, or, regardless of cause, fire, flood, or explosion, that the President believes has caused damage of such severity that it is beyond the combined capabilities of state and local governments to respond. A major disaster declaration provides a wide range of federal assistance programs for individuals and public infrastructure, including funds for both emergency and permanent work.
Casualty Loss Types
There are three types of casualty losses: Federal Casualty Losses, Disaster Losses, and Qualified Disaster Losses. All three types of losses refer to federally declared disasters, but the requirements for each loss vary.
- Federal casualty loss – A federal casualty loss is an individual’s casualty or theft loss of personal-use property that is attributable to a federally declared disaster. The casualty loss must occur in a state receiving a federal disaster declaration. If you suffered a federal casualty loss, you are eligible to claim a casualty loss deduction. If you suffered a casualty or theft loss of personal-use property that was not attributable to a federally declared disaster, it is not a federal casualty loss, and you may not claim a casualty loss deduction unless the exception applies.
- Disaster loss – A disaster loss is a loss that is attributable to a federally declared disaster and that occurs in an area eligible for assistance pursuant to the Presidential declaration. The disaster loss must occur in a county eligible for public or individual assistance (or both). Disaster losses are not limited to individual personal use property and may be claimed for individual business or income-producing property and by corporations, S corporations, and partnerships. If you suffered a disaster loss, you are eligible to claim a casualty loss deduction and to elect to claim the loss in the preceding tax year.
- Qualified disaster loss – A qualified disaster loss is an individual’s casualty or theft loss of personal-use property that is attributable to a major disaster declared by the President under section 401 of the Stafford Act in 2016, as well as from Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or from the California wildfires in 2017 and January 2018.
What special tax provisions do I get by being in a federally declared disaster?
- I.R.C. §1033(h) provides for some of the special rules for property damaged in a federally declared disaster including ability to exclude gain from insurance proceeds for unscheduled personal property and the extension of the replacement period from two years to four years and special rules for what is considered replacement property for trade/business/investment property.
What is a covered disaster area?
A covered disaster area is an area of a federally declared disaster that has been identified by FEMA for Individual Assistance to Households and Families. (IRM 25.16.1)
What is an affected taxpayer?
- Any individual whose principal residence, for purposes of IRC §1033(h)(4), is located in a covered disaster area;
- Any business entity or sole proprietor whose principal place of business is located in a covered disaster area;
- Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and is assisting in a covered disaster area;
- Any individual whose principal residence, for purposes of IRC §1033(h)(4), or any business entity or sole proprietor whose principal place of business is not located in a covered disaster area but, whose records necessary to meet a tax deadline due within the disaster period are maintained in a covered disaster area;
- Any estate or trust that has tax records that are necessary to meet a tax deadline for an act due within the disaster period, and that are maintained in a covered disaster area;
- The spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife;
- Any individual visiting the covered disaster area who was killed or injured as a result of the disaster; or
- Any other person determined by the IRS to be affected by a federally declared disaster, within the meaning of IRC §1033(h)(3).
What special tax provisions do I get by being an affected taxpayer in a covered disaster area.
There are a myriad of extensions of time to file and pay (Reg §301.7508A-1). These will be announced by the IRS for the affected taxpayers.
If this is your first year preparing returns for clients with casualty gain/loss, you may be a bit overwhelmed (I know we certainly were in 2017 when we had hundreds of clients lose their homes). We put together this guide to help you navigate the process. This tax...
Wildfire survivors in three additional California counties are now eligible for federal resources and programs to help rebuild their communities and their lives. California secured the addition of Napa, Shasta and Sonoma counties to the Major Disaster...
General Disaster Tax Relief Information
IRS Disaster Resource Guide for Individuals and Business – This resource guide provides information to individuals and businesses affected by a federally declared disasters.
Casualty Losses for Tax Years 2018 through 2025 (No easy to read guidance has been published yet. This is a link to the code section. Sec. 165(h)(5) was added as part of the Tax Cuts and Jobs Act limiting personal casualty losses unless taxpayer is in a Federally Declared Disaster).
Franchise Tax Board
California Department of Tax and Fee Administration (formerly the SBOE)
Flyer to provide at meetings, info sessions and shelters
Property Tax Reassessments
- Butte County
- Lake County
- Los Angeles County
- Mendocino County
- Napa County
- Nevada County
- Orange County
- San Diego County
- San Mateo County
- Santa Barbara County
- Santa Clara County
- Santa Cruz County
- Shasta County
- Solano County
- Sonoma County
- Trinity County
- Ventura County
- Yuba County
- Yolo County
Employment Development Department (EDD)
Federal Disaster Assistance Resources
Federal Disaster Assistance – The Disaster Assistance Improvement Program’s (DAIP) mission is to provide disaster survivors with information, support, services, and a means to access and apply for disaster assistance through joint data-sharing efforts between federal, tribal, state, local, and private sector partners
North Bay Enrolled Agents (NBEA)
Enrolled Agents (EAs) are federally-licensed tax practitioners who may represent taxpayers before the IRS when it comes to collections, audits and appeals. As authorized by the Department of Treasury’s Circular 230 regulations, EAs are granted unlimited practice rights to represent taxpayers before IRS and are authorized to advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Enrolled agents are the only federally-licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS. The enrolled agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department. Enrolled agents’ expertise in the continually changing field of taxation enables them to effectively represent taxpayers at all administrative levels within the IRS.
NBEA is the North Bay Chapter of the California Society of Enrolled Agents.