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

I lost my rental in the Camp Fire and now my tax preparer is telling me I have a gain. How can that be?

Many victims of the California wildfires have been surprised to learn that they have a gain on the loss of their rental property in the California wildfires.  When you lose your rental in a sudden and unexpected event like a wildfire, it is called a casualty.  If the amount of money you received from insurance is more than your adjusted basis of your rental, then you have a gain on the casualty and that gain is taxable.  However, you may be able to exclude that gain using an Involuntary Conversion as defined in I.R.C. § 1033.

Calculating the gain

Gain on the involuntary conversion is the difference between the net payment received and the adjusted basis of the destroyed property. Net payment is generally the insurance payment minus the expense of obtaining the payment. Adjusted basis is generally the original cost plus improvements less depreciation.

Postponing the gain

Part or all of the gain may be postponed if the taxpayer purchases a replacement property of similar use (like another rental) within the replacement period. The replacement period for business property is two years (I.R.C. § 1033(a)(2)(B)(i)). To postpone reporting all of the gain, the replacement property must cost at least as much as the amount realized (I.R.C. § 1033(a)(2)(A)).

Basis in the new property

Your basis in the new property is the same as basis for the converted property (I.R.C. § 1033(b)(1)).

Example: Chris owned a rental in Paradise, CA that was destroyed in the Camp Fire. Chris originally purchased the rental for $100,000, made $50,000 of improvements, and claimed $25,000 of depreciation over time. Chris’ adjusted basis in the rental is $100,000 + $50,000 – $25,000 = $125,000.  Chris received $300,000 from insurance. Chris has a gain on the casualty of $300,000 – $125,000 = $175,000. If Chris uses the money for a vacation, the money is taxable in the year of the casualty. If Chris purchased a new rental in Palm Springs in March of 2019 (within the replacement period) for $300,000, she will meet the requirements of I.R.C. 1033, and is able to defer the gain. Her basis in the new property is $125,000.

 

Property Tax Reassessments Underway in Butte County

If you already made your November property tax payment to Butte County but do not want the check processed, the Butte County Treasurer's office are currently holding those payments.  First, contact your bank to see if your check is still outstanding (not paid against...

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General Disaster Tax Relief Information

IRS

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).

Casualty, Disaster, and Theft Losses and your federal income tax (for tax years before 2018)

Disaster Relief Resources for Tax Professionals

 

Franchise Tax Board

Disaster Loss and your CA state income tax

 

California Department of Tax and Fee Administration (formerly the SBOE)

Emergency tax or fee relief is available from the CDTFA for business owners and feepayers directly affected by disasters declared as state of emergencies

 

 

Flyer to provide at meetings, info sessions and shelters

Flyer

Property Tax Reassessments

Employment Development Department (EDD)

California EDD provides a variety of services to individuals and businesses affected by disasters in California

 

 

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

Contact Information

North Bay Enrolled Agents (NBEA)

North Bay Enrolled Agents logoEnrolled 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.