As part of the Tax Cuts and Jobs Acts, casualty loss deductions were disallowed starting in 2018 unless the loss was incurred in a federally declared disaster area. Because of the Presidential Disaster Declaration made yesterday, victims of the August 2020 CA wildfires in Lake, Monterey, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties are eligible for the casualty loss deduction. (Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.)
Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can claim a deduction for the loss on their tax return. They can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or the return for the prior year (2019). Be sure to write the FEMA declaration number – 4558 − for California on any return claiming a loss.
Because the governor declared a state of emergency, the disaster loss is also deductible on the CA income tax return.
Reporting a casualty loss can be complex so we recommend you work with a qualified Enrolled Agent or other tax professional to do these calculations.