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ALE voluntary extended for most 2017 wildfire victims
The California Department of Insurance announced today that 26 insurance companies have agreed to extend the time limits for 2017 wildfire survivors to access additional living expense benefits after Commissioner Ricardo Lara appealed to them to stand by their customers who are still in the process of rebuilding their homes. These companies represent a majority of the total losses from the devastating 2017 wildfires that struck Santa Rosa and other parts of Northern California.
With only approximately 20 percent of homes rebuilt today, many survivors have faced unavoidable delays due to the scale of destruction and construction labor shortages. Commissioner Lara approached insurance companies to honor the spirit of a new state law passed in the wake of the deadly 2017 fires by extending additional living expense, or ALE benefits, from 24 to 36 months.
“Two years is clearly not enough time for people to get back on their feet in a disaster of this magnitude,” said Commissioner Lara. “The voluntary action by 26 insurance companies to extend additional living expense time limits is a step that will bring relief to those with benefits remaining while they continue to rebuild.”
ALE coverage typically includes additional food and housing costs, furniture rental, relocation and storage, and extra transportation expenses, among other reimbursable costs. ALE benefits differ by insurance company. Some plans have a set dollar limit, some have a time limit, and others have no limits. Policyholders should contact their insurance company or the Department of Insurance at (800) 927-4357 to determine if they have remaining ALE benefits.
In the aftermath of the catastrophic 2017 wildfires, the Department, California State Legislature, and Governor recognized that 24 months does not provide sufficient time to remove debris, obtain all necessary building permits, locate and hire a contractor and multiple subcontractors, and completely rebuild destroyed homes. The extraordinary circumstances of the 2017 fires still persist today with many consumers remaining in limbo due to these circumstances beyond their control.
The passage of Senate Bill 894 (Dodd and McGuire, Chapter 618, Statutes of 2018 ), Assembly Bill 1772 (Aguiar-Curry and Wood, Chapter 627, Statutes of 2018), and Assembly Bill 1800 (Levine, Chapter 628, Statutes of 2018) increased the 24-month mandatory ALE coverage period to a minimum of 36 months if a policyholder acting in good faith and with reasonable diligence encounters delays in the reconstruction process of their home.
Commissioner Lara first made the request to insurance companies to voluntarily extend ALE benefits in May at a meeting with Sonoma County fire survivors, and he renewed it in a September letter to survivors as the two-year anniversary of the deadly blazes approached. To date, the Department of Insurance has helped more than 1,000 people obtain $100 million in benefits related to the 2017 Sonoma County fires.
“I urge policyholders who lost access to ALE benefits to contact my Department for further assistance, including if they believe their insurance company played any role in causing a delay,” said Commissioner Lara.
An example of a delay includes an insurance company taking an extensive amount of time before approving a contractor’s final estimate for rebuilding.
Contact information for the CA Department of Insurance is available HERE
Filing relief for Saddleridge, Sandalwood, Eagle, Reche, and Wolf Wildfires
Franchise Tax Board (Personal Income Tax and Corporation Tax)
The Franchise Tax Board (FTB) today announced special tax relief for taxpayers affected by the Governor-declared state of emergency for the Saddleridge, Sandalwood, Eagle, Reche, and Wolf wildfires that began in October 2019. These taxpayers are granted an extension to file 2018 California tax returns until November 15, 2019.
Details of the relief:
- The relief applies to affected individuals and businesses in Los Angeles County and Riverside County.
- This applies to the October 15, 2019 extended tax filing deadline for tax year 2018 California state tax returns.
- The FTB will cancel interest and any late filing or late payment penalties that would otherwise apply.
- Taxpayers filing their returns late or claiming the disaster loss should write the name of the disaster in ink (for example, Saddleridge Fire) at the top of the tax return to alert FTB to expedite the refund. If taxpayers are e-filing, they should follow the software instructions to enter disaster information.
California Revenue and Taxation Code section 18572(b) allows FTB to postpone certain tax-related deadlines for a state of emergency declared by the Governor. Disaster loss rules apply to victims in Governor-declared or presidentially-declared disaster areas. Taxpayers may claim a disaster loss in one of two ways: In the tax year that the disaster occurred, when filing a 2018 tax return this fall; or in the tax year before the disaster occurred by filing either an amended or original 2017 tax return. FTB can more quickly issue a refund for eligible claimed losses in the prior tax year.
Taxpayers filing their returns late or claiming the disaster loss should write the name of the disaster in ink (for example, Saddleridge Fire) at the top of the tax return to alert FTB to expedite the refund. If taxpayers are e-filing, they should follow the software instructions to enter disaster information.
EDD (State Payroll Tax, Unemployment Benefits)
EDD announced that for taxpayers impacted by these filed the waiting week for unemployment benefits claimed between 10/10/19 and 4/10/20 is waived and employers have a 60-day extension to file and pay payroll taxes.
CDTFA (Sales Tax, Excise Tax, Use Tax)
The CDTFA has added Los Angeles and Riverside counties to its list of emergencies that are eligible for filing, penalty, and interest relief.
Insurance sent me a check for the loss of my home in the Camp Fire. Is it taxable?
The answer to this and most tax questions is: It depends. There is a potential for the insurance payments to be taxable and it depends on the facts and circumstances of each case.
Casualty Loss: If a Home Owner was uninsured (or under-insured) and lost their house, they could have a sizable casualty loss. (A casualty loss is taken on your tax return. Starting in 2018, you can only take a loss on your federal return if the disaster was a Federally Declared disaster. For California, you can take a loss for any casualty.)
Casualty Gain: If they were insured and if the insurance award is greater that the home owner’s basis (original purchase price plus improvements) then there is a possible taxable gain. The insurance payment for the loss of the house is considered the Sales Price. Comparing the Sales price to the Basis determines if there is a Taxable Gain.
WAIT, YOU ARE NOT LISTENING. THERE WAS NO SALE.. MY HOUSE WAS DESTROYED IN THE FIRE.
Yes, you are right. It seems unintuitive but this is the way the tax code works. When you get insurance money it is treated like a sale of your property.
Example: If you bought your house for $200,000 and you receive $500,000 in insurance benefits, there is a $300,000 gain.
SO, DO I HAVE TO PAY TAXES ON THAT GAIN?
Luckily, there are two IRS code sections that can reduce or eliminate the gain from the insurance received. Section 121 covers the exclusion of Gain from a Principle Residence and Section 1033 covers Involuntary Conversions which are losses that happen as a result of events such as Fire, Earthquake, Flood, etc.
Using Section 121
Since the destruction of your personal residence is treated as a sale of property, for purposes of the section 121 exclusion if the taxpayer otherwise qualifies (that is, during the five-year period ending on the date of the fire, the home has been owned and used by the taxpayer as their principal residence for two years or more) part of the gain ($250,000 for single taxpayers and $500,000 for married filing jointly taxpayers) may be excluded.
Example: Using the example above, if you have a $300,000 gain but you were single and qualified for the Sec 121 exclusion, then you could exclude $250,000 of the $300,000 gain. Leaving you with a gain of only $50,000.
Using Section 1033
This section allows you to defer recognition of the gain on your tax return assuming the tax payer reinvests the proceeds in a replacement property within defined time limits. Note: This is just a deferral of the gain. The basis of the replacement property is adjusted for the deferred gain and thus when you sell the property, you could recognize the gain at that time. The rules around this are quite complex, thus we have not gone into all the details in this article.
The calculations around the casualty gain or loss are complicated and using the Sec 121 and Sec 1033 exclusions are even more complicated and there are special rules if your loss is due to a federal disaster (such as the Camp, Hill and Woolsey fires) thus we recommend that you consult with your Enrolled Agent or other tax professional when preparing your tax return to ensure you get all the tax benefits you deserve.
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 your account). If it has not been paid, you may call (530) 552-3720 or email taxes@buttecounty.net to advise them not to process your payment and make arrangements regarding the check.
If you have not made your November property tax payment to Butte County, and if you have lost your home or employment due to the Camp Fire, and you pay your taxes directly (no impound account),the Butte County Treasurer’s office says to please be assured that there will be no penalties imposed for payments due on December 10 that are paid after that date.
Butte County Property Tax Reassessments are coming. The Butte County Assessor will be re-assessing damaged properties as quickly as possible, and new tax bills will be issued, with new due dates. They are using the Cal Fire map to determine which properties have been destroyed. That being said, if your home or business was impacted, you should still file the property tax reassessment form on your own — the form is available on the Assessor’s website.The reassessment will adjust property values from Nov. 8 through June 30, 2019 – the new tax bills will represent the pre-fire value of the property for the first four months of the fiscal year — June 30-Oct. 31 — and the reduced value for the rest of the year. The new property tax bills will replace the Dec. 10 deadline for the first installment, with a date 30 days after a new value and a new tax bill are prepared.
I lost my home in the 2018 wildfires. Is Congress going to provide us any additional tax relief?
Is Congress going to provide us any additional tax relief? We hope so…
According to Senator Feinstein’s office, Senators Dianne Feinstein and Kamala Harris (both D-Calif.) joined with Senators Richard Burr (R-N.C.), Thom Tillis (R-N.C.), Lindsey Graham (R-S.C.), Bill Nelson (D-Fla.) and Marco Rubio (R-Fla.) to introduce the Hurricanes Florence and Michael and California Wildfire Tax Relief Act (S. 3648), to aid victims of recent natural disasters.
“It’s heartbreaking to see our communities devastated by wildfire and hurricanes,” said Senator Feinstein. “Our bipartisan bill will help families recover by providing them with much-needed tax relief as we begin to rebuild in the aftermath of these natural disasters.”
“The wildfires that tore across California this year claimed precious lives, devastated communities, destroyed thousands of homes, and forced hundreds of thousands of Californians to evacuate,” said Senator Harris. “The road to recovery for these communities won’t be easy, and we have a responsibility to give them the federal support they desperately need. Today, I am proud to join with my colleagues to provide these families working to rebuild their lives with much-needed tax relief.”
Background
The Hurricane Florence and Michael and California Wildfire Tax Relief Act:
- Allows more taxpayers to claim a deduction for personal property losses by removing the itemize requirement.
- Removes penalties on certain hardship withdrawals from retirement accounts.
- Encourages employers in hard-hit areas to retain employees.
- Allows taxpayers to use earned income from the preceding year when claiming Earned Income Tax Credit and Child Tax Credit.
- Suspends limits on charitable contributions to disaster relief efforts.
- Expands Opportunity Zones to hardest-hit areas.
You can read a copy of the bill here.
How do I get a copies of prior year tax returns?
If you lost copies of your prior year tax returns in the fire:
- Request copies of your Federal Income Tax Returns by filing Form 4506 Request for Copy of Tax Return with the IRS. If you write “California Wildfires” in red ink at the top, the IRS will waive the usual fees and expedite requests for copies for individual impacted by the fires.
- Request copies of your California Income Tax returns, by filing Form FTB 3516 Request for Copy of Income Tax Return. There is no charge if you are a victim of the wildfires. If you have a MyFTB account you may be able to access copies there — for more information on MyFTB, click HERE.
IRS Extensions for victims of Camp, Hill, Woolsey fires
Individual who reside or have a business in Butte, Los Angeles, and Ventura counties have more time to file and pay with the IRS:
- Estimated tax payments normally due on Jan 15, 2019 and April 15, 2019 can now be paid by April 30, 2019.
- Quarterly Payroll reports and excise tax returns normally due on Jan 31, 2019 can now be filed by April 30, 2019.
- Payroll and Excise Deposits due between Nov 9, 2018 and Nov 22, 2018 can be paid by Nov 23, 2018 without penalty.
- Federal Tax Returns that are due after Nov 8, 2018 and before April 30, 2019 can be filed by April 30, 2019.
Most of the time, the IRS will automatically identify taxpayers who qualify for this relief. But if you are eligible for relief and receive a penalty notice, please call the phone number on the notice to have the penalty abated.
Employers affected by the Camp, Hill, and Woolsey fires can request extension to file & pay state payroll taxes
Employers directly affected by the Camp, Hill, and Woolsey fired may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit state payroll taxes without penalty or interest. The extension period starts November 8, 2018.
State payroll taxes include Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI) (includes Paid Family Leave), and California Personal Income Tax (PIT).
To request an extension, employers must send a letter to EDD specifically requesting an extension of time under Section 1111.5 of the CUIC, along with the previously unfiled report(s) and payment(s). The letter must also provide detailed information as to why the report or payment could not be submitted in a timely manner.
Employers should mail the letter and tax report or payment to the address specified on their filing form. If an employer has already been charged a late filing or payment penalty that he/she believes may qualify for this extension, the employer should send a written request to:
Employment Development Department
P.O. Box 826880
Sacramento, CA 94246-0001
For more information about how to request an extension and other employer assistance available, visit Emergency and Disaster Assistance for Employers.
Are you self-employed and not eligible for regular unemployment assistance?
Are you self-employed and not eligible for regular unemployment assistance? A Presidential Disaster Declaration can make federal Disaster Unemployment Assistance (DUA) available for individuals effected by a disaster. DUA is a federal program that provides temporary unemployment assistance to individuals whose work or self-employment is interrupted due to a major natural disaster and who do not qualify for regular state-provided UI benefits, such as farmworkers, business owners and the self-employed.
If and when DUA benefits become available to disaster victims in California, we will update this website with pertinent details and information.
Eligibility for DUA benefits generally applies to those individuals who become unemployed as a direct result of the disaster and meet at least one of these conditions:
- Have applied for and received all regular unemployment benefits from California or any other state, or do not qualify for regular unemployment benefits.
- Worked or were self-employed, or were scheduled to begin work or self-employment, in the disaster area. Self-employed individuals in particular most often benefit from having DUA available.
- Can no longer work or perform services because of physical damage or destruction to the place of employment due to the disaster, or cannot reach work because of the disaster.
- Have not worked long enough or have not earned enough in wages to qualify for regular state unemployment benefits.
- Cannot perform work or self-employment because of an injury caused by the disaster and don’t qualify for State Disability Insurance.
- Became the head of their household because of a death caused by the disaster.