Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

California Wildfires: Tax tips, what you need to know.

What types of federal tax relief am I entitled to if I lost property in a disaster?

You may be eligible for several types of federal income tax relief:

  1. First, if you have disaster losses that are not fully reimbursed through insurance or otherwise, you are entitled to a deduction for the year in which the loss occurred OR you may choose to deduct the loss in the prior year by filing an amended tax return. By taking the deduction in the prior year, you may receive an immediate tax refund. The whole idea is to get you the refund as fast as possible.
  2. Second, if your main home was damaged or destroyed and you received insurance payments that were more than the adjusted basis*, you can postpone paying tax on some or all of the gain if you buy a replacement property within the next four years. (*The adjusted basis of personal use property is generally the original purchase price, increased by the cost of additions or permanent improvements and decreased by any earlier casualty losses.
  3. Third, if you own a second property, such as a vacation home, and received insurance payments that were more than the adjusted basis for the loss of that property, you may be able to postpone some or all of the gain by buying replacement property -- but you must do so within the next two years, not four.

How can I decide whether to amend my return from last year when my tax records were destroyed in the disaster?

You can get copies of your prior tax returns and tax records by requesting them from the IRS. Although the IRS usually charges a fee for this service, it will waive the fee and speed up your request because your records were lost due to a disaster. Just write the official Disaster Designation in red ink at the top of the form.

How can I tell whether my casualty loss occurred in an area determined by the President to be a disaster area?

You can find a list of the Presidentially declared disaster areas on the web site of the Federal Emergency Management Agency.