President Biden signed the Federal Disaster Tax Relief Act of 2023 (H.R. 5863) into law on December 12, 2024. This legislation introduces several beneficial tax provisions to assist victims of federally declared disasters.
Relief for Personal Casualty Losses
One of the provisions of this law is easing restrictions on deductions for personal casualty losses caused by qualified disasters. Previously, these losses were only deductible to the extent they exceeded 10% of an individual’s adjusted gross income (AGI). Under the new legislation, this AGI threshold has been eliminated. Instead, taxpayers can deduct personal casualty losses for each event that surpasses a $500 threshold.
Moreover, these losses can now be claimed “above the line,” meaning taxpayers can deduct them even if they do not itemize their deductions and still take the standard deduction. This provision applies to disasters declared between January 1, 2020, and January 11, 2025, if the declaration is made by February 9, 2025. This expanded timeframe includes events such as Hurricane Helene, Hurricane Ian, Hurricane Milton, and the devastating wildfires in Hawaii and California. Visit FEMA’s website for a comprehensive list of qualified disasters as well as the designated areas which qualify for this new law change.
Qualified Wildfire Relief Payments
Taxpayers impacted by wildfires also stand to benefit significantly. The law allows them to exclude any qualified wildfire relief payments received, from gross income. These payments may cover:
- Additional living expenses
- Lost wages (excluding wages that an employer would have paid)
- Damages due to personal injury, emotional distress, or death
To qualify, the losses must stem from federally declared wildfire disasters and cannot be compensated by insurance or other means. This provision is retroactive to relief payments received after December 31, 2019, and extends to payments made before January 1, 2026. However, taxpayers should note that these payments cannot result in a double benefit—any excluded amount cannot also be claimed as a deduction or used to increase the basis of property.
Additionally, claims for refunds related to these payments are granted an extended statute of limitations, allowing taxpayers to file at least one year after the law’s enactment.
Specific Relief for East Palestine, Ohio
Special provisions were enacted to aid those affected by the train derailment in East Palestine, Ohio, on February 3, 2023. Compensation payments related to this disaster will now be treated as qualified disaster relief payments under Section 139(b), allowing recipients to exclude them from gross income. These payments may cover:
- Compensation for property damage, lost value, or expenses
- Inconvenience, such as restricted property access
- Closing costs, including realtor commissions
Eligible payments must originate from federal, state, or local government agencies, Norfolk Southern Railway, or its subsidiaries, insurers, or agents. This provision applies retroactively to payments received on or after February 3, 2023.
If you have suffered losses from a disaster declared between 2021 and 2023 or received payments related to qualified wildfires or the East Palestine train derailment, you may be eligible for refunds or amended returns. Taxpayers have until December 25, 2025, to amend their returns and claim a credit or refund, even if the statute of limitations for a refund has already expired or is set to expire before December 12, 2025. Contact your Stephano Slack tax manager/partner at 610-687-1600 or [email protected] for more information.
Author, Coleman Clark is a tax associate specializing in strategies for high-net-worth individuals and driving business growth. He focuses on providing personalized solutions to help clients achieve their financial goals. He can be contacted at 610-235-4317 or [email protected].
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