Tax Information for January Fire Victims

On January 13th, we sent you an email dealing with the extension of deadlines by the IRS and the California Franchise Tax Board. That email also described property tax issues, deadline extensions for filing your return and payment of taxes available to everyone in Los Angeles County whether you're in the fire area or whether you're even affected by the fire. Generally, all income tax payment and filing deadlines have been extended to October 15, 2025 for all residents and businesses in all of L.A. County.

For details, see our previous e-mail - Click Here. 

Disaster Relief Grants and Income Taxation

Disaster relief benefits from FEMA, from other federal programs or from the state of California are tax exempt for both federal and state purposes. 

Casualty Disaster Losses and Insurance Reimbursements

•    Individuals - For more information on Casualty Disaster and Theft Loss – Click Here.  

•    Businesses – For more information on Business Casualty Disaster and Theft Loss – Click Here.

•    The IRS Toll-Free Disaster Assistance Hotline is available to help answer your questions at 866-562-5227.

Victims of the Palisades Fire may deduct their casualty loss as an itemized deduction you can take the deduction on your 2024 or your 2025 tax return (the one due April 2026). Reducing your 2024 tax liability will increase your refund and then provide you cash at a difficult time. The amount of the deduction is typically the amount you lost as a result of the disaster, reduced by the insurance proceeds you expect to receive or have already received.

Importantly, you may not take a casualty loss for your home in excess of your “basis” in your home, plus what you paid for the various personal property that was damaged or destroyed.

Your “basis” in your home is the amount you paid for it, increased by what you paid for home improvements. If you have used your home as a rental or as business property you may have taken depreciation deductions in previous years, which reduce the basis in your home. 

If the amount you receive from insurance exceeds your basis in your home, the excess is treated as capital gain. If the home is your primary residence and has been for at least 2 of the last 5 years, the first $250,000 of such gain ($500,000 for a married couple), is tax exempt. 

There are other provisions that may shield you from this capital gain – See Forbes Article.

The purpose of this document is to just give you the basics. You will want to consult with your own tax professional. 

Please see recent Malibu Times article where I discuss FEMA & SBA benefits --> Malibutimes.com Congressman-Brad-Sherman-Advocates-For-Fire-Victims-Federal-Aid-and-Recovery-Efforts