New Tax Relief for Disaster Victims: What You Need to Know About the New Federal Disaster Tax Relief Act
On December 12, 2024, President Biden signed the Federal Disaster Tax Relief Act of 2023 into law, bringing good news to taxpayers who have suffered losses due to natural disasters. Here’s what you need to know about these changes and how they could impact your tax filings.
Changes to Disaster Loss Rules
Under the previous tax code, federally declared disaster-related losses were deductible only when they exceeded 10% of your Adjusted Gross Income (AGI). This often made it difficult for many to benefit from deductions, especially those with higher AGIs. However, the new law removes this 10% threshold, making it easier for taxpayers to deduct their disaster-related losses.
Under the new legislation, disaster losses are deductible once they exceed $500. These deductions are “above the line,” meaning you don’t need to itemize your deductions to take advantage of this relief. You can still deduct these disaster-related losses even if you take the standard deduction.
Disasters Covered by this New Law
The Federal Disaster Tax Relief Act of 2023 applies to all presidentially declared disasters between January 1, 2021 and February 9, 2025. Significant disasters that qualify include:
- Hurricanes: Helene, Milton, and Ian.
- Wildfires: In California and Hawaii.
- Flooding: This new law also covers the flooding between June 16 and July 4, 2024, for southern Minnesota residents.
Additionally, many other disasters may be eligible, so if you’re uncertain, check the FEMA Disasters and Other Declarations website for a comprehensive list of qualifying events.
Exclusion of Relief Payments from Gross Income
The bill excludes qualified wildfire relief payments and the East Palestine, Ohio, train derailment disaster relief payments from gross income.
Effective Dates and State Considerations
This legislation applies to tax years beginning on or after January 1, 2021 and before January 1, 2026. However, it’s important to note that Minnesota has not conformed to these federal changes. Minnesota taxpayers will still need to follow the state’s current disaster relief and deductions rules.
Can I deduct the expenses I was assessed for damage to the common area of my condo?
Generally, individual condominium owners cannot deduct casualty losses for common areas owned by a homeowner’s association. Special assessments are considered capital contributions to the association and are not currently deductible.
What Should You Do Next?
- Review your disaster losses: If a disaster has impacted you, review your losses and determine whether they exceed the $500 threshold. Your 2021 – 2023 return(s) may need to be amended.
- Keep track of relief payments: If you’ve received any qualified disaster relief payments, be aware that they may not need to be included in your taxable income.
Contact us if you have any questions. We’re happy to help you navigate these changes and discuss how they could impact your tax filings.