In light of the Palisades and Eaton fires that struck Los Angeles County in January 2025, affecting thousands of residents, we want to highlight the tax relief now available to individuals and businesses impacted by these devastating events. Federal and state authorities have responded with specific measures to ease the burden on affected taxpayers, and it’s important to understand how these changes may benefit you.
New and Final Law Under the One Big Beautiful Bill (OBBB)
The recent passage of the OBBB introduced significant updates to disaster-related tax relief. Below is a summary of the most important changes:
Casualty Loss Deduction:The law continues to allow deductions for casualty losses from presidentially declared disasters, but it now expands eligibility to include state-declared disasters as well. This means that if your governor declares a disaster, you may qualify for relief. This provision applies to taxable years beginning after December 31, 2025.
Permanence of Changes: A key feature of the bill is that it makes the current limitation on casualty loss deductions permanent. Previously, personal theft losses (such as those from burglary or scams) could be deducted in limited cases. Under the new rules, theft losses are no longer deductible as casualty losses.
More Generous Calculation for Casualty Loss Deductions: The new law also expands favorable treatment for victims of the California and Kentucky fires. Taxpayers affected by these disasters can claim casualty losses even if they do not itemize deductions. In addition, the previous formula—10% of AGI plus $100 per casualty—has been replaced with a straightforward $500 per casualty limitation.
What does this mean for you
With these updates, taxpayers impacted by the California wildfires of 2024 and early 2025 are now eligible for tax relief. Even though these events were not initially included in federal disaster relief, they are now officially recognized as “qualified” disasters under the new law.
To take advantage of this relief, it’s important to check the FEMA website to confirm whether your area has been designated as a presidentially or state-declared disaster. If your property was affected by these events, ensure you have the necessary documentation from your insurance company so that your claims can be filed properly and your losses can be mitigated.
If you were affected by the Palisades or Eaton fires, or by any other natural disaster, or if you’d like help understanding how these provisions may affect your tax situation, please contact us at (310) 552-0960 to speak with one of our tax advisors.