On Dec. 12, 2024, then-President Joe Biden signed the Federal Disaster Tax Relief Act of 2023 into law, introducing significant tax relief measures for individuals and families impacted by disasters. This long-anticipated legislation provides a variety of benefits, including expanded deductions and exclusions from gross income for qualified disaster-related expenses. Below, we outline the key provisions and how they may benefit taxpayers.
Expanded Casualty Loss Deductions
One of the most noteworthy changes under this new law is the elimination of the 10 percent Adjusted Gross Income (AGI) floor for qualified disaster-related personal casualty losses. Previously, taxpayers could only deduct casualty losses exceeding 10 percent of their AGI, limiting relief for many individuals. Under the new provisions:
- Qualifying disasters: Casualty losses are eligible if they result from a presidentially declared disaster occurring between Dec. 28, 2019 and Jan. 11, 2025 and officially declared by Feb. 9, 2025.
- $500 floor: Casualty loss is subject to a modest $500 floor.
- “Above the line” deduction: Taxpayers can claim these losses even if they take the standard deduction, offering broader access to relief.
- No deadline extensions: The legislation does not extend the time to amend prior-year returns or request refunds for these losses.
Wildfire Relief Payments: Exclusions from Income
The Act also addresses the increasing prevalence of wildfires by excluding qualified wildfire relief payments from gross income. Key points include:
- What’s covered: Compensation for losses, damages, additional living expenses, emotional distress, and other wildfire-related costs not covered by insurance.
- Eligibility period: Payments received after Dec. 31, 2019 and before Jan. 1, 2026 qualify for this exclusion.
- Double benefit prohibition: Taxpayers cannot deduct expenses covered by these payments or use them to increase the basis of property improvements.
- Extended refund claims: Taxpayers have at least one year from the law’s enactment to file claims for refunds related to these payments.
Specific Relief for East Palestine Train Derailment Victims
Special provisions in the Act provide relief for victims of the Feb. 3, 2023 train derailment in East Palestine, Ohio. Relief payments related to this disaster are excluded from gross income and cover:
- Losses and damages to property.
- Compensation for inconvenience, closing costs, and diminished property value.
- Payments provided by federal, state, or local agencies, Norfolk Southern Railway, or its affiliates.
- Applies to payments received on or after Feb. 3, 2023.
What This Means for Taxpayers
The Federal Disaster Tax Relief Act introduces critical measures to ease the financial burden on individuals affected by disasters. By eliminating the AGI threshold for casualty losses, expanding exclusions for wildfire relief payments, and addressing specific events like the East Palestine train derailment, the legislation ensures broader and more equitable access to tax relief.
If you believe you qualify for any of these benefits, please connect with RKL. Our team is here to help you navigate these changes and maximize the relief available to you.
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Ruthann J. Woll is a Partner in RKL’s Tax Services Group. Woll oversees firm-wide individual tax planning and compliance efforts and leads RKL’s nonprofit tax niche. She also comprehensively serves the tax accounting needs of high-net-worth and high-earning individual clients, helping them minimize tax exposure through strategies like gift and estate planning, tax-loss harvesting, and charitable contributions.
