On Dec. 12, 2024, the long-awaited Federal Disaster Tax Relief Act of 2023 was signed into law. This short but powerful act calls for three main disaster relief provisions.

Extension of casualty loss rules for disasters

First, the act extends the rules for the treatment of certain disaster-related personal casualty losses under Sections 301 and 304(b) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Currently, taxpayers are allowed a casualty loss deduction that exceeds 10% of their adjusted gross income (AGI) with a $100 price reduction for each casualty claimed. For qualified disaster-related personal casualty losses, the act eliminates the 10% AGI threshold and increases the $100 reduction to $500 per casualty claimed. Additionally, taxpayers do not need to itemize to take advantage of this benefit.

This relief is available for disasters between Jan. 1, 2020 – Jan. 11, 2025 (if declared by Feb. 9, 2025). Taxpayers impacted by disasters during this period, such as hurricanes Helene and Milton, the wildfires in Hawaii and California, and the East Palestine, Ohio, train derailment, may go back and amend their tax returns to adjust for these changes.

Exclude wildfire relief payments from gross income

Any amounts taxpayers received as a qualified wildfire relief payment from Jan. 1, 2020, through Dec. 31, 2025, are excluded from gross income under §139.

Qualified wildfire relief payments include payments received by or on behalf of an individual for losses, expenses, or damages incurred as a result of a qualified wildfire disaster, but only to the extent the losses, expenses, or damages are not compensated for by insurance or otherwise [§139(b)]. This includes compensation for additional living expenses, lost wages (other than compensation for lost wages paid by the employer which would have been paid as wages), personal injury, death, or emotional distress.

Qualified wildfire disasters are any federally declared disasters resulting from any forest or range fire.

One critical point to remember is that with tax-exempt payments such as these, there is no double dipping. Taxpayers are not eligible for any deductions, credits, or increases in basis or adjusted basis of the property to the extent of the amount they excluded from income.

Taxpayers have until Dec. 12, 2025 (one year following the passage of this law), to amend their returns to claim a credit or refund if the statute of limitations for a refund already expired or will expire before Dec. 12, 2025.

East Palestine, Ohio, train derailment payments

Lastly, as with the wildfire payments, payments made on or after Feb. 3, 2023, on behalf of the East Palestine, Ohio, train derailment that occurred on Feb. 3, 2023, are considered qualified disaster relief payments, making them excludable from income under §139.