Changes to Disaster Relief Under the Federal Disaster Tax Relief Act of 2023 (H.R. 5863)
- Vish Raj
- Mar 12
- 3 min read
Updated: Mar 18
The Federal Disaster Tax Relief Act of 2023, signed into law on December 12, 2024, introduces key tax changes to help individuals and businesses affected by disasters. This law simplifies tax deductions for disaster-related losses, extends tax deadlines, and ensures that some disaster relief payments remain tax-free. Let’s explore the latest updates in a clear and simple manner.
1. Easier Rules for Claiming Disaster Losses on Taxes
If you lost property or suffered damage in a federally declared disaster, you can now deduct your losses on your tax return more easily.
What Changed?
No More 10% Income Limit – Before this law, you could only deduct losses that exceeded 10% of your income. Now, this limit is removed, allowing more people to claim losses.
Lower Threshold for Claims – Previously, only losses above $100 per event were deductible. Under the new law, you can deduct any loss above $500 per event.
No Need to Itemize Deductions – Earlier, you had to itemize deductions to claim disaster losses. Now, you can take the standard deduction while still claiming disaster-related losses separately.
2. Some Disaster Payments Are Now Tax-Free
Certain disaster relief payments are now excluded from taxable income, meaning you won’t have to pay taxes on them.
Which Payments Are Tax-Free?
Qualified Wildfire Relief Payments – If you receive money to help recover from wildfires, such as for temporary housing or lost wages, it is not taxable.
East Palestine, OH Train Derailment Relief – If you were impacted by the February 3, 2023, train derailment in East Palestine, Ohio, relief payments you received are now exempt from taxes.
A tax accountant in Fairfax, VA, can help individuals and businesses in disaster-affected areas navigate these new tax rules and ensure they maximize their benefits.
3. Extended Tax Deadlines for Disaster Victims
Taxpayers in federally declared disaster areas now receive automatic deadline extensions for filing tax returns and making tax payments.
Examples of Deadline Extensions
California Wildfire Victims – Those affected by California wildfires now have until October 15, 2025, to file their 2024 taxes.
Other Disaster Areas – People in disaster zones may also qualify for deadline extensions. Always check the IRS website for the latest updates.
No Extra Interest or Penalties – If your deadline is extended due to a disaster, you will not be charged additional interest or penalties for late tax filings.
4. Special Benefits for Recent Disasters
Who Benefits?
Hurricane Victims – Those affected by Hurricanes Helene or Milton can now claim tax relief under the updated law.
California Wildfire Survivors – Payments from settlements like the PG&E Fire Victim Trust are not taxable.
East Palestine, Ohio, Train Derailment Victims – Relief payments for those impacted by the train derailment are now exempt from federal taxation.
5. Why This Law Was Passed
With disasters becoming more frequent, many people struggle to afford rebuilding costs. This law was passed with bipartisan support to:
Provide financial relief to disaster victims
Simplify the tax process for affected individuals and businesses
Help communities recover more quickly
The law is also part of a larger $100 billion emergency relief package aimed at rebuilding communities, supporting farmers, and restoring damaged infrastructure.
6. What You Should Do Next
Check If You Qualify – If you live in a federally declared disaster area, find out if you’re eligible for tax relief.
File for Tax Benefits – If you suffered losses, claim deductions or tax-free relief to reduce your tax burden.
Consult a Tax Professional – A Tax Advisor CPA in Fairfax, VA, or other tax professionals can help you file your taxes correctly and take advantage of these new benefits.
Final Thoughts
The Federal Disaster Tax Relief Act of 2023 makes it easier for disaster victims to recover financially. By offering simplified tax deductions, tax-free relief payments, and extended deadlines, this law helps individuals and businesses rebuild with less financial stress. If you have been affected by a disaster, make sure to take full advantage of these new tax benefits.
For expert assistance in filing disaster-related tax claims, consult Raj and Associates CPA PC, a trusted provider of tax preparation services in Fairfax that can guide you through the latest tax relief provisions.