The IRS has announced federal disaster relief for natural disasters, offering special provisions to help those impacted. This relief could potentially affect how you itemize deductions on your tax return, allowing for adjustments related to casualty losses and other storm-related expenses. We’re here to help you navigate these changes and ensure you're taking advantage of all available benefits.
In a letter dated August 23, 2024, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121et seq. (the “Stafford Act”), as follows:
'I have determined that the damage in certain areas of the State of Montana resulting from straight-line winds on July 24, 2024, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121et seq. (the “Stafford Act”). Therefore, I declare that such a major disaster exists in the State of Montana.'
The following areas of the State of Montana have been designated as adversely affected by this major disaster:
Missoula and Powell Counties for Public Assistance.
How this could effect your tax returns -
Modified Casualty Loss Treatment
The new act significantly changes the traditional framework for casualty losses in the event of qualified disasters. Key modifications to this framework include:
Removal of AGI threshold: The Act removes the 10% AGI threshold for casualty losses and lowers the event floor from $100 to $500 for federally declared disasters, effective for tax years starting after December 31, 2023.
Elimination of Itemization Requirement: Clients can now claim qualified disaster losses regardless of whether they itemize deductions. This represents a significant departure from previous requirements and expands access to relief.
Note: 90% of taxpayers take the standard deduction. This change is important to many victims of disasters.
Example: Richard's house was damaged in the July 2024 storm. He is insured but his deductible is $5,000. Because Richard takes the standard deduction, he would not have received a benefit from his small loss under prior law. Under the new law, Richard can add his $4,500 ($5,000 less $500 floor) to his standard deduction.
Disasters hit throughout the US
Extreme weather events have increasingly affected communities across the United States, including wildfires in the West, devastating floods in the Northeast, powerful hurricanes in the South, and severe drought conditions in the Southwest. California wildfires are in the news, but The Federal Disaster Relief Act of 2023 will provide tax benefits to tens of thousands of taxpayers.