Disaster Relief 2020 October 2020 Tax News
With the recent wildfires throughout California, we wanted to again share with you how to claim a disaster loss for your clients. You may deduct any loss caused by a disaster located in a California area designated by the President or the Governor to be in a state of emergency beginning on or after January 1, 2014 and before January 1, 2024. California law generally follows federal law regarding the treatment of losses incurred as a result of a casualty or a disaster.
Your clients may qualify for a casualty loss if they were not compensated for the damage to or loss of their property due to a sudden unexpected, or unusual earthquake, fire, flood, or similar event.
Your clients may also claim a disaster loss in the taxable year the disaster occurred or in the taxable year immediately before the disaster occurred. If they meet the qualifications to claim a disaster loss, the same disaster rules and extended deadlines apply.
If they e-file, they will need to use the appropriate disaster code from the list of disasters for California.
If they file a paper return, they will need to print the following information in blue or black ink across the top of their return:
- Name of disaster from the list of disasters
- The year the loss occurred: Year of the proclamation of state of emergency by the President or the Governor
Example: Disaster – Camp Fire – 2018
Your clients need to include or attach:
- A written statement with their loss documentation that provides:
- The date of the disaster
- The location of the disaster (city, county, and state)
- Their election to deduct the loss in the taxable year before the year the disaster occurred (if they choose this option)
- Copies of the following federal forms:
- A completed federal Casualties and Thefts (use California amounts) (IRS Form 4684)
- A copy of their federal income tax return
- Any supporting federal schedules that verify your deduction
- You may also need the following California forms:
- Sales of Business Property (Schedule D-1 | Instructions)
- Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations Individuals, Estates, and Trusts (FTB 3805V | Instructions)
- Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations Corporations (FTB 3805Q | Instructions)
Disaster Loss – How to Claim a State Tax Deduction (FTB Publication 1034) assists taxpayers in need of financial recovery and provides more detailed instructions on how to claim the loss on the California tax return.
To request a copy of a lost or damaged California tax return, you or your clients must complete Request for Copy of Tax Return (Form 3516). Print the name of the disaster at the top of the form and we will send copies of the most recently filed tax return. We will replace lost or damaged California tax returns at no charge to disaster victims. You or your clients may be able to obtain a copy of their California tax return(s) through MyFTB.
California also follows federal extended deadlines for filing tax returns, paying income taxes, and making contributions to a traditional Individual Retirement Account (IRA) or Roth IRA. Deadlines are extended up to 1 year. Visit IRS’s Tax Relief in Disaster Situations webpage for more information. Interest and penalties are canceled on the underpaid income tax for the length of any extended deadline period.
Visit our Disaster loss deduction webpage for more information.