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State Tax Relief Provided for Disaster Victims

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Public Affairs Office
John.Barrett@ftb.ca.gov

For Immediate Release

10.05.2010

Sacramento — The Franchise Tax Board (FTB) today announced that recently signed legislation (AB 1662—Portantino, Jeffries, and Adams) designates several wildfires and storms as state disasters, providing the disaster victims with specific tax relief.

Special tax rules apply to disaster losses. Disaster victims can claim a disaster loss in either the year the disaster occurred or in the prior year. Typically, taxpayers must deduct losses only in the year of the disaster. The advantage of claiming a disaster loss in the prior year is that the loss will generally reduce the prior year tax liability. This generally creates a refund that FTB can quickly issue.

For affected taxpayers, the prior year disaster loss deduction provision deadline is coming up quick for the 2009 disasters—October 15, 2010.

The following events are designated as state disasters and provide the following tax benefits:

When the losses exceed disaster victims’ income for the year, they can carry the loss over for up to 15 years to reduce their tax liability until the disaster losses are used up. For example, a couple who were disaster victims of the August 2009 wildfires have uninsured losses of $300,000 and taxable income for 2008 of $50,000. They have the option to report the disaster on their 2008 tax return, get a refund of their state income taxes paid, and carryover the $250,000 balance to future years. They have until October 15, 2010, to make this election.

Disaster

Counties covered by
disaster designation

Prior year
election deadline

100 percent loss
carryover provision

August 2009 Wildfires

Los Angeles
Monterey

2008 by
October 15, 2010

15 years

August 2009 Wildfires

Placer

2008 by
October 15, 2010

15 years

January 2010 Winter Storms

Calaveras
Imperial
Los Angeles
Orange
Riverside
San Bernardino
San Francisco
Siskiyou

2009 by
October 17, 2011

15 years

July 2010 Wildfires

Kern

2009 by
October 17, 2011

15 years

For disaster victims that already filed their tax return for the prior year, they can claim a disaster loss against that year’s income by filing Form 540X, Amended Individual Income Tax Return.

A casualty loss occurs when your property is lost or damaged due to an earthquake, fire, flood, or similar event that is sudden, unexpected, or unusual. Disaster victims usually qualify for a casualty loss deduction for tax purposes when insurance or other reimbursements do not repay you for damage to your property. For California purposes, your casualty loss becomes a disaster loss when both of the following occur:

  • Disaster victims sustain the loss in an area the President of the United States or the Governor of California designates as a disaster area. If only the Governor declares a disaster, subsequent state legislation is required to activate the disaster provision for California tax purposes.
  • Disaster victims sustain the loss because of the declared disaster.

For more details, refer FTB Publication 1034, Disaster Loss How to Claim a State Tax Deduction at FTB’s website at ftb.ca.gov.

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