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State Tax Relief Provided for Disaster Victims

Recent Legislation (AB 1662, AB 1690, and ABX6 11) designates several wildfires, storms, an earthquake, and an explosion as state disasters, thus 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 and creates a refund that we can quickly issue.

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

Disaster Counties covered by disaster designation Prior year election deadline 100 percent loss carryover provision
September 2010 San Bruno Explosion San Mateo 2009 by
October 17, 2011
15 years
July 2010 Kern Wildfires Kern 2009 by
October 17, 2011
15 years
April 2010 Baja California Earthquake Imperial* 2009 by
October 17, 2011
15 years
January 2010 Humboldt Earthquake Humboldt 2009 by October 17, 2011 15 years
January 2010 California Winter Storms Calaveras*
Imperial*
Los Angeles*
Orange
Riverside*
San Bernardino*
San Francisco
Siskiyou*
2009 by
October 17, 2011
15 years
August 2009 Wildfires Los Angeles
Monterey
Placer
Expired 15 years

*Also qualifies for Federal disaster relief

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 July 2010 wildfires have uninsured losses of $300,000 and taxable income for 2009 of $50,000. They have the option to report the disaster on their 2009 tax return, get a refund of their state income taxes paid, and carryover the $250,000 balance to future years. They have until October 17, 2011, to make this election.

Disaster victims that already filed their tax return for the prior year 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.ca.gov.

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