The Federal Disaster Tax Relief Act of 2023 was signed into law on December 12, providing relief for those affected by federal disasters including hurricanes, wildfire disasters and the East Palestine, Ohio train derailment.
- Taxpayers may deduct uncompensated personal casualty losses from qualified disasters with no requirement to itemize deductions or apply the 10 percent adjusted gross income threshold
- Taxpayers affected by qualified wildfire disasters may claim a credit or refund attributable to relief payments received after December 31, 2019, that may have been previously included in gross income
- Those affected in the East Palestine, Ohio train derailment disaster may exclude related compensation payments from gross income
Background
On December 12, the Federal Disaster Tax Relief Act of 2023 (2023 Act) was signed into law. The bill extends certain provisions of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (2020 Act) as well as introduces several new relief measures targeted at the most recent federal disasters.
The bill is expected to provide tax relief for many Americans that have experienced losses due to disasters such as hurricanes Helene and Milton, the California wildfires, and the East Palestine, Ohio train derailment.
Overview of Relief Provisions
Broadly, the bill provides relief for individuals and businesses in presidentially declared disaster areas by extending Section 304(b) of the 2020 Act. Section 304(b) allows taxpayers affected by qualifying disasters to deduct uncompensated personal casualty losses exceeding $500 per casualty, removing the 10 percent adjusted gross income threshold and the requirement to itemize deductions to access relief. Because the 2023 Act replaces each instance of the 2020 Act for purposes of §301, the relief pertains to disasters declared during the period beginning on January 1, 2020, and ending 60 days after date of the Act’s enactment. This does not include COVID-19 related disaster declarations.
Provisions Pertaining to Qualified Wildfire Disasters
The 2023 Act excludes from the gross income of a taxpayer any qualified wildfire relief payments with a limitation on the deduction or credit allowed on damages for which a taxpayer is reimbursed.
A qualified wildfire relief payment is defined as an amount received by a taxpayer as compensation for losses, expenses, damages, lost wages (other than compensation for lost wages paid by the employer which would have otherwise paid such wages), personal injury, or death resulting from a qualified wildfire disaster (a federal disaster declared after December 31, 2014) to the extent the damages are not compensated for by insurance or other means.
A taxpayer may claim a credit or refund for payments received December 31, 2019, through January 1, 2026, and previously included in taxable income. For purposes of payments received for a tax year in which the period to file for refund under §6511(a) has expired, the 2023 Act specifically extends the period to apply for a refund until one year after the date of enactment.
Relief for Victims of the East Palestine, Ohio Train Derailment
The 2023 Act also specifically extends relief to the victims of the East Palestine, Ohio train derailment disaster on February 3, 2023, treating payments related to the disaster as qualified disaster relief payments, and excluding from the gross income of a taxpayer any East Palestine, Ohio train derailment payment received as compensation for loss, damages, expenses, losses in real property value, closing costs with respect to real property, or inconvenience if such payment was provided by a federal, state, or local government agency, Norfolk Southern Railway, or any subsidiary, insurer, or agent of Norfolk Southern Railway. The excluded payments are those received on or after February 3, 2023.
How Forvis Mazars Can Help
Navigating the available relief provisions in the wake of a disaster can be challenging. Forvis Mazars is prepared to assist those affected by these unfortunate events and help where we can. Please contact a Forvis Mazars professional for assistance or more information.