Tax Updates For LA County | Ruth Cantu

Dear Clients and Friends,

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Our hearts go out to everyone affected by the devastating fires that have impacted our communities. We recognize how overwhelming and challenging these times can be, and we want you to know that we’re here to support you in every way we can. As you navigate recovery, it’s important to understand the financial and tax implications of fire disaster losses.

When disaster strikes, the impact on families and businesses can be devastating. While no one can truly prepare for the emotional toll of a fire, understanding the tax relief options available can help ease some of the financial burdens. Whether you're an individual or a business owner, here's what you need to know about navigating fire disaster losses and the tax implications that come with them:

Key Tax Deductions for Fire Disaster Losses

For Individuals: If you’ve experienced property loss due to a federally declared disaster, you may qualify for a casualty loss deduction under IRC §165(c)(3). Key points to keep in mind include:

• You can deduct the lesser of the adjusted basis of your property or the decrease in its fair market value (FMV), reduced by any insurance reimbursement.
• The loss must exceed $100 per casualty, and the total losses must surpass 10% of your adjusted gross income (AGI).
• Losses not related to federally declared disasters are generally not deductible.

For Business Owners: Businesses have a more straightforward path to deducting disaster losses under IRC §165(a). These losses are fully deductible and not subject to the AGI or $100 floor limitations that apply to individuals. The deductible amount is typically the adjusted basis of the damaged or destroyed property, less any insurance reimbursement.

Handling Insurance Reimbursements

Insurance reimbursements help mitigate losses but may impact your tax deduction:

• If reimbursements exceed the property’s adjusted basis, the excess could result in taxable income unless you reinvest in similar property within two years, deferring the gain under IRC §1039.

Excess Losses and Carryforwards

For Individuals:

• Losses exceeding taxable income can create a net operating loss (NOL), which can be carried forward indefinitely but is limited to offsetting 80% of taxable income in future years.
• Passive activity losses (PALs) are limited to passive income unless you qualify for exceptions, such as actively participating in rental real estate.

For Business Owners:

• Non-corporate taxpayers face an excess business loss limit (§461(l)), with thresholds of $578,000 (MFJ) and $289,000 (single) in 2025. Losses above these thresholds become NOLs and can be carried forward indefinitely.
• C corporations have no 80% limitation when offsetting taxable income with NOLs.

Key Differences: Individuals vs. Business Owners

Deductibility Threshold:

• Individuals: $100 per casualty; 10% AGI floor
• Business Owners: No threshold; fully deductible

Insurance Reimbursements:

• Individuals: Reduce deductible losses; excess may be taxable
• Business Owners: Same as individuals

Excess Loss Treatment:

• Individuals: Creates NOL; subject to 80% income limitation
• Business Owners: Creates NOL; no 80% limitation for corporations

Carryforward Rules:

• Individuals: Indefinite; 80% income limitation applies
• Business Owners: Indefinite; no 80% limitation for corporations

PAL Rules:

• Individuals: Apply to passive activities
• Business Owners: Apply to pass-through entities’ owners

Friendly Advice

Document everything. Whether you’re filing as an individual or a business owner, maintaining detailed records of your property’s value before and after the disaster, along with any insurance claims or reimbursements, is crucial. Additionally, consult a tax professional to ensure you’re taking full advantage of the deductions and credits available to you.

Disasters are never easy, but with the right tax strategy, you can begin to rebuild your financial foundation while focusing on what truly matters: your family and community.

For more information, visit the IRS website or consult IRS Publication 547: "Casualties, Disasters, and Thefts." If you have questions or need personalized advice, don’t hesitate to reach out to us. We’re here to help.

Additional Update For LA Citizens

Taxpayers located in Los Angeles County have until October 15, 2025, to meet filing and payment deadlines that normally fall within the January 7, 2025, through October 15, 2025, time period. (IR-2025-10) This includes, but is not limited to:

• 2024 quarterly estimated income tax payments normally due on January 15, 2025, and estimated tax payments normally due on April 15, June 16, and September 15, 2025;
• Quarterly payroll and excise tax returns normally due on January 31, April 30, and July 31, 2025;
• Individual income tax returns and payments normally due on April 15, 2025;
• 2024 contributions to IRAs and health savings accounts for eligible taxpayers;
• Calendar-year partnership and S corporation returns normally due on March 17, 2025;
• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025; and
• Calendar-year tax-exempt organization returns normally due on May 15, 2025.?

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