State and Federal Tax Deductions for Wildfire Losses
| Publication year | 2020 |
| Author | Kenneth W. Minesinger, J.D. and Kenneth George, Ph.D. |
Kenneth W. Minesinger, J.D. and Kenneth George, Ph.D.
Kenneth Minesinger is a business lawyer and professor in Riverside. He currently serves the California Lawyers Association on the Health and Wellness Committee and on the Board of Editors of the Business Law News.
Kenneth George is a former Fortune 50 company executive and licensed investment advisor. He moved to academics eight years ago and works as a finance professor teaching undergraduate through doctoral level classes.
State and federal income tax codes have long recognized a deduction for casualty and theft losses generally, and for losses sustained on account of wildfires specifically. This article will provide business lawyers with a summary of California state and federal law in this area.
Substantial changes to the federal tax law were made in the Tax Cut and Jobs Act (TCJA)1 adopted by Congress and signed into law by President Trump in 2017. California state tax law has been updated to substantially conform with the changes made by the TCJA.2
The Internal Revenue Service defines casualty losses as losses that "can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration."3
Losses to both personal use and business or income-producing property are first calculated on IRS Form 4684 (Schedule A for a personal casualty loss and Schedule B for a business casualty loss) and then reported on the taxpayer's Schedule A (for the federal return) and Schedule D (for the California return).
Generally, to qualify for favorable treatment under the Internal Revenue Code, casualty losses must have resulted from an event that occurred in an area declared by the President to be a disaster area under his authority under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.4 A list of current disaster areas declared by the Governor and/or the President can be found in the California Franchise Tax Board Publication 1034.5
When the lost property was held by an individual taxpayer for personal use, the taxpayer calculates the fair market value of the property before the loss, then subtracts (i) the fair market value of the property after the casualty, (ii) any...
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