Disaster Relief – Federal Law Now Conforms to California Law for Certain Settlements
In an effort to ensure California wildfire victims achieve maximum tax relief, in 2022 and 2023 the state enacted legislation that excludes from taxable income settlement proceeds received by these taxpayers. Specifically, California allows an exclusion from gross income for:
- Settlement payments received from the Fire Victims Trust,
- Settlement payments received from Southern California Edison for claims relating to the 2017 Thomas Fire or the 2018 Woolsey Fire, and
- Settlement payments received from Pacific Gas and Electric Company for claims relating to the 2019 Kinkaid Fire or 2020 Zogg Fire.
Now, effective December 12, 2024, federal law also excludes these payments from taxable income. The Federal Disaster Tax Relief Act of 2023 (HR 5863) excludes from taxable income any amount received by an individual as a qualified wildfire relief payment. The law is effective for payments received after December 31, 2019 and before January 1, 2026.
Extended Statute of Limitation for Amended Returns
The Act also extends the deadline for filing amended returns to claim refunds for previously declared income to one year after date of enactment (December 12, 2025). That means a 2020 return, which would otherwise be beyond the normal 3-year statute, can still be amended.
No Double Dipping
The law does not permit an exclusion for losses or expenses already reimbursed by another source, such as insurance. Additionally, excluded proceeds cannot be added to basis of replacement property.