On December 12th, President Biden signed the Federal Disaster Tax Relief Act of 2023 (H.R. 5863) into law. The legislation introduces key changes to help taxpayers impacted by federally declared disasters claim casualty loss deductions more easily. But what qualifies as a casualty loss deduction?
Under this new legislation, taxpayers can now deduct casualty losses without meeting the usual requirement that these losses exceed 10% of their adjusted gross income (AGI). Normally, only the portion of casualty losses exceeding 10% of AGI qualifies for deduction. However, the AGI threshold has been eliminated, and each casualty is deductible once it exceeds a $500 floor. Additionally, these losses can be claimed “above the line,” allowing taxpayers to benefit even if they don’t itemize deductions. This significant change makes it easier for many individuals to claim a casualty loss deduction for disaster-related damages.
The law applies to federally declared disasters occurring between January 1, 2020, and January 11, 2025 (if declared before February 10, 2025). This is especially important for Texas residents, as the severe 2021 winter storm (Winter Storm Uri) falls within this timeframe. Since all 254 counties in Texas were affected, taxpayers who sustained a casualty loss to personal property during the storm may qualify for this tax relief.
If your losses from Winter Storm Uri were not fully reimbursed by insurance, it might be beneficial to amend your 2021 tax return to claim a casualty loss deduction. The deadline for filing an amended return to claim a refund is typically three years from the original filing date. For most taxpayers, the deadline to amend their 2021 return will be April 18, 2025. If you were granted an extension in 2021, your deadline will depend on the date you filed the return.
Beyond Winter Storm Uri, there are other federally declared disasters in Texas eligible for casualty loss deductions:
- Hurricane Beryl (2024) – FEMA Designated Areas
- Texas Severe Storms, Straight-line Winds, Tornadoes, and Flooding (2024) – FEMA Designated Areas
- Texas Severe Winter Storm (2023) – FEMA Designated Areas
For a complete list of federally declared disasters, visit FEMA Disaster Declarations.
If you are an ML&R client and have questions about whether your situation qualifies for a casualty loss deduction, please reach out to us. We’re here to guide you through the process and ensure you maximize the benefits available under this legislation.
