Tax Relief Help for Victims of the Southern California Fire Disaster

Updated: Sunday, February 17, 2008 9:17 PM  

Exeter 1031 Exchange Services, LLC will be continuously updating this web page to provide you with the most up-to-date information that is available regarding disaster assistance and tax relief and other support for victims of the 2007 California wildfire disaster. 

Action by President Bush

President Bush has declared most of the Southern California counties as natural disaster areas so that victims of the 2007 Southern California wildfire disaster can receive a wide range of special assistance, including income tax relief and financial assistance and the usual extension of the 1031 exchange 45 day identification deadline and the 180 day 1031 exchange period. 

President Bush signed a major disaster declaration that funnels money to people whose property losses aren't covered by insurance.  Read more.  

Action by Governor Schwarzenegger

Governor Schwarzenegger Proclaims State of Emergency in Southern California Counties Read more.

Information package prepared and distributed by California.  Read more.

Battling California's wildfires.  Read more.

California Office of Emergency Services.  Read more.

Governor Schwarzenegger asks Operation HOPE to assist California wild fire victims.  Operation HOPE

   responds by setting up a Disaster Assistance Hotline.  Read more.

Internal Revenue Service (IRS)

The Internal Revenue Service announced tax relief for California taxpayers in the Presidential Disaster Area struck by severe wildfires beginning on Oct. 21, 2007. The disaster area consists of the following counties: Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura.  Read more. 

Disaster Designation

Affected taxpayers should write the assigned Disaster Designation “California Wildfires” on the top of any related forms, including the 1031 exchange identification form in order to qualify for the extension provisions.

Disaster Announcements by State 

The Internal Revenue Service maintains a summary web page that itemizes all special income tax provisions, relief, grants or extensions of time by state in disaster situations.  Read more.

California Franchise Tax Board (FTB)

The Franchise Tax Board (FTB) today announced several relief measures for the victims of wildfires in seven Southern California Counties.  The FTB will allow victims to receive additional tax refunds this year by immediately reporting their disaster losses through amended 2006 returns. In addition, the FTB has temporarily suspended mailing billing notices in the seven Southern California counties affected by wildfires.  Read more.  Download PDF.

California State Board of Equalization (BOE)

The California State Board of Equalization (BOE) reminded taxpayers that emergency sales tax relief is available in the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura due to the California wildfires. Tax relief may include extending filing sales and use tax return dates, relieving penalties and interest, or replacing copies of records lost to fire damage.  Read more. 

California Department of Insurance

California Insurance Commissioner Poizner has issued a number of announcements regarding insurance for the Southern California wildfire victims and helping to rebuild California.   Learn more.

Federal Emergency Management Agency (FEMA)

The head of the U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA) today announced that federal disaster aid has been made available for the state of California to help people and communities recover from the effects of wildfires beginning on October 21, 2007, and continuing.  Read more.

California wildfire disaster victims can learn more about California wildfire disaster assistance, the counties that have been designated as Federal disaster areas, and how to apply for disaster assistance on FEMA's web page.  Read more. 

Small Business Administration (SBA)

The SBA provides various types of loans for businesses of all sizes and homeowners and renters in the event of a disaster such as the California wildfire disasters. This includes physical disaster loans, economic injury loans, military reservists' loans and home and personal property loans.  Included is the contact information for the SBA's field offices, customer service center and process and disbursement center.  Read more.

County Tax Relief Announcements

Los Angeles County Tax Assessor Rick Auerbach announced that real property owners will be able to defer and reduce real property taxes for those whose homes suffered damage in excess of $10,000.00.  Read more.

Orange County Tax Assessor Webster J. Guillory has still not issued any announcements regarding property taxes, but has posted information about obtaining real property tax relief for Orange County real property owners who suffered property damage due to the California wildfires.   Read more.

Riverside County Tax Assessor-Clerk-Recorder Larry Ward and Riverside County Treasurer-Tax Collector Paul McDonnell have teamed up to provide immediate real property tax relief for fire victims in response to the California fire disaster.  Read more.

San Bernardino County Tax Assessor Bill Postmus announced that real property tax relief will be available for victims of the devastating California wildfires that have ravaged residents of San Bernardino County.  Read more.

San Diego County Tax Assessor has not issued any announcements at this point in time, but has posted information and frequently asked questions regarding obtaining real property tax relief for victims of the California wildfires.  Read more.

Santa Barbara County Tax Assessor has still not issued any announcements, but has posted information regarding obtaining real property tax relief for Santa Barbara County real property owners who suffered property damage due to the California wildfires.   Read more.

Ventura County Tax Assessor has not issued any announcements, but has posted information regarding obtaining real property tax relief for the California wildfires.   Read more. 

Mortgage Loan and Credit Relief Information UPDATED TODAY 

HUD offers disaster recovery assistance.  Read more.

California Farm Bureau Federation provides information regarding disaster loan guarantees for small

   businesses and farm operations.  Read more. 

Corporate Relief Announced

WaMu Offers Disaster Relief for California Wildfire Victims.  Learn more. 

Bank of America launches California Fire Disaster Relief Program.  Learn More. 

Exeter 1031 Exchange Services, LLC starts thread for disaster discussion.  Visit and discuss.

Other Useful Income Tax Relief Information in Disaster Situations

The Exeter Group Real Estate Talk Radio Show

Tax relief assistance, resources and strategies were discussed on The Exeter Group Real Estate Talk Radio Show on Monday, October 29, 2007.  Click here to listen to the recorded show. 

Insured and Uninsured Loss Information

Uninsured Losses

Uninsured disaster victims can use the Federal Emergency Management Agency (FEMA) appraisal of their loss to document their tax loss.  No loss can be taken until reimbursement claims have been settled.  The measure of the loss is the lesser of the decline in fair-market value or adjusted basis, not replacement cost.

Insured Losses

Insured disaster victims often value their personal property at replacement cost because that is the number insurance companies often use. While the IRS will want to limit the value to thrift store values, the courts have allowed taxpayers to rebut that assumption and prevail.

Insured disaster victims may have an economic loss if their insurance companies won't settle with them for the replacement cost of their real and personal property. They generally don't have a tax loss because the depreciated value of their contents is less than their insurance settlement proceeds. Policy reformation is possible and disaster victims should work with organizations such as CARE and United Policy Holders to ensure a fair settlement.

Income Tax Consequences, Strategies and Issues in a Natural Disaster

Reinvesting Insurance Proceeds (Rebuilding)

The partial or complete destruction of your real or personal property due to a natural disaster is considered to be an Involuntary Conversion of your property, and the reimbursement of your loss may generate a taxable event.

Insurance settlement proceeds can be used to either rebuild or replace your destroyed property on a tax-deferred basis under Section 1033 of the Internal Revenue Code (1033 Exchange due to an Involuntary Conversion).

Insured disaster victims who lose tangible personal property used in their trade or business or held for investment can reinvest their proceeds in any tangible personal property. This relief came out of the Oklahoma bombings. So, someone who lost a coffee stand, for example, can spend their insurance money to start a contracting business.

Gain from the Destruction of your Primary Residence (Tax-Free Exclusion)

Homeowners who are insured, lose their principal residence to the California wild fires, and receive an insurance settlement check can exclude from their taxable income up to $250,000 in capital gains per person ($500,000 for a married couple) pursuant to Section 121 of the Internal Revenue Code. The gain, if any, above the $250,000/$500,000 exclusion limitation can be reinvested in like-kind replacement property on a tax-deferred basis under Section 1033.

The insurance proceeds that you receive for your personal property contents is tax exempt.

Because a natural disaster such as the California wild fires is considered an unforeseen circumstance, disaster victims who lived in their primary residence less than the required two (2) years are able to take a partial, prorated tax-free exclusion under Section 121.

Vacation Homes or Second Homes

Insured disaster victims who lose their vacation homes or second homes do not have the same income tax benefits as disaster victims who lose their principal residences. You must reinvest your insurance proceeds back into another vacation home or second home pursuant to Section 1033, or pay the income tax liability on your gain.

Investment Property or Property Used in Your Business

If you are an insured disaster victim who lost real property to the California firestorms that was held for rental, investment, or use in your trade or business you can also rebuild or replace your destroyed property under Section 1033.

You can defer your capital gain and drepreciation recapture income tax liabilities by using your insurance proceeds to rebuild the destroyed property or to acquire like-kind replacement property. You are held to a stricter standard for reinvestment under Section 1033(a) than property owners who lose their property through condemnation via eminent domain under Section 1033(g).

Under Section 1033(g), a property owner who loses rental property can reinvest in a building that is like-kind, which is a broader definition than the functionally similar or related in service or use criterion of Sec. 1033(a). This distinction is without merit.

1033 Exchange Deadlines

If you have lost your primary residence your have four (4) years to reinvest or rebuild, a vacation home or a second home in the 2007 California wild fires you have two (2) years to reinvest and owners of real property held for rental, investment or used in their trade or business have three (3) years to reinvest.

Requests for Extension of Time

You can write to the regional director of the Internal Revenue Service and request an extension of time to complete your 1033 Exchange if you cannot reinvest within the required 1033 Exchange time period.

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