10/15 is around the corner, meaning even LA county residents returns are due in a few weeks. Please note, if you were affected by the January 2025 Los Angeles wildfires, the IRS allows a casualty loss deduction on either your 2024 or 2025 tax returns. The key step is correctly measuring the loss.

Step 1: Determine adjusted basisThis is usually what you paid for the property plus improvements, minus any depreciation. Think of it as your “investment” in the property.

Step 2: Measure the drop in fair market value (FMV)Get an appraisal or use repair estimates to calculate how much the wildfire reduced the property’s value.

Step 3: Compare the twoYour deductible loss is the lesser of your adjusted basis or the decline in FMV.

Step 4: Subtract reimbursementsReduce the loss by any insurance or FEMA payments (or payments you expect to receive).

Special rules for disaster areas:

The usual 10% of AGI limit is waived.

The per-event reduction is $500 instead of $100.

You can claim the loss on your 2025 return or elect to amend 2024 for faster relief.

Example:

Basis in home: $2,500,000

FMV drop from damage: $1,500,000

Insurance reimbursement: $1,100,000

Deductible loss: $400,000

What to keep: Photos, appraisals, receipts, repair estimates, and insurance claim paperwork.

This measurement process determines how much relief you can claim. For many families, choosing whether to apply it to 2024 or 2025 can also make a big tax difference.

For help on calculating the decline in FMV, do not hesitate to reach out.