New Disaster-Loss Relief Under the One Big Beautiful Bill Act (OBBBA): What Tax Pros Should Know

Disasters can strike at any time—and when they do, clients often face not only emotional and physical losses but also complex tax implications. The OBBBA introduces key changes that enhance relief options for personal casualty losses and broaden eligibility for those affected by disasters. As a tax professional, understanding these updates gives you a real opportunity to provide proactive advisory services when clients need it most.

What Has Changed?

1. Expanded Deduction of Personal Casualty Losses

Under pre-OBBBA law, personal casualty losses (for example, damage or destruction of a home or personal property because of a disaster) were deductible only if the event occurred in a federally declared disaster area, and only by taxpayers who itemized. The OBBBA now makes this relief permanent and extends eligibility to state-declared disaster areas as of tax years beginning after December 31, 2025.

2. Election to Claim Loss in Prior Year

Another beneficial change: For losses incurred in eligible disaster areas, taxpayers may choose to deduct the loss in the tax return for the year preceding the year of the event. This election can accelerate tax relief.

3. Wider Scope of Eligible Disaster Areas

Beginning in 2026, the relief expands to include both federally and state-declared disaster areas. This change helps taxpayers in broader geographic and event contexts.

What This Means for Your Clients

• Review clients who suffered losses. Even losses previously thought ineligible (because the area lacked a federal declaration) may now qualify if the event was state-declared from 2026 onward.

• Consider the election strategy. If the disaster occurred this year, the election to claim in the prior year could result in an earlier refund or tax relief—valuable for clients facing financial stress.

• Itemization remains required. Even with relief expanded, the deduction still applies only for taxpayers who itemize, so you’ll need to evaluate whether itemizing makes sense given the client’s broader tax situation.

• Document losses carefully. As always with casualty losses, the burden is on the taxpayer to show the event, the determination of the loss, timing, and any insurance or other reimbursements.

• Educate groups at risk. Clients in high-risk areas (wildfire zones, flood plains, hurricane-prone regions) should be proactively advised about the expanded relief opportunities.

  
  

Action Plan for Your Practice

1. Identify at-risk clients (homeowners, property owners, business owners in disaster zones).

2. Review past years’ returns where clients may have experienced qualified losses but did not claim them—especially if a state-declared disaster applies.

3. Set up intake questions about disasters and casualty events for 2025 and beyond so your calendar and your system reflect this relief.

4. Update your planning materials to reflect the expanded eligibility for state-declared disasters and the permanent nature of the relief.

5. Communicate the value of itemizing. Some clients may need assistance understanding whether itemizing yields a net benefit given the increased standard deduction amounts in recent years.

   
   

Final Thoughts

The OBBBA’s enhancements to casualty-loss relief mark a meaningful shift in how disaster-impacted taxpayers can claim relief—and how tax professionals can advise them. By staying ahead of the changes, you’re positioned to offer valuable guidance when clients are vulnerable and need trusted advice the most.

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Disclaimer: This article is for informational and educational purposes only and does not constitute legal tax advice. Advanced Tax Solutions is not liable or responsible for any damages resulting from or related to your use of this information. It is your responsibility to refer to official IRS documentation for information regarding any tax laws or tax information shown here.