Tax Information for Aspen Acres Fire Evacuees (Colorado)
The Aspen Acres Fire has created significant financial hardship for many families. While the immediate priority is protecting lives and property, it is also important to understand the tax provisions that may help reduce the financial impact of this disaster.
Federal Disaster Declaration
There is currently a push to have the Aspen Acres Fire declared a federally declared disaster. If approved, additional tax relief may become available to affected taxpayers.
One of the most significant benefits could be relief for individuals who need to access retirement funds. Under current law, a person under age 59½ who takes money from an IRA generally owes a 10% additional tax (early withdrawal penalty) unless an exception applies. This penalty increases the amount owed on your tax return or reduces your tax refund.
If Congress or the IRS provides disaster-related retirement relief for this event, eligible taxpayers may be able to withdraw retirement funds without paying the 10% early distribution penalty, subject to the specific rules that are enacted. We will continue to monitor any announcements and provide updates if this relief becomes available.
Until then, individuals under age 59½ who need short-term access to retirement funds should carefully consider alternatives. In many situations, an IRA loan or other financing option may be preferable, since borrowed funds are generally not taxable when structured properly. Before taking money from a retirement account, consult a qualified tax professional to discuss your options.
Casualty Loss Deduction
If you suffered uninsured or unreimbursed losses from the fire, you may qualify for a federal casualty loss deduction.
For taxpayers who itemize deductions, casualty losses that exceed $16,100 per tax filer may be deductible, subject to IRS rules and any insurance reimbursements received or expected. Good documentation is essential. Keep photographs, receipts, insurance correspondence, contractor estimates, and records of damaged or destroyed property.
Colorado Wildfire Mitigation Tax Credit
Colorado offers a Wildfire Mitigation Tax Credit to encourage homeowners to reduce wildfire risk around their properties.
Unlike a deduction, which reduces taxable income, a tax credit directly reduces the amount of tax you owe dollar-for-dollar. This generally makes a credit more valuable than a deduction of the same amount.
If you have completed—or are planning—qualified wildfire mitigation work, such as creating defensible space or removing hazardous vegetation, you may qualify for this Colorado tax credit. Be sure to save all receipts, invoices, and documentation of the work performed, as these records will be needed when claiming the credit.
We're Here to Help
Disaster-related tax rules are complex and often change as new legislation or IRS guidance is issued. If you have been affected by the Aspen Acres Fire, we can help you determine which federal and Colorado tax benefits apply to your situation and ensure you receive every tax benefit available.
We're Here to Help.
Recovering from a wildfire is difficult enough. Let us help you navigate the tax rules so you can focus on moving forward.