When you're a freelancer, an independent contractor, or a small business owner, a natural disaster can affect much more than your home. It can disrupt your workspace, damage equipment, destroy records, interrupt your income and create expenses that can take months, or even years, to recover from.

A new federal law provides additional relief for individuals who experience certain losses from federally declared disasters. The Doug LaMalfa Federal Disaster Tax Relief Certainty Act, H.R. 5366, was signed into law on September 11, 2026. Among other provisions, the law changes the treatment of certain personal casualty losses and extends tax treatment for qualified wildfire relief payments.

A new approach to certain disaster-related losses.

Under the new law, victims of federally declared disasters can deduct qualified losses exceeding $500 per disaster without itemizing, and the previous 10% of adjusted gross income threshold is removed for those losses. This treatment is available until January 1, 2027.

That represents an important change for taxpayers who might otherwise have difficulty receiving a federal tax benefit for disaster-related losses. The legislation was designed in part to address the limitations that had applied to personal casualty losses. Before the new law, certain personal casualty losses associated with federally declared disasters were subject to a 10% of AGI limitation. The legislative summary notes that the expiration of prior special treatment after July 4, 2025, left fewer disaster victims eligible for deductions. The new legislation extends more favorable treatment through the end of 2026.

How freelancers facing disasters may benefit under the new law:

For an independent professional, a disaster can create several different categories of loss. You might lose or damage the following: 

• Computers and other business equipment
• Cameras, recording equipment or specialized tools
• Office furniture
• Inventory
• Business records
• A home office or other business property
• Personal property
• Income because your business cannot operate normally

Not all of these losses are treated the same way for tax purposes.

The IRS distinguishes between personal casualty losses and losses involving business or income-producing property. IRS Publication 547 explains that disaster losses can apply to individual business or income-producing property as well as personal-use property, corporations, S corporations and partnerships.

As such, if you're a freelancer who works from a home office, for example, you may have both personal and business property affected by the same event. The tax treatment may depend on how the property was used, whether it was insured or otherwise reimbursed, and the nature of the disaster declaration. This is why you cannot simply add up everything you lost and assume the entire amount is deductible.

Don't overlook the $500 threshold 

One of the most significant provisions of H.R. 5366 is the treatment of qualified losses above $500 per disaster. The new law allows victims of federally declared disasters to deduct qualified losses exceeding $500 per disaster without itemizing and eliminates the 10% AGI threshold for those losses.

For freelancers, the change could be particularly relevant because many independent professionals operate with relatively lean businesses. Losing a computer, specialized equipment or other essential property can have a significant impact even when the total loss isn't large enough to seem substantial in comparison with a major corporation.

The important point is that the tax treatment does not mean every dollar of a disaster-related loss automatically becomes deductible. Insurance reimbursements and other compensation can affect the amount of loss that can be claimed. The IRS continues to instruct taxpayers to account for insurance and other reimbursements when determining disaster-related casualty losses.

Wildfire relief payments receive additional protection

The new law also addresses qualified wildfire relief payments. The legislation excludes qualifying wildfire relief payments from taxable income regardless of when the payment is received, provided the wildfire disaster declaration occurred after December 31, 2014, and before January 1, 2027.

This provision addresses a practical problem: wildfire relief payments can take years to reach victims. Earlier legislation made certain wildfire relief payments excludable from income but imposed a deadline for when those payments had to be received. Since relief payments can take years to process, some victims had not received payments within that window. For affected freelancers, this change can provide greater certainty when a payment arrives well after the disaster itself.

If your home or business has been affected by a disaster, don't wait until tax-filing season to reconstruct what happened. Start documenting your losses as soon as reasonably possible. You can use this list below as a guide:

1. Document what was damaged or destroyed

Create an inventory of affected property. For business property, this includes:

• Computers and electronics
• Cameras and production equipment
• Furniture
• Tools and specialized equipment
• Inventory
• Business records
• Other property used to generate income

Photographs and videos related to these can be especially helpful.

2. Gather purchase records

Look for receipts, invoices, bank statements, credit card statements and other documentation showing what you paid for the property that was destroyed. If records were destroyed, begin reconstructing them as soon as possible.

3. Document insurance and other reimbursements

Keep records of insurance claims, payments, disaster assistance and other reimbursements. The amount of a tax loss can be affected by amounts you receive to compensate you for the damage.

4. Determine whether your location qualifies

Federal disaster tax relief generally depends on the applicable disaster declaration and the location of the taxpayer, property or tax records. The IRS maintains current information about disaster declarations and related tax relief by state and locality.

5. Separate personal and business losses

Separating your personal and business expenses related to a disaster is key. This is particularly important for freelancers. If you work from home, you may have property that is personal, business-related or used for both purposes. Keep those categories as clear as possible. For freelancers, losing financial records can be very disruptive, be sure to keep the following in fire safe and waterproof file boxes in order to prevent their destruction.

• Prior tax returns
• Receipts
• Invoices
• Client records
• Bank statements
• Accounting files
• Equipment purchase records
• Payroll records
• Contracts

This is a good reminder that a disaster-recovery plan should include financial and tax records, not just physical property. Cloud-based backups, secure digital copies and redundant storage can make it significantly easier to reconstruct your financial records after an emergency.

If your tax records were located in a disaster area, the IRS may also provide relief to taxpayers who do not live or operate their business in the affected area. The IRS advises affected taxpayers to review the specific disaster announcement applicable to their circumstances. A tax deduction does not make you financially whole after a disaster.

For example, if you lose $20,000 of property, a $20,000 deduction does not mean you receive $20,000 back from the IRS. A deduction generally reduces taxable income, subject to the applicable rules. This is why insurance, emergency assistance, business-continuity planning and financial reserves remain important for all freelance businesses, even when tax relief is available.

Have you been affected by a federally recognized disaster?

If you are affected by a federally declared disaster, bring your tax professional into the process early so they can help you navigate your situation based on the new laws. 

Doing so can help you understand the tax benefits you may be entitled to and help you preserve the option to claim certain disaster-related casualty losses on the federal return for the year of the disaster or the preceding year, depending on the applicable rules.