Lahaina may see some relief, but what about 4684 filings?

In an August 2nd Press Release Maui County announced that it has signed a Term Sheet with key participants in the lawsuits arising out of the tragic Maui wildfires of Aug. 8, 2023. The agreement outlines the framework for a global settlement that would resolve claims and disputes related to the fires that devastated Lahaina and other communities on the island.

Under the proposed terms of the global settlement agreement, which remains subject to final documentation and court approval, the seven defendants will pay $4.037 billion to provide compensation to all those who have brought claims for compensation arising from the Aug. 8, 2023 windstorms and wildfires on Maui, including the approximately 2,200 affected parties who filed lawsuits. The state of Hawaii would contribute to the settlement in addition to its $65 million contribution to the One ʻOhana Fund.

How does this affect homeowners who have not filed Form 4684?

There is still time to file Form 4684, but what would the effect of a settlement be on any filing? There's a couple of points to bear in mind here:

1. Right now, individuals have no idea what their settlement might be or when they might get it.
   

2. Form 4684 specifically states that you don't have to include monetary compensation such as living expenses, so if any part of the settlement is allocated for this, it does not affect any 4684 deduction.
   

3. The payment would need to specifically identify that it is earmarked to address the loss and is not, for instance, punitive damages for negligence.
   

4. Right now the Settlement is an Agreement in Principle, ie, "Term Sheet", not a Final Agreement and it may not actually be binding on anyone. There's plenty of time for this to be modified, reduced, or otherwise encumbered before any money reaches victims. The August 2nd press release suggests that no payment would be made until mid-2025 at the earliest, but legal fees and mediation expenses will eat into any ultimate settlement before then and sorting out the legal details make take significantly longer. It also doesn’t seem to preclude victims from actually seeking higher damages. The only thing the current agreement does is to pause litigation.
   

5. Moreover, in order to reduce a loss, there needs to be an expectation that money will be received and a reasonable estimation of how much that will be. At this point in time the Hawaii Settlement meets neither of these conditions and homeowners should follow the directions and not try to "guestimate" any future recovery.

To date, homeowners in Lahaina have been hesitant to act on the Federal Casualty Loss Program, hoping that future settlements will address their needs. However, the Casualty Loss Program can get them funds today and homeowners could be losing thousands of dollars by waiting to file.

Our "What If" feature in our Free Tax Savings Estimator can tell you what your best strategy is:

Filing now gets money in your hands immediately. If you receive a settlement later on, the tax code allows you to take this into account in later years. As any financial advisor will tell you, money today is worth more than money at some point in the future.

We are not offering tax advice, and recommend that anyone in Lahaina affected by the fires discuss filing form 4684 now, rather than later with their tax professional.

If you'd like to see how much filing Form 4684 could benefit you, please try our Free Tax Savings Estimator today.

As always we're here to answer your questions about the Federal Casualty Loss Program and how it can benefit you.