Federal Disaster Tax Relief Act of 2025

Key Points

• The bill makes it easier for disaster victims to deduct personal property losses on their taxes. It creates a special rule for "qualified disaster losses" tied to presidentially declared major disasters, lowering the income threshold that normally limits casualty loss deductions. This applies to disasters with incident periods starting after July 4, 2025, through the end of 2026.
• People who take the standard deduction (rather than itemizing) can still benefit. The bill adds a "disaster loss deduction" on top of the standard deduction, so taxpayers do not need to itemize to claim disaster-related losses.
• Wildfire relief payments would be excluded from taxable income. Money received for lost wages, medical expenses, home repairs, or emotional distress from federally declared wildfires after 2014 would not count as gross income. This exclusion applies to payments received between 2026 and 2030.
• The bill prevents double-dipping by blocking deductions or credits for expenses already covered by tax-free wildfire relief payments. It also prevents those excluded amounts from increasing the cost basis of property, ensuring the tax benefits target genuine out-of-pocket losses.
• The wildfire provision reaches back to cover disasters after December 31, 2014, meaning victims of past major wildfires (like those in California from 2017 to 2024 and the 2025 Los Angeles fires) could benefit from the tax exclusion on relief payments received during the covered period.

Votes

No votes have been recorded for this legislation yet.