Before leaving for August recess, the Senate passed legislation aimed at providing tax relief to natural disaster survivors. Senator Ron Wyden (D-OR) led the effort, as fires raged in his home state and elsewhere in the western United States.
The Senate passed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, H.R. 5366, via unanimous consent on August 7. It now awaits President Trump’s signature.
The bill adds IRC § 139M to exclude from gross income amounts received by an individual as qualified wildfire relief payments. Qualified payments include compensation for losses, expenses, or damages. Damages are further defined to include compensation for lost wages, personal injury, death, or emotional distress. The relief would apply for federally declared wildfire disasters declared in 2015 through 2026.
It also adds a provision under IRC § 165(h) to allow individuals with qualified net disaster loss in a tax year to exclude the net amount of personal casualty losses. A taxpayer’s qualified net disaster loss is calculated by considering losses in a federally declared disaster area. The relief is available for disasters declared on December 28, 2019, through December 31, 2026.
Previously, individuals could only deduct personal casualty losses attributable to a disaster to the extent of the sum of personal casualty gains plus the amount by which aggregate net disaster-related losses exceeded 10% of the taxpayer’s adjusted gross income.
“[W]hen you lose your home in a wildfire, the last thing you ought to be worried about is being hit by a massive tax bill,” Wyden said after the bill passed. “It is going to get rid of totally unfair taxes on settlement payments and ensure disaster victims can deduct losses after disasters,” he added.
The road to passage
A day earlier, Senator Ted Cruz (R-TX) sought to amend the bill to include relief for victims of Texas fires that were not deemed to be qualified wildfire disasters under federal law. However, lawmakers on both sides of the aisle pushed back.
“This bill is very critical to my state, but it is also about more than hurricanes,” explained Senator Rick Scott (R-FL). “It is not just about hurricanes; this bill helps families affected by all natural disasters, including wildfires, tornadoes, earthquakes, and any other scenario that can be declared a federal disaster,” he added.
“This passed the House unanimously earlier this year, so if we pass this today, it will become law,” Scott stressed.
Senator Alex Padilla (D-CA) explained that the bill extends a previous provision that allowed wildfire survivors to exclude wildfire-related settlement payments from their federal income tax calculations. “With devastating wildfires on the rise, I’m proud to get this commonsense, bipartisan solution over the finish line so survivors aren’t left waiting, worrying, and wondering about their financial futures after disaster,” he said in a statement.
House sponsor Representative Greg Steube (R-FL) said the bill “ensures that disaster victims across the country can focus on rebuilding their lives while receiving the relief they deserve.”
The House approved the legislation back in April, after it advanced out of the House Ways and Means Committee, 43-0.
For more on the current disaster-related personal casualty loss deduction, see Checkpoint’s Federal Tax Coordinator 2d ¶ M-1900A.
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