Trump signs bill extending tax relief to disaster victims

President Trump signed into law a bill extending the federal tax deduction for qualified disaster-related personal casualty losses and the exclusion from gross income of qualified wildfire relief payments. 

Previously, taxpayers affected by a federally declared disaster could generally only deduct personal casualty losses if they itemized, and only to the extent those losses exceeded 10% of their adjusted gross income. The new law now allows disaster victims to deduct qualified losses above $500 per disaster without itemizing and removes the 10% AGI threshold for those losses. It also extends an exclusion from gross income for wildfire relief payments, so survivors are not taxed on compensation meant to help them rebuild.

The Senate passed the bill, known as the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, in August after it was passed by the House in April. It was named after a California lawmaker who died in January but had pushed for passage of the legislation for years. The bipartisan bill has long been championed by the American Institute of CPAs. It was introduced in the current congressional term by three members of the tax-writing House Ways and Means Committee, Reps. Greg Steube, R-Florida, Mike Thompson, D-California, and Jimmy Panetta, D-California . 

"We delivered long-overdue certainty to Americans rebuilding after natural disasters," Steube said in a statement Monday. "Disaster victims should be focused on rebuilding their homes, businesses, and communities, not worrying about an unexpected tax burden on the assistance they receive."

The bill extends a more generous treatment of personal casualty losses to disasters that occur prior to Jan. 1, 2027. Previously, taxpayers could deduct personal casualty losses, subject only to minor limitations, for disasters that occurred between Dec. 28, 2019, and July 4, 2025. However, that rule expired for disasters occurring after July 4, 2025, meaning fewer disaster victims were eligible for a deduction for their disaster-related losses.

The bill excludes wildfire relief payments from taxable income regardless of when they are received, so long as the wildfire disaster declaration occurs after Dec. 31, 2014, and before Jan. 1, 2027. Previously, such payments were required to have been received by December 31, 2025, to qualify for this exclusion.

As a result of the legislation, more taxpayers who have been harmed by disasters and wildfires will be eligible for these tax benefits. The Joint Committee on Taxation estimates the law will provide $408 million in tax relief over the period from 2026 to 2036.

"Thanks to bipartisan leadership in Congress and President Trump, disaster victims now have the certainty they need to rebuild their lives," said House Ways and Means Committee chairman Jason Smith, R-Missouri, in a statement. "Families who lose their homes to a wildfire or a hurricane should not also lose a sizable piece of their recovery resources to the IRS."