The Doug LaMalfa Disaster Tax Relief Act (HR 5366) (the Act) passed both chambers of Congress and is headed for President Trump’s desk, where he is expected to sign the bill into law.
The Act extends the treatment of personal casualty losses and wildfire-related compensation. Its provisions can be divided into two key sections:
- Enhancement of disaster loss deductions; and
- Wildfire relief exclusions.
Enhancement of disaster loss deductions
The Act represents an extension of existing disaster loss deduction rules under IRC §163 by allowing a deduction for qualified net disaster losses plus the portion of other casualty losses that exceed 10% of AGI through the end of 2026. This provision also extends the removal of the 10% of AGI floor for “qualified disaster losses” through the end of 2026.
Additionally, the Act increases the per-event threshold for qualified disaster losses from $100 to $500 and it allows taxpayers who do not itemize their deductions to claim the qualified net disaster loss as an addition to their standard deductions. These provisions are effective for taxable years beginning after December 31, 2024.
Wildfire relief exclusions
The Act creates new IRC §139M, which excludes qualified wildfire relief payments from a taxpayer’s gross income. To be excluded from income, the qualified wildfire relief payment must be related to a federally declared disaster resulting from a forest or range fire declared after December 31, 2024, and before January 1, 2027.
The Act represents an extension of prior tax relief that was available to victims of wildfires through the Federal Disaster Tax Relief Act.
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