Federal Disaster Tax Relief Act of 2025
The Federal Disaster Tax Relief Act of 2025 seeks to broaden and codify tax relief for individuals who suffer personal casualty losses in major disasters and to extend tax-free treatment for certain wildfire relief payments. Key changes include creating a defined category of “qualified disaster losses” and allowing an enhanced deduction for such losses through the ordinary casualty-loss framework, integrated with the standard deduction. The bill also adds a temporary exclusion from gross income for certain wildfire relief payments (not taxed if not covered by insurance, with rules to prevent double benefits). The disaster-related provisions apply to losses in tax years starting after 2024, and the wildfire relief payment exclusion applies to payments received after 2025 and through 2030, with a defined window for which disasters qualify. In short, the bill aims to provide more favorable tax treatment for individuals who incur disaster losses and to shield certain wildfire relief payments from federal income tax, while limiting the qualified disaster rules to a narrow window of disasters declared in a specific period.
Key Points
- 1Codifies and extends the rules for personal casualty losses arising from major disasters, introducing a concept called “qualified disaster losses” and a special computation that blends disaster losses with the regular loss framework (165(h)(6) and related provisions).
- 2Creates a new “disaster loss deduction” that sits within the standard deduction and allows the excess of qualified net disaster losses over personal casualty gains to reduce taxable income, with thresholds framed against AGI and other casualty loss rules.
- 3Alters the dollar thresholds for casualty losses: generally raises the floor to $100, but allows a $500 floor for certain net disaster losses that qualify under the new provisions (with specifics tied to the disaster loss rules).
- 4Applies the disaster loss rules to losses incurred in taxable years beginning after December 31, 2024, expanding the reach of these provisions going forward.
- 5Establishes a temporary exclusion from gross income for “qualified wildfire relief payments” (payments for losses, expenses, or damages from certain wildfires not offset by insurance), with definitions for what counts as a qualified wildfire disaster and payments, and safeguards against double benefits (no deductions or basis increases for expenditures covered by such payments).
- 6The wildfire relief-payments exclusion applies to payments received after December 31, 2025, and before January 1, 2031, creating a multi-year window for this relief.
- 7Defines “qualified wildfire disaster” as a Federally declared disaster due to forest or range fires (as defined by FEMA) occurring after 2014, linking the exclusion to specific wildfire events.