S 2744119th CongressIn Committee

Federal Disaster Tax Relief Act of 2025

Introduced: Sep 9, 2025

Economy & Taxes

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Federal Disaster Tax Relief Act of 2025 seeks to provide targeted, temporary tax relief for individuals affected by major disasters and certain wildfires. It codifies and extends rules for casualty losses from major disasters, creating a new category of “qualified disaster losses” and adding a disaster-related deduction that flows through the standard deduction. It also creates a temporary exclusion from gross income for qualified wildfire relief payments (money received to cover losses or damages from wildfires) and restricts double benefits (no deduction or basis increase for amounts excluded). The disaster provisions apply to disasters with incident periods in 2025–2026, while the wildfire relief exclusion is limited to payments received in 2026–2030. The bill is titled the Federal Disaster Tax Relief Act of 2025 and was introduced in the Senate by Mr. Scott of Florida.

Key Points

1Creates a new “qualified disaster loss” framework under 165(h):
2- Defines a “qualified net disaster loss” as disaster-related casualty losses minus gains.
3- Introduces a “qualified disaster area” and a disaster incident period tied to Presidential major disaster declarations (with incident periods beginning after July 4, 2025 and before Jan 1, 2027).
4- Establishes a special rule that adds certain excess losses (beyond the usual calculation) to the deduction if they exceed 10% of the taxpayer’s adjusted gross income (AGI).
5Dollar limitation and standard deduction changes:
6- Replaces the existing $500 (or $100 for post-2009 years) casualty loss floor with a new floor: $100, but $500 if the net disaster loss falls under certain disaster-related provisions.
7- Creates a new “disaster loss deduction” that sits inside the standard deduction, defined as the excess of qualified net disaster losses over personal casualty gains (adjusted for any gains taken into account under the disaster rule).
8- Amends the AMT treatment to exclude the disaster loss deduction from the AMT calculation.
9Effective dates for disaster provisions:
10- Applies to losses incurred in tax years beginning after December 31, 2024.
11Wildfire relief payment exclusion:
12- Adds new Section 139M to exclude from gross income any qualified wildfire relief payment (to the extent not covered by insurance) for losses or damages from a qualified wildfire disaster.
13- A “qualified wildfire disaster” is a federally declared disaster post-2014 caused by a forest or range fire.
14- Prohibits double benefits: no deduction/credit for expenditures covered by the excluded payment, and no basis increase for property from such excluded payments.
15- Applies to payments received in taxable years beginning after December 31, 2025 and before January 1, 2031 (and effective for payments received in 2026–2030).
16Interaction and limitations:
17- The wildfire relief exclusion is temporary and time-limited, separate from the disaster loss deduction.
18- The policy aims to alleviate double-dipping and ensure relief is targeted and temporary.

Impact Areas

Primary group/area affected:- Individuals who incur qualified disaster losses in the defined qualified disaster areas during the incident period (2025–2026 window) and whose losses might exceed gains and AGI thresholds.- Taxpayers in federally declared major disaster areas can access the disaster loss deduction within the standard deduction framework.Secondary group/area affected:- Taxpayers who receive qualified wildfire relief payments for forest or range-fire disasters; those payments are excluded from gross income (subject to the time limits and double-benefit restrictions).Additional impacts:- Tax compliance and planning: filers must track disaster-related losses, gains, and AGI to determine if the qualified disaster loss deduction applies and how it interacts with the standard deduction.- Revenue and administrative effects: temporary relief measures may reduce federal tax receipts for years 2025–2030 and require IRS guidance on definitions (e.g., incident period, qualified disaster area) and interaction with existing casualty loss rules.- Behavioral effects: potential incentives to defer or accelerate losses within the incident period; interplay with insurance recoveries (losses not compensated by insurance remain eligible for the wildfire relief exclusion, while the disaster loss deduction interacts with gains and losses).- Scope limitation: relief is time-bound and area-limited, focusing on disasters within the 2025–2026 incident period and wildfire events after 2014 but with a 2026–2030 payment window for the wildfire exclusion.

Generated by gpt-5-nano on Oct 8, 2025