An overview
Deductions for disaster-related losses are changing. On September 11, 2026, President Trump signed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, restoring and extending two forms of tax relief for individuals recovering from federally declared disasters.
The timing of this change matters as treatment for personal casualty losses lapsed for disasters occurring after July 4, 2025, leaving many affected individuals unable to claim a deduction for their losses.
The Act reopens that door and extends it to federally declared disasters with incident periods beginning before January 1, 2027. The Joint Committee on Taxation (JCT) estimates that the Act will reduce federal revenues by $408 million through 2036.
What does the disaster loss deduction allow now?
The Act codifies and extends the rules for qualified disaster-related personal casualty losses under Internal Revenue Code (IRC) Section 165(h). For eligible losses, the updated rules provide the following:
- No itemizing required: Taxpayers can deduct a qualified net disaster loss in addition to claiming the standard deduction.
- No 10% AGI floor: The threshold that typically limits personal casualty loss deduction does not apply.
- $500 threshold per disaster: Only losses exceeding $500 for each disaster are deductible.
- Eligible disasters: The rules apply to disasters with incident periods beginning on or after December 28, 2019, and before January 1, 2027.
- Eligible tax years: The rules apply to tax years beginning after December 31, 2024.
How are wildfire relief payments taxed under the new IRC Sec. 139M?
The new IRC Sec. 139M excludes qualified wildfire relief payments from gross income. The exclusion applies under the following conditions:
- Eligible wildfires: The wildfire must have been federally declared after December 31, 2014, and before January 1, 2027.
- Eligible payments: The payment must be received in tax years beginning after December 31, 2025.
- No double benefit: An excluded amount cannot also be used to claim a deduction, a credit, or to increase the basis of property.
The extended lookback period is intentional because wildfire settlement payments often arrive years after the disaster occurs.
Who qualifies for the disaster loss deduction?
The expanded rules may create opportunities for several groups of taxpayers, including:
- Individuals with disaster losses in 2025 or 2026: A loss ruled not deductible under the expired rules may now qualify.
- Wildfire settlement recipients: Qualifying payments received in 2026 or later may be excluded from taxable income.
- Taxpayers who already filed 2024 or 2025 return: A return filed under the prior rules may need to be revisited.
What should you do now?
The expanded disaster relief may offer meaningful tax benefits but is not automatic. Aprio’s Tax advisors can help you identify the tax years that fall within the qualifying window, calculate each qualified net disaster loss after applying the $500 threshold, and review returns filed under the prior rules. If you filed a 2024 or 2025 return, an amended return may provide an additional benefit.