Disaster Mitigation and Tax Parity Act of 2025
- Sponsor
- Rep. LaMalfa, Doug [R-CA-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Feb 4, 2026
Bottom line
The bill makes payments received from state programs for disaster mitigation improvements to homes tax-exempt, aiming to incentivize preparedness and reduce future disaster costs.
What it actually does
This bill amends the Internal Revenue Code of 1986 to exclude from gross income certain payments received by property owners from State-based catastrophe loss mitigation programs. Specifically, it makes payments for improvements aimed at reducing damage from windstorms, earthquakes, or wildfires tax-free. The exclusion applies retroactively to taxable years beginning after December 31, 2020, allowing individuals to claim it via amended returns.
Proponents argue
Proponents argue that this bill encourages proactive disaster preparedness by removing a tax disincentive for property owners who receive state assistance to fortify their homes against natural catastrophes. They contend that making these payments tax-free will reduce the financial burden on individuals and ultimately lower the need for federal disaster relief in the long run, promoting resilience in vulnerable communities.
Opponents contend
Opponents might argue that this bill creates a new tax expenditure, reducing federal revenue and potentially adding to the national deficit. They could also contend that it disproportionately benefits property owners in specific high-risk areas and potentially wealthier individuals who can afford to participate in such mitigation programs, rather than providing broad-based tax relief.
The bill is very short and clearly written, making it accessible for a quick read and easy to understand its core purpose.
Section 2(a), amending Section 139 of the Internal Revenue Code of 1986
Exclusion of State-Based Catastrophe Loss Mitigation Payments from Gross Income
This provision creates a new subsection (h) within Section 139 of the Internal Revenue Code, which specifies that certain payments received from state-based catastrophe loss mitigation programs are not considered taxable income. These 'qualified catastrophe mitigation payments' are defined as amounts given to property owners solely for making improvements to their property to reduce damage from windstorms, earthquakes, or wildfires. The programs must be established by a state, political subdivision, joint powers authority, or a state-created entity for property insurance.
Supporters argue
Supporters argue that this exclusion is a common-sense measure that encourages property owners to invest in resilience, which ultimately reduces the need for costly federal disaster aid after an event. They believe it removes a disincentive for individuals to participate in state-sponsored mitigation efforts, aligning federal tax policy with public safety and economic stability goals.
Critics contend
Critics might argue that while well-intentioned, this tax exclusion represents a federal subsidy for state-level programs, potentially shifting costs from states to the federal treasury. They may also contend that it could disproportionately benefit certain property owners or regions, leading to questions of equity in the tax code.
Tradeoffs
The provision balances the goal of incentivizing disaster mitigation and reducing future federal disaster relief costs against the immediate impact of reduced federal tax revenue. It also navigates the tension between federal tax policy and state-level program design, potentially influencing how states structure their mitigation efforts.
Rules similar to subsection (g)(3) shall apply, meaning that amounts excluded from gross income under this section cannot be used to increase the basis of the property for tax purposes.
Section 2(a), new subsection 139(h)(3)
Why it matters:This is standard legislative practice to prevent taxpayers from receiving a 'double benefit' – both a tax-free payment and an increased cost basis for the property, which could reduce future capital gains taxes. It's a technical detail necessary for tax code integrity.
Case for: Proponents argue this prevents abuse of the tax exclusion, ensuring that individuals do not gain an unfair advantage by both receiving tax-free payments for improvements and then reducing their capital gains tax liability when selling the property. It maintains fairness in the tax system.
Case against: No specific opposition is typically raised against this type of anti-abuse provision, as it is a standard mechanism to prevent unintended tax benefits. Some might argue it slightly reduces the overall financial incentive, but its necessity for tax integrity is widely accepted.
Estimated impact: Prevents an indeterminate amount of potential future tax avoidance or reduction in capital gains tax liability for property owners who receive mitigation payments.
The amendments apply to taxable years beginning after December 31, 2020, and the Secretary of the Treasury must provide an opportunity for individuals to claim the exclusion retroactively, including by amended return.
Section 2(c)(1) and (2)
Why it matters:Effective dates are standard legislative components. The retroactive nature is a deliberate policy choice, but its placement in a technical section might obscure its immediate practical impact for past recipients of mitigation payments.
Case for: Proponents argue that retroactive application ensures fairness for individuals who have already received and potentially paid taxes on such mitigation payments in recent years. It immediately corrects a perceived inequity and provides relief to those who acted proactively before the tax code was updated.
Case against: Critics might argue that retroactive tax changes can create administrative complexities for the IRS and taxpayers, potentially leading to confusion or errors in amended returns. It also means a more immediate and potentially larger impact on federal revenue as past taxes are refunded or reduced.
Estimated impact: Allows an unknown number of taxpayers to reclaim taxes paid on eligible mitigation payments received since January 1, 2021, resulting in a reduction of federal tax revenue for those past years.