President Signs Doug LaMalfa Federal Disaster Tax Relief Certainty Act into Law

On September 11, 2026, President Trump signed into law H.R. 5366, the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (the “Act”). The Senate passed the legislation by unanimous consent on August 7th, following the House of Representatives’ approval of the bill by voice vote in April and a unanimous 43 to 0 vote by the House Committee on Ways and Means. The Act restores and extends favorable tax treatment for individuals who suffer personal casualty losses in federally declared disasters and creates a new income exclusion for qualified wildfire relief payments. The Joint Committee on Taxation (JCT) estimates that the Act will provide $408 million in tax relief through 2036. This article addresses the key tax provisions of the Act and the planning opportunities it presents.

Representatives Greg Steube (R-FL), Mike Thompson (D-CA), and Jimmy Panetta (D-CA), all members of the Ways and Means Committee, introduced the bill in September 2025 as the Federal Disaster Tax Relief Act of 2025. Senators Rick Scott (R-FL) and Adam Schiff (D-CA) championed the companion effort in the Senate. Congress later renamed the legislation to honor Representative Doug LaMalfa (R-CA), a longtime advocate for disaster victims who passed away in January 2026. Unless otherwise noted, all references to “Sections” herein pertain to sections of the Internal Revenue Code.

I. Background

Under the general rules of Section 165(h), an individual may deduct a personal casualty loss only to the extent the loss exceeds $100 per casualty and the aggregate of such net losses exceeds 10 percent of the taxpayer’s adjusted gross income (AGI). The taxpayer must also itemize deductions to claim the loss. The Tax Cuts and Jobs Act of 2017 (TCJA) further limited the deduction to losses attributable to federally declared disasters, and the One Big Beautiful Bill Act (OBBBA) made that limitation permanent while broadening the types of disasters that qualify.

For many disaster victims, these limitations eliminate most or all of the benefit. Congress recognized this problem in the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which created special rules for “qualified disaster-related personal casualty losses.” Those rules replaced the $100 floor with a $500 floor, eliminated the 10 percent AGI threshold, and allowed non-itemizers to add the net loss to their standard deduction. Subsequent legislation, including the Federal Disaster Tax Relief Act of 2023 (signed in December 2024) and the OBBBA, extended these special rules. As we noted in our July 2025 article on the OBBBA, the special rules ultimately applied to disasters with incident periods beginning on or after December 28, 2019, and on or before July 4, 2025, the date of the OBBBA’s enactment.

As a result, taxpayers who suffered losses in disasters occurring after July 4, 2025, fell back under the more restrictive general rules. The Act closes that gap and provides a defined window of relief through the end of 2026.

II. Qualified Disaster-Related Personal Casualty Losses

A. Extended Eligibility Period

The Act codifies and extends the special casualty loss rules to major disasters with incident periods beginning on or after December 28, 2019, and before January 1, 2027. The provision is effective for taxable years beginning after December 31, 2024. Therefore, taxpayers may apply the rules on their 2025 and 2026 federal income tax returns, including for losses arising from disasters that occurred during the second half of 2025

B. Key Features of the Relief

For a taxpayer with a qualified net disaster loss, the Act provides the following favorable treatment.

• The taxpayer does not need to itemize deductions to claim the loss. Instead, a non-itemizer increases the standard deduction by the amount of the qualified net disaster loss.
• The 10 percent AGI threshold does not apply to the qualified net disaster loss.
• A $500 per casualty floor replaces the $100 per casualty floor that applies under the general rules.
• The deduction also reduces taxable income for taxpayers subject to the alternative minimum tax (AMT), according to the Congressional Budget Office’s analysis of the legislation.
• Taxpayers must still reduce the loss by any insurance proceeds or other reimbursements received or reasonably expected.

C. Illustration

Consider a married couple filing jointly with AGI of $250,000 who suffer an unreimbursed loss of $40,000 to their home in a qualifying hurricane. Under the general rules, the couple would reduce the loss by the $100 floor and then by $25,000 (10 percent of AGI), leaving a deductible loss of $14,900. Further, the couple could claim that amount only if they itemize. Under the Act, the couple reduces the loss only by the $500 floor and may deduct $39,500 in addition to their standard deduction. The Act more than doubles the deductible amount in this example and removes the itemization requirement entirely.

III. New Section 139M: Exclusion of Qualified Wildfire Relief Payments

The Act also adds new Section 139M, which excludes qualified wildfire relief payments from gross income. The Federal Disaster Tax Relief Act of 2023 previously provided a similar exclusion, but only for payments received by December 31, 2025. Because wildfire litigation and settlements frequently take years to resolve, many victims faced the prospect of receiving compensation after that deadline and paying tax on it. The Act addresses this concern.

The key provisions of Section 139M include the following.

• The exclusion applies to payments related to federally declared wildfire disasters declared after December 31, 2014, and before January 1, 2027.
• The exclusion applies to payments received in taxable years beginning after December 31, 2025. Together with the prior law exclusion, this provision provides continuous coverage and removes the practical receipt deadline for qualifying wildfires.
• Qualified payments include compensation for losses, expenses, or damages. Damages include compensation for lost wages, personal injury, death, or emotional distress.
• The Act prohibits a double benefit. A taxpayer may not claim a deduction or credit, or increase the basis of property, to the extent of any amount excluded under Section 139M.

The wildfire exclusion drives most of the Act’s fiscal impact.  JCT estimates that Section 139M accounts for $331 million of the $408 million in total relief, while the casualty loss provisions account for the remaining $77 million.

IV. Tax Planning Moving Forward

The Act’s effective dates create several immediate planning opportunities for impacted individuals. Taxpayers should consider the following items.

• Individuals who extended their 2025 federal income tax returns face an October 15, 2026, filing deadline. These taxpayers should determine whether they suffered losses in a federally declared disaster with an incident period beginning after July 4, 2025, as the Act now allows them to claim such losses under the favorable rules.
• Taxpayers who already filed 2025 returns and claimed disaster losses under the general rules, or who did not claim such losses because of the 10 percent AGI threshold or the itemization requirement, should evaluate whether to file an amended return.
• Taxpayers who suffer losses in qualifying disasters during 2026 may elect under Section 165(i) to claim the loss on the return for the preceding taxable year, which can accelerate the cash benefit of the deduction when it matters most.
• Taxpayers should gather and retain documentation supporting any claimed loss, including insurance claim records, appraisals, repair estimates, and the applicable disaster declaration.
• Recipients of wildfire settlements or other relief payments should review the character of each payment and coordinate the exclusion with any related deductions, credits, or basis adjustments to comply with the double benefit prohibition.
• Taxpayers should also review the state income tax treatment of these provisions, as state conformity to federal changes varies.

The Act provides welcome certainty for families and individuals rebuilding after wildfires, hurricanes, floods, and other disasters. However, the January 1, 2027, cutoff means that Congress will need to act again to provide similar relief for future disasters. Please reach out to your FGMK tax advisor to discuss how the Act impacts your specific situation.