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Adds a tax exclusion so amounts paid to or for an individual under state-established programs to fund property improvements that reduce damage from windstorm, earthquake, or wildfire are not counted as taxable income. It defines a “qualified catastrophe mitigation payment,” clarifies that the exclusion does not increase the property’s tax basis, and makes the rule effective retroactively for tax years beginning after December 31, 2020, with the Treasury directed to allow amended returns to claim the exclusion for prior years.
The bill reduces homeowners' tax burden and encourages disaster-resilience investments by making state mitigation assistance tax-free (including retroactive refunds), at the cost of uneven state-by-state access, modest federal revenue loss, and potential higher future capital gains for sellers because basis cannot be increased.
Homeowners who receive state mitigation assistance can exclude qualified mitigation payments from federal taxable income and may file amended returns to claim refunds back to 2021, reducing their near-term tax burden.
Making mitigation assistance tax-free lowers the effective cost of windstorm, earthquake, and wildfire resilience improvements, encouraging more property owners to invest in protective measures and strengthening community infrastructure resilience.
Homeowners who treat mitigation payments as tax-free cannot increase their property's tax basis for those improvements, which can raise capital gains tax when they later sell the property.
Because program design and eligibility are set by states, many homeowners may not qualify depending on where they live, producing uneven benefits across states.
Excluding these payments from taxable income reduces federal tax receipts modestly, which could slightly tighten budgets or require offsets elsewhere.
Introduced March 5, 2025 by Doug Lamalfa · Last progress March 5, 2025