Sponsors (29)
The bill raises the after-tax value of state-funded disaster-mitigation grants and encourages resilience investments for homeowners, but it narrows eligibility, reduces federal receipts, and can create future tax-basis drawbacks when properties are sold.
Homeowners and other taxpayers who receive state-funded wind/earthquake/wildfire mitigation grants can exclude those payments from taxable income, and eligible taxpayers can file amended returns to recover taxes paid on prior qualifying payments (post-12/31/2020), increasing the net financial benefit of those grants.
Homeowners and state programs are more likely to invest in property resilience because the after-tax cost of state-funded mitigation (wind, earthquake, wildfire) is reduced, which can increase uptake of damage-reducing improvements.
Federal revenues will be modestly reduced because excluded state mitigation payments are not taxed, which could increase the deficit or crowd out other federal spending if not offset.
Homeowners who exclude state mitigation payments will not increase their tax basis in the property, which can reduce future depreciation or loss-offset benefits when the property is sold or in other tax calculations.
Homeowners who receive similar private or federal assistance — or who benefit from non-State programs — may be ineligible for the exclusion because eligibility is limited to State-established programs and entities, leaving some recipients without the same tax relief.
Based on analysis of 2 sections of legislative text.
Excludes certain state-funded property-improvement payments for windstorm, earthquake, or wildfire mitigation from federal gross income and allows retroactive claims back to 2021.
Introduced March 5, 2025 by Doug Lamalfa · Last progress March 5, 2025
Excludes from federal gross income certain state-funded payments made to homeowners (or paid for their benefit) to fund property improvements that reduce damage from windstorms, earthquakes, or wildfires. It adds a new rule to the federal tax code so these “qualified catastrophe mitigation payments” are tax-free and clarifies that the usual rule preventing an increase in property tax basis still applies. The change is effective for taxable years beginning after December 31, 2020, and requires the Treasury Department to let individuals claim the exclusion retroactively (including by filing amended returns). The exclusion applies to payments from States, political subdivisions, joint powers authorities, or State-created entities overseen by a State insurance agency or department.