Summary

Excludes from federal gross income certain state-paid catastrophe mitigation payments made to property owners to reduce damage from windstorms, earthquakes, floods, or wildfires. It treats these “qualified catastrophe mitigation payments” as tax-free while preserving the rule that such payments do not increase the property owner’s tax basis. Applies this exclusion to taxable years beginning after December 31, 2021, and requires the Treasury to give individuals a way (including by amended return) to claim the exclusion for prior years. The change updates the federal tax code to align tax treatment with state mitigation programs and to encourage property-level resilience investments.

Key Points

• Creates a new tax exclusion for state-paid mitigation payments to property owners for windstorm, earthquake, flood, or wildfire resilience.
• Defines these payments as "qualified catastrophe mitigation payments," distinct from other disaster mitigation payments.
• Excluded payments do not increase the recipient's tax basis in the property.
• Conforming edits add references to the new payment category within existing §139 provisions.
• Applies retroactively to taxable years starting after December 31, 2021, with Treasury required to permit amended returns for prior claims.
• Targets payments made under state-based mitigation programs to property owners rather than general disaster relief or insurance proceeds.
• Does not authorize appropriations or create new federal spending programs; it changes federal tax treatment only.
• Anticipated to encourage state mitigation efforts by reducing federal tax barriers to receiving mitigation funds.

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