New Federal Law Expands Disaster and Wildfire Tax Relief

President Donald Trump signed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act into law on September 11, 2026. The legislation extends and formalizes federal tax relief for individuals who sustain losses from major disasters or receive compensation related to certain wildfires.

The law addresses a recurring practical problem. Although taxpayers may suffer substantial uninsured losses after hurricanes, floods, fires and other disasters, the federal income tax rules can make personal casualty-loss deductions difficult to claim. Congress has frequently responded by providing special relief for individual disasters. The new law continues favorable rules for major disasters whose incident periods begin on or after December 28, 2019, and before January 1, 2027.

More Taxpayers May Deduct Disaster Losses

Under the new law, an individual with a qualifying net disaster loss may claim the deduction without itemizing. This means the deduction is available even when the taxpayer uses the standard deduction. The legislation also removes the limitation that generally allows taxpayers to deduct personal casualty losses only to the extent they exceed 10% of adjusted gross income. Instead, qualifying losses remain subject to a $500 reduction for each casualty event.

These provisions generally cover personal casualty losses associated with federally declared major disasters whose incident periods begin after December 27, 2019, and before January 1, 2027. The rules do not create a deduction for every economic loss. The loss must satisfy the statutory requirements, must relate to an eligible disaster and must be reduced by insurance proceeds or other reimbursements.

For affected taxpayers, documenting the loss remains essential. Insurance records, repair estimates, photographs, property valuations, government notices and evidence of reimbursements are all important documents. Taxpayers also should determine whether claiming a disaster loss on the return for the preceding year could produce a faster refund.

Wildfire Compensation May Be Excluded from Income

In addition, the legislation extends favorable treatment for certain wildfire-related payments received in tax years beginning after December 31, 2025. Qualifying compensation attributable to federally declared forest or range fires occurring after 2014 and before 2027 may be excluded from federal gross income. Covered amounts may include compensation for losses, expenses or damages arising from a qualifying wildfire, subject to the law’s detailed requirements.

This provision is particularly important because settlements and relief payments can otherwise create an unexpected tax bill. The exclusion is not automatic for every wildfire payment, however. Taxpayers must analyze the nature of the payment, the disaster declaration and whether another deduction, exclusion or reimbursement has already provided a tax benefit for the same economic loss.

This new legislation is particularly relevant for victims of qualifying California wildfires. Many California wildfire victims have received settlement proceeds, utility payments or other forms of compensation years after the underlying disaster occurred. The new law extends the federal exclusion for certain qualified wildfire relief payments received in 2026 and attributable to federally declared forest or range fires occurring after 2014 and before 2027, helping ensure that eligible taxpayers are not required to recognize federal taxable income on amounts intended to compensate them for wildfire-related losses and damages. Taxpayers who received payments connected to events such as the Camp Fire, Dixie Fire, Caldor Fire or other federally declared California wildfire disasters should consult their tax advisor to determine whether all or a portion of those payments may qualify for favorable tax treatment under the new rules.

Practical Next Steps

Individuals affected by a disaster or wildfire should not assume that a previously filed return is the final answer. This new law may create refund opportunities for qualifying losses or payments arising in prior years. Taxpayers should review relevant federal disaster declarations, settlement documents, insurance recoveries and prior returns to determine whether an original or amended filing may be appropriate.