Key Takeaways
- The Doug LaMalfa Federal Disaster Tax Relief Certainty Act (LaMalfa Act) extends federal tax relief for victims of certain federally declared disasters.
- The law generally applies to qualifying federally declared disasters with incident periods beginning on or after December 28, 2019, and before January 1, 2027.
- Eligible taxpayers may be able to claim a personal casualty loss deduction even if they do not itemize deductions.
- The law removes the 10% adjusted gross income (AGI) limitation for qualified disaster-related personal casualty losses.
- Certain wildfire relief payments may remain excluded from federal taxable income even if received after 2025.
- The relief applies only to certain federally declared disasters, not disasters declared solely at the state level.
President Trump recently signed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (LaMalfa Act) into law. Among other provisions, the law extends tax relief for victims of certain federally declared disasters by temporarily removing two significant barriers to claiming a personal casualty loss deduction.
As a result, taxpayers affected by presidentially declared disasters in recent years who previously could not claim a casualty loss deduction may now qualify. The law also extends certain tax benefits for wildfire victims.
When Does the LaMalfa Act Apply?
The LaMalfa Act generally extends tax relief originally provided by the Federal Disaster Tax Relief Act, signed into law in December 2024, and briefly extended by the One Big Beautiful Bill Act (OBBBA).
Specifically, the law extends relief for qualifying disasters whose incident periods begin before January 1, 2027.
Relief provided by the act does not apply to disasters declared only at the state level, even if they now qualify as eligible disasters under the OBBBA for purposes of the personal casualty loss deduction.
Overall, the LaMalfa Act generally applies to tax years beginning after December 31, 2024, suspending earlier temporary provisions for those years. It covers qualifying federally declared disasters whose incident period begins on or after December 28, 2019, and before January 1, 2027.
How Does the LaMalfa Act Change the Personal Casualty Loss Deduction?
A personal casualty loss deduction may help offset reimbursed costs when an eligible disaster damages your home or personal property. However, several rules and limitations apply.
For example, the deductible loss is generally the smaller of the property’s adjusted tax basis, or the decline in the property’s value, reduced by any insurance proceeds or other reimbursements received.
If insurance or other reimbursement covers the entire loss, no casualty loss deduction is available.
Increased Per-Event Reduction
If insurance does not fully cover the loss, taxpayers generally must subtract $100 per casualty event from the unreimbursed account before calculating the deduction.
Under the relief extended by the LaMalfa Act, taxpayers must instead subtract $500 per qualifying casualty event.
While the higher reduction may appear unfavorable, the law also provides two significant tax benefits that may result in larger deductions for many taxpayers.
Elimination of the 10% AGI Limitation
One of the most significant changes is the removal of the 10% adjusted gross income (AGI) floor for qualified disaster-related personal casualty losses.
Without this relief, taxpayers can deduct only the portion of their casualty loss that exceeds 10% of their AGI after applying the per-event reduction.
For example, assume AGI is $100,000, there is one casualty loss event, and the casualty loss after insurance reimbursement and the standard $100 reduction equals $11,000.
Under the traditional rules, only $1,000 would be deductible on a federal income tax return.
For a qualified disaster-related personal casualty loss under the LaMalfa Act, the 10% AGI limitation does not apply. Under the same example, the casualty loss deduction would be $10,600 ($11,000 minus the additional $400 reduction required under the disaster relief rules).
Claiming a Casualty Loss Deduction Without Itemizing
The LaMalfa Act also allows eligible taxpayers to claim a qualified disaster-related personal casualty loss deduction without itemizing deductions.
Normally, itemizing provides a tax benefit only when total itemized deductions exceed the standard deduction available for a taxpayer’s filing status. As a result, many taxpayers previously received little or no benefit from otherwise deductible casualty losses.
By allowing taxpayers to claim qualifying disaster-related casualty losses without itemizing, the law expands access to this tax relief.
Expanded Tax Relief for Wildfire Relief Payments
Certain wildfire relief payments may be excluded from federal taxable income.
Under the LaMalfa Act, this exclusion may apply even if compensation is received years after a qualifying wildfire occurred.
Previously, eligible wildfire relief payments generally had to be received during 2020, 2021, 2022, 2023, 2024 or 2025. The LaMalfa Act removes the 2025 payment deadline, allowing qualifying future payments to remain eligible for tax-free treatment.
Which Wildfire Relief Payments Qualify for Tax-Free Treatment?
The exclusion generally applies to qualifying payments made to compensate individuals for losses, costs or damages related to certain federally declared wildfire disasters.
Eligible losses and expenses may include:
- Additional living expenses
- Unreimbursed lost wages
- Financial damages related to personal injury
- Financial damages related to death
- Damages related to emotional distress
To qualify, the wildfire must have been part of a federally declared disaster occurring after December 31, 2014, and before January 1, 2027.
However, important limitations apply. The exclusion is available only for losses or expenses that are not reimbursed through insurance or another source.
Additionally, taxpayers generally can’t receive a double tax benefit. Expenses covered by an excluded wildfire relief payment cannot also be used to claim a tax deduction or credit, and tax-free payments cannot be used to increase the basis of affected property.
Do You Qualify for Disaster Tax Relief Under the LaMalfa Act?
Recovering from a natural disaster can create significant financial challenges, especially when insurance does not cover the full extent of the damage.
The LaMalfa Act expands access to federal disaster tax relief by allowing more taxpayers to claim qualified personal casualty loss deductions and exclude certain wildfire relief payments from taxable income.
Because eligibility depends on the type of disaster, timing and individual circumstances, contact us to determine whether a deduction or exclusion may be available and how to properly claim the tax benefits provided under the new law.