This bill allows individuals to exclude from their gross income any payments they received from state programs designed to help reduce property damage from natural disasters like windstorms, earthquakes, floods, or wildfires. This exclusion applies retroactively to taxable years after 2021, allowing individuals to claim refunds on previous tax returns.
Thom Tillis
Senator
NC
The Disaster Mitigation and Tax Parity Act of 2025 allows individuals to exclude from their gross income any payments or benefits they receive from state-based catastrophe loss mitigation programs. These programs are designed to reduce property damage from natural disasters like windstorms, earthquakes, floods, or wildfires. This exclusion applies retroactively to taxable years starting after December 31, 2021, allowing individuals to claim refunds on previous tax returns.
Tax Break for Disaster-Proofing Your Home: State Payments Now Excluded from Income, Retroactive to 2021
The Disaster Mitigation and Tax Parity Act of 2025 basically gives you a tax break if you've received money from state programs to fortify your home against natural disasters. Think hurricane shutters, earthquake retrofitting, or wildfire-resistant landscaping. This new law says that money isn't counted as part of your income, meaning you won't get taxed on it. And, good news, it's retroactive to the end of 2021.
Cash in Hand
This section makes a straightforward change: it excludes 'qualified catastrophe mitigation payments' from your gross income (SEC. 2). So, if your state has a program that helps homeowners pay for disaster-proofing upgrades, that money won't bump up your tax bill. For example, if a coastal homeowner received $5,000 from a state fund to install impact-resistant windows, that $5,000 is now tax-free. Before, it might have been considered taxable income. The bill also clarifies that this exclusion doesn't increase the 'basis' of your property. That just means you can't double-dip on tax benefits – you're not taxed on the grant, but you also can't claim the cost of the improvements as a separate deduction later on.
Retroactive Relief
One of the biggest wins here is that this applies retroactively to taxable years beginning after December 31, 2021 (SEC. 2). If you received a qualifying payment in 2022 or 2023 and already paid taxes on it, you can file an amended return to get that money back. This is a crucial detail for anyone who took proactive steps to protect their property in the last few years and faced an unexpected tax hit because of it.
Real-World Rollout
This is a simple, straightforward bill. For folks in states with these mitigation programs, it means more money in their pockets and less paperwork. It also means that if you were on the fence about participating in a state program because of the potential tax implications, that barrier is now gone. The only potential hiccup might be ensuring you have the right documentation to prove the payment was for a 'qualified' purpose, as defined by your state's program. Overall, it's a clear win for homeowners in disaster-prone areas.