This bill makes it easier for homeowners to afford disaster-proofing improvements by giving them a tax break. Right now, if your state gives you money to make your home safer from disasters like floods, earthquakes, wildfires, or windstorms, you have to pay federal income tax on that money. This bill says you don't have to—those payments become tax-free, just like disaster relief money from federal programs already is.

The catch is that this only applies to money from state-run programs, not just any program. Your state, a local government agency, a joint powers authority, or a state-regulated insurance company would need to be the one giving you the money. And the money has to be specifically for improvements that reduce damage from windstorms, earthquakes, floods, or wildfires—things like reinforcing your roof, installing storm shutters, or improving drainage.

One important detail: when you get this money and use it to improve your home, it doesn't increase your property's tax basis (the value used to calculate capital gains taxes if you sell later). This keeps things fair and prevents people from getting a double tax benefit. Essentially, the bill levels the playing field so homeowners can get help from their state to make their homes more disaster-resistant without facing a federal tax bill for accepting that help.

Disaster Mitigation and Tax Parity Act of 2025

Tillis, Thomas

Disaster Mitigation and Tax Parity Act of 2025This bill excludes from gross income, for federal income tax purposes, payments received from a state catastrophe loss mitigation program by an individual&nbsp;for the purpose of making improvements to the individual’s property that mitigate the impact of certain disasters.Under current law, individuals may exclude from gross income, for federal income tax purposes, payments received under the Robert&nbsp;T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) for hazard mitigation. (Some exceptions apply.) Further, under current law, such payments do not increase the basis of the property for which the payments are made.The bill allows a similar exclusion from gross income for certain payments received by an individual from a program established by<ul><li>a state (or any political subdivision or instrumentality of the state),</li><li>a joint powers authority, or</li><li>an entity that was established by the state to provide essential or basic property insurance and is regulated by the state.</li></ul>Under the bill, such payments must be for making improvements to the individual’s property for the sole purpose of reducing damage that would be done to the property by a windstorm, earthquake, flood, or wildfire.Finally, the bill provides that such payments from a state catastrophe loss mitigation program do not increase the basis of the property for which the payments are made.