H.R. 5366, Doug LaMalfa Federal Disaster Tax Relief Certainty Act

Bill Summary

H.R. 5366 would amend the Internal Revenue Code to provide tax relief to people affected by certain federally declared disasters. The bill would codify and modify rules allowing those taxpayers to deduct related losses from their taxable income without the need to itemize deductions on their income tax returns. The bill also would allow taxpayers to exclude from their calculations of gross income some compensation for losses from wildfires.

Estimated Federal Cost

The estimated budgetary effects of H.R. 5366 are shown in Table 1. The costs of the legislation fall within budget function 800 (general government).

Basis of Estimate

The Congressional Budget Act of 1974, as amended, stipulates that revenue estimates provided by the staff of the Joint Committee on Taxation (JCT) are the official estimates for all tax legislation considered by the Congress. CBO therefore incorporates such estimates into its cost estimates of the effects of legislation. The revenue estimates for H.R. 5366 were provided by JCT.[1]

For this estimate, CBO and JCT assume that the bill will be enacted in fiscal year 2026.

Revenues

H.R. 5366 would codify and modify tax relief provided for some individual taxpayers affected by federally declared disasters. JCT estimates that enacting H.R. 5366 would reduce revenues by $408 million over the 2026-2036 period (see Table 2).

Section 2 would allow taxpayers to deduct casualty losses in excess of $500 that arise from disasters occurring between December 28, 2019, and January 1, 2027. Taxpayers could take the deductions even if they do not itemize deductions and regardless of whether the losses exceed 10 percent of their adjusted gross income. Casualty losses also could be used to reduce taxable income for filers who are subject to the alternative minimum tax. The provisions in section 2 extend and modify the special rules for casualty losses in the Taxpayer Certainty and Disaster Tax Relief Act of 2020. JCT estimates that enacting section 2 would reduce revenues by $77 million over the 2026-2036 period.

Section 3 would exclude from gross income the compensation a taxpayer receives for expenses or losses resulting from certain wildfires, thus excluding that compensation from taxable income. The provision would apply to qualified wildfire relief payments received after December 31, 2025, for wildfires occurring between December 31, 2014, and January 1, 2027. JCT estimates that enacting section 3 would reduce revenues by $331 million over the 2026‑2036 period.

Spending Subject to Appropriation

Using information from JCT and the Internal Revenue Service (IRS), CBO estimates that implementing H.R. 5366 would increase the IRS’s administrative costs by less than $500,000 over the 2026-2031 period; any related spending would be subject to the availability of appropriated funds.

Uncertainty

JCT’s estimates of the budgetary effects of H.R. 5366 are subject to uncertainty because they are made on the basis of underlying projections and other factors that could change significantly. In particular, the estimates rely in part on CBO’s economic projections for the next decade under current law and on expectations of the way taxpayers might respond to changes in tax law. CBO and JCT also cannot determine how many people would take deductions, and in what amounts, for losses related to federally declared disasters and how many would exclude disaster-related compensation from their taxable income. The amount of disaster-related compensation also would depend on the number of federally declared disasters resulting from wildfires occurring before January 1, 2027.

Pay-As-You-Go Considerations

The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. The net changes in revenues that are subject to those pay-as-you-go procedures are shown in Table 1.

Increase in Long-Term Net Direct Spending and Deficits

JCT estimates that enacting H.R. 5366 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2037.

Mandates

JCT has determined that the bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act.

Estimate Prepared By

Federal Costs: Matthew Pickford

Revenues: 
Jennifer Shand
Staff of the Joint Committee on Taxation

Mandates: 
Andrew Laughlin

Staff of the Joint Committee on Taxation

Estimate Reviewed By

Ann E. Futrell
Chief, Natural and Physical Resources Cost Estimates Unit

Joshua Shakin
Chief, Revenue Projections Unit

Kathleen FitzGerald 
Chief, Public and Private Mandates Unit

H. Samuel Papenfuss 
Deputy Director of Budget Analysis

John McClelland
Director of Tax Analysis

Estimate Approved By