HR 5863: What Is the New Federal Disaster Tax Relief Law?

The Federal Disaster Tax Relief Act, H.R. 5863, is a law to provide financial assistance to Americans impacted by recent, specified federally declared disasters. The act eases the economic burden on individuals and businesses by modifying certain provisions of the tax code. It offers targeted relief by adjusting rules for deducting personal property losses and creating special considerations for payments received in connection with these events.

While the bill was introduced as the “Federal Disaster Tax Relief Act of 2023,” it was signed into law on December 12, 2024. The measure provides a framework for tax relief that is retroactive, applying to specific events that have already occurred.

Covered Disasters and Eligibility

The relief provided by H.R. 5863 applies to losses in any federally declared major disaster area. The law’s provisions for personal casualty losses cover disasters that occurred between January 1, 2020, and early 2025. This includes events such as the train derailment in East Palestine, Ohio; hurricanes like Ian, Idalia, and Nicole; the Hawaii wildfires; and severe storms in California.

To benefit from the law, a taxpayer must be considered an affected individual. This means their principal residence is within a disaster zone as declared by the federal government. The taxpayer must also have sustained an economic loss as a direct result of the event.

Key Tax Relief Provisions for Individuals

A major component of the relief for individuals is the modification of the rules for deducting personal casualty losses. Previously, taxpayers could only deduct such a loss if it exceeded 10% of their adjusted gross income (AGI), a threshold that prevented many from receiving any tax benefit. H.R. 5863 eliminates this 10% AGI requirement for qualified disaster losses, making the deduction accessible to a much broader group of affected taxpayers.

The law also removes the need for taxpayers to itemize their deductions to claim these specific disaster-related casualty losses. Instead, the loss can be added to the standard deduction, simplifying the filing process for many. A smaller threshold, a $500 floor per casualty, remains in place, meaning the first $500 of the loss is not deductible.

Another form of relief comes from the exclusion of certain payments from a taxpayer’s gross income. Qualified disaster relief payments, including those from government agencies to cover expenses like temporary housing or repairs, are not considered taxable income. For victims of the East Palestine train derailment, payments from the railway company are treated as these non-taxable qualified disaster relief payments. The law also excludes compensation for losses related to qualified wildfires from income, covering things like lost wages and personal injury.

Legislative Status and Taxpayer Preparation

The Federal Disaster Tax Relief Act of 2023, H.R. 5863, passed the House of Representatives and the Senate before being signed into law. Its provisions are retroactive, applying to disasters that occurred prior to its enactment. Because the relief applies to prior tax years, some taxpayers may need to file amended returns to claim the benefits.

Taxpayers should gather and preserve all documentation related to their economic losses. These documents are necessary to substantiate a personal casualty loss deduction. This includes:

• Photographs of property damage before and after repairs
• Receipts for all repair work and replacement items
• Copies of any insurance claims, settlements, or denial letters
• Records of any disaster relief payments received from government agencies, employers, or other entities like Norfolk Southern for the East Palestine incident
• Tracking additional expenses, such as temporary lodging or lost wages

Given the retroactive nature of the law and the potential need to amend prior tax returns, consulting with a tax professional is a prudent step to navigate the claims process correctly.