Disaster Mitigation and Tax Parity Act of 2025

This bill would exclude payments received from state-level catastrophe loss mitigation programs from an individual's gross income for federal tax purposes. To qualify for this exclusion, the payments must be used to improve a property for the sole purpose of reducing potential damage from windstorms, earthquakes, floods, or wildfires. Additionally, the bill proposes that these mitigation payments would not increase the tax basis of the property for which they are used.

This bill affects individual property owners who receive financial assistance from state-level catastrophe loss mitigation programs to protect their homes against windstorms, earthquakes, floods, or wildfires. It also applies to state agencies, local political subdivisions, joint powers authorities, and state-regulated property insurance entities that administer these disaster mitigation payment programs. Additionally, the legislation impacts the Internal Revenue Service and tax professionals by altering how these specific mitigation payments are treated for federal gross income and property basis calculations.

• Tax exclusion for state catastrophe mitigation payments. The bill excludes from an individual's gross income any payments received from state-level programs intended to fund property improvements that mitigate disaster impacts.
• Expansion of eligible funding entities. The exclusion applies to payments from programs established by states, political subdivisions, joint powers authorities, or state-regulated entities providing basic property insurance.
• Defined disaster mitigation categories. To qualify for the tax exclusion, payments must be used exclusively for property improvements designed to reduce potential damage from windstorms, earthquakes, floods, or wildfires.
• Restriction on property basis adjustments. The bill specifies that mitigation payments received from these state programs do not increase the tax basis of the property for which the improvements are made.

The bill expands existing federal tax exclusions for disaster mitigation payments, which currently apply to payments received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act and the National Flood Insurance Act. It applies similar tax treatment and property basis rules to payments received from state-level catastrophe loss mitigation programs for windstorm, earthquake, flood, or wildfire improvements.

The bill aims to provide federal tax relief to property owners by excluding state-level disaster mitigation payments from their gross income. This change is intended to encourage property improvements that reduce potential damage from windstorms, earthquakes, floods, or wildfires by treating state-funded mitigation grants similarly to existing federal disaster assistance.