Hit by a Disaster? Congress Just Passed a Tax Break You Could Claim Back to 2019

If a hurricane, flood, wildfire, or other federally declared disaster has hit your business at any point since late 2019, a bill now sitting on the President's desk could change how much of that loss you get to deduct, and whether disaster payments you received count as taxable income at all. The Senate passed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, H.R. 5366, by unanimous consent on August 7, 2026, after the House approved it in April. It now awaits the President's signature.

For business owners who have shrugged off disaster-related tax relief in the past because it seemed like it only applied to homeowners, this bill is worth a second look. It extends and locks in rules that make it meaningfully easier to deduct disaster losses and, in some cases, to receive disaster payments completely tax-free.

What the Bill Actually Changes

Named for the late Congressman Doug LaMalfa of California, who died in January 2026 and championed disaster tax relief throughout his time in office, H.R. 5366 extends two key provisions that businesses and individuals have relied on piecemeal for years.

Easier Casualty Loss Deductions

Under current, more restrictive rules, personal casualty losses generally have to exceed 10% of adjusted gross income before they're deductible, and only if you itemize. The bill extends the more generous, disaster-specific treatment that lets taxpayers deduct qualified disaster-related casualty losses above $500 without itemizing and without the 10%-of-income threshold. That relief applies to federally declared disasters occurring between December 28, 2019, and January 1, 2027, meaning it reaches back to cover disasters that already happened and gives certainty for anything declared through the end of 2026.

Wildfire Payments Excluded From Taxable Income

The bill also creates a new section of the tax code, Section 139M, that excludes "qualified wildfire relief payments" from gross income. That includes compensation for property losses, lost wages, personal injury, emotional distress, and other damages tied to a federally declared wildfire disaster. The exclusion applies as long as the wildfire disaster declaration occurred after December 31, 2014, and before January 1, 2027, regardless of when the payment itself is actually received.

In plain terms: if your business received a settlement or relief payment tied to a wildfire, you may not owe federal income tax on it, and if you already paid tax on a qualifying payment in a prior year, you may be able to claim a refund.

Why This Matters If You Run a Business

Disaster tax relief tends to get discussed as if it's mainly about homeowners rebuilding after a fire or flood. But businesses carry their own casualty losses: damaged inventory, ruined equipment, a flooded storefront, a warehouse roof torn off in a storm. Under the expanded rules, a business owner who suffered a qualifying disaster loss may be able to deduct more of that loss than they could under standard casualty loss rules, without needing to clear the usual 10%-of-income bar.

That distinction matters most for small business owners whose disaster losses were significant relative to their income in a given year, but not so catastrophic that they wiped out the entire tax bill anyway. A retroactive window back to December 2019 also means owners who already filed returns covering a qualifying disaster year may want to revisit those filings with a tax professional to see if an amended return makes sense.

Documentation Is Everything

None of this relief is automatic. Claiming an expanded casualty loss deduction, or excluding a wildfire payment from income, requires solid records: what was damaged or destroyed, what it was worth, what insurance or other reimbursement you received, and the FEMA disaster declaration number tied to the event. Keeping a clean profit and loss statement that separates disaster-related losses and reimbursements from ordinary operating expenses makes this process significantly easier when it's time to file, or amend, a return.

How This Fits With Other Disaster Relief for Businesses

Tax relief is only one piece of recovering from a disaster. Business owners in a federally declared disaster area may also qualify for an SBA disaster loan to cover physical damage or economic injury, separate from anything in this bill. Reviewing your SBA loan options alongside any tax relief you're claiming can help you cover the full cost of rebuilding rather than relying on the tax code alone. It's also worth checking your business insurance coverage now, before the next disaster, since the deduction only covers losses that insurance and other reimbursements don't already make you whole for.

What Business Owners Should Do Now

• Check whether any disaster you experienced since December 2019 had a federal disaster declaration attached to it. That declaration is what unlocks the expanded deduction and the wildfire payment exclusion.
• Gather your records on damaged property, lost inventory, and any settlement or relief payments received, including amounts already reported as income on past returns.
• Talk to a tax professional about amended returns if you paid tax on a wildfire relief payment, or claimed a smaller casualty loss deduction than you may now be entitled to under the extended rules.
• Watch for the President's signature before assuming the law is final. As of this writing, H.R. 5366 has passed both chambers of Congress but has not yet been signed.
• Don't wait on insurance settlements alone. Pair any tax relief with a review of your SBA disaster loan eligibility and your current business insurance coverage.

The Bottom Line

Disaster tax relief bills like this one tend to move quietly through Congress compared to headline-grabbing tax debates, but they can be worth real money to business owners who've weathered a hurricane, wildfire, flood, or other federally declared disaster in recent years. Once H.R. 5366 is signed, the practical next step for most business owners isn't complicated: pull your records for any disaster year since 2019, talk to a tax preparer about whether an amended return makes sense, and make sure your documentation is in order before the extended relief window closes at the end of 2026.

Photo by Matt Palmer on Unsplash