Introduced on June 13, 2023 in the U.S House of Representatives by Mr. LaMalfa along with Representative Thompson of California, Mr. Rouzer, Mr. Higgins of Louisiana, Mr. Carl, Mr. Fitzgerald, and Ms. Ross, the bill, referred to as the “Disaster Mitigation and Tax Parity Act of 2023”, seeks to tweak the Internal Revenue Code of 1986.
The proposal weaves its way to cushion your income when you receive funds from your State-based catastrophe loss mitigation programs. Generally, when you receive this fund, it swells your total income, and Uncle Sam taxman awaits his share. However, with the passage of this bill, the amount you secure from these state-based programs for mitigating your property from natural disasters wouldn’t be considered when calculating your gross income. In other words, Uncle Sam wouldn’t ask for a slice from this specific pie of your income.
The question is, what exactly is covered under these State-based catastrophe loss mitigation programs? The bill outlines it to be any program established by either a State, a political subdivision thereof, a joint powers authority, or an entity created by State law to ensure the availability of an adequate market to provide basic property insurance. Such organization or entity must have oversight from a State agency or State department of insurance.
The Devil is in the details; this benefit applies to receiving any funding to ratify improvements in your property to reduce potential damage from only certain types of disasters – windstorm, earthquakes, or wildfires. So, if you’ve received funding to hurricane-proof your coastal home, earthquake-proof your property in seismic zones, or protect your property from wildfires, you may be eligible for these tax exemptions.
Another crucial aspect of the proposal specifies that receipt of such mitigation payments would not add value when determining the cost-basis of your property for tax purposes. For instance, if you received funding to fortify your home against windstorm damage, the value of your home for tax purposes would remain unchanged, ensuring a fair tax treatment regardless of whether your property had to be secured against windstorms or not.
The changes in the fiscal landscape with this bill would apply to taxable years commencing after December 31, 2020. Not confined to the prospective effects only, it also permits filing an amended return to benefit from this exclusion in hindsight, giving taxpayers a nifty way to refile their taxes and perhaps get a refund!
The rub of the bill is this: whether you own a suburban home in the wildfire-prone regions of California or a beachfront property under threat from recurrent hurricanes, the bill targets to bolster any efforts to armor your houses against these calamities and lessens your tax liabilities in the process.
The next steps for this bill would be its perusal by the Committee on Ways and Means, before it can be considered by both the Senate and House of Representatives for a final green signal.
As we await the journey of this bill through Capitol Hill, homeowners, tax consultants, insurance entities, and regulatory bodies would be keen observers of its progress, armed with the knowledge that a fiscal breather could be within arm’s reach for those safeguarding their homes against the unpredictable force of Mother nature. Caught amidst the broader debate of climate resilience and economic recovery, this bill finds itself at a pivotal junction in current policy discussions, begging the question: can we afford not to incentivize catastrophe preparedness?
