AICPA Applauds Passage of Bipartisan Disaster Tax Relief Legislation While Continuing the Push for Permanent Congressional Solutions

WASHINGTON — The American Institute of CPAs (AICPA) has thrown its full support behind critical federal disaster relief legislation that is now awaiting the president’s signature following robust Senate approval. The measure, designed to ease the immense financial burden borne by individuals and communities recovering from catastrophic events, represents a significant shift in how lawmakers approach disaster recovery. Even as the organization celebrates this legislative milestone, its leadership is actively urging Congress to establish permanent, long-term statutory relief to eliminate recurring gaps in the federal safety net.

The bill at the center of the debate—the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366)—passed through both chambers of Congress with strong bipartisan backing. By extending specialized tax relief provisions and embedding them directly into the framework of the Internal Revenue Code (IRC), the legislation aims to transform a historically ad-hoc, retroactive relief process into a predictable, streamlined system for taxpayers navigating the aftermath of federally declared disasters.

Main Facts

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366) introduces several vital modifications to federal tax law, specifically targeting how individuals calculate and deduct losses resulting from catastrophic natural events.

Key Provisions of H.R. 5366

• Extension of Special Provisions: The legislation extends specialized disaster tax relief provisions for qualified disasters occurring after July 4, 2025, and before January 1, 2027.
• IRC Codification: Rather than relying solely on temporary, retroactive tax extenders passed years after a disaster occurs, this bill permanently integrates these provisions into the Internal Revenue Code.
• AGI Limitation Waiver: The bill officially waives the standard 10%-of-adjusted-gross-income (AGI) limitation for casualty losses in designated disaster areas, making it significantly easier for middle- and lower-income families to qualify for deductions.
• Standard Deduction Integration: Taxpayers will be permitted to add qualified disaster losses directly to their standard deduction, expanding relief to individuals who do not itemize their taxes.
• Deduction Floor Adjustment: The legislation raises the individual casualty loss deduction floor from $100 to $500, aligning it with modern economic realities while retaining its targeted focus.
• Wildfire Relief Exclusion: The measure formally extends the tax-free exclusion for qualified wildfire relief payments through the end of 2026, shielding victims from unexpected tax bills on state and local assistance grants.
• A Prospective Shift: In a departure from decades of legislative precedent, H.R. 5366 is prospective rather than purely retroactive, offering forward-looking clarity for communities at risk.

Chronology of the Legislation

The journey of H.R. 5366 to the president’s desk reflects a concerted, multi-year lobbying effort by tax professionals, regional lawmakers, and advocacy groups seeking to remedy chronic delays in federal disaster assistance.

The Legislative Timeline

• Early 2025 and Prior: Historically, federal disaster tax relief has operated on a retroactive basis. Congress routinely waited months—or even several years—after a major hurricane, wildfire, or flood to pass ad-hoc tax relief packages. This left taxpayers, CPA firms, and state governments in financial limbo, struggling to amend prior-year returns or figure out how to treat emergency recovery funds.
• Introduction of H.R. 5366: Named in honor of regional disaster recovery needs and sponsored by Rep. Doug LaMalfa, the bill was introduced in the House of Representatives to address structural flaws in the federal disaster response framework. The legislation was crafted specifically to bridge the impending gaps in disaster tax relief projected for the mid-2020s.
• House Passage: Following committee review and debate emphasizing the bipartisan nature of natural disaster recovery, the House of Representatives overwhelmingly approved H.R. 5366, demonstrating broad consensus that the existing system of retroactive fixes was broken.
• Senate Approval: The bill recently cleared the Senate without notable opposition, moving swiftly through the upper chamber as lawmakers recognized the urgent need to enact the prospective provisions before the upcoming disaster seasons.
• Current Status: The legislation now rests on the president’s desk, awaiting a formal signature to be enacted into law. AICPA leadership and tax policy experts expect the signature to be a formality given the bill’s overwhelming bipartisan margins.

Supporting Data and Economic Context

To understand the profound significance of H.R. 5366, one must examine the staggering economic toll of natural disasters in the United States over the past decade, as well as the mechanical ways in which the tax code interacts with disaster victims.

The Escalating Cost of Disasters

According to data compiled by federal agencies and insurance industry analysts, the frequency and severity of billion-dollar weather and climate disasters have accelerated dramatically. Communities from the West Coast—devastated by historic, multi-acre wildfire seasons—to the Gulf Coast and Eastern Seaboard—battered by increasingly intense hurricanes—face mounting recovery costs.

When a federally declared disaster strikes, victims frequently confront a cascading series of financial shocks: property destruction, temporary housing expenses, loss of income, and steep cleanup bills. Historically, the federal tax code offered some relief via casualty loss deductions, but these were severely restricted by stringent statutory thresholds.

Breaking Down the Tax Mechanics

Prior to the passage of H.R. 5366, standard casualty loss deductions were bound by two major deterrents:

1. The $100 Floor: Taxpayers could only deduct the portion of a loss that exceeded $100 per casualty event. This figure, unadjusted for inflation over many decades, offered negligible utility. H.R. 5366 raises this floor to $500.
2. The 10% AGI Threshold: Previously, a taxpayer’s total casualty losses had to exceed 10% of their adjusted gross income before any deduction could be claimed. For a family earning $80,000 a year, this meant absorbing the first $8,000 of uninsured property damage entirely out of pocket before receiving a single dollar of tax relief. By waiving this 10% AGI limitation for qualified disasters, H.R. 5366 opens the door for meaningful financial recovery.
3. Itemization Barriers: Historically, taxpayers had to itemize their deductions to claim casualty losses. Given that the Tax Cuts and Jobs Act significantly raised the standard deduction—resulting in the vast majority of Americans taking the standard deduction rather than itemizing—millions of disaster victims were effectively locked out of federal tax relief. H.R. 5366 solves this equity gap by allowing qualified disaster losses to be added directly on top of the standard deduction.

Official Responses and Stakeholder Perspectives

The accounting profession and legislative advocates have lauded the passage of H.R. 5366 as a major victory for tax equity and administrative efficiency, while simultaneously signaling that more work remains to be done.

AICPA Leadership Weighs In

Daniel Hauffe, AICPA senior manager of Tax Policy & Advocacy, articulated the organization’s perspective in a widely circulated news release celebrating the bill’s progression.

"This legislation has a broader impact beyond closing the gap in disaster relief dating back to 2025. By codifying these provisions into the IRC, Congress is providing clarity to and ensuring consistency for taxpayers affected by federally declared disasters," Hauffe stated.

Hauffe emphasized that the prospective nature of the bill marks a refreshing departure from historical norms. Rather than forcing victims to wait anxiously for retrospective relief legislation to wind its way through Capitol Hill long after the smoke has cleared or the floodwaters have receded, H.R. 5366 establishes clear rules of the road in advance.

However, Hauffe and the AICPA tax policy team were quick to temper their celebration with a persistent call to action. Because H.R. 5366 includes specific sunset dates—applying primarily to disasters occurring before January 1, 2027—it remains, in practice, a temporary fix on a long-term problem.

"Although the bill ensures that disaster-related tax relief is readily findable and predictable, we urge Congress to pursue permanent relief to provide long-term certainty and avoid future gaps in relief for affected taxpayers," Hauffe added.

Congressional and Bipartisan Alignment

The bill’s namesake, Representative Doug LaMalfa, along with a diverse coalition of lawmakers representing disaster-prone states, argued passionately throughout the legislative process that taxpayers should not have to navigate regulatory uncertainty while piecing their lives back together. The bipartisan vote totals in both the House and Senate underscore a growing legislative consensus that disaster relief must transcend partisan divides, ensuring that federal support is reliable, equitable, and delivered without unnecessary bureaucratic friction.

Implications for Taxpayers, CPAs, and the Future of Federal Policy

The enactment of H.R. 5366 carries wide-ranging implications for individual taxpayers, the Certified Public Accountant (CPA) community, and the broader trajectory of federal tax policy.

Impact on Individual Taxpayers

For everyday Americans living in regions vulnerable to natural disasters, this legislation provides an immediate psychological and financial cushion. Knowing that tax relief provisions are codified—and that they will not have to scramble to amend past returns or wait for emergency retroactive legislation—reduces one of the primary stressors associated with post-disaster recovery.

Furthermore, the ability to claim disaster losses without being forced to itemize, combined with the waiver of the 10% AGI limitation, means that lower- and middle-income families will finally have access to tangible tax savings when they need them most. The extension of wildfire relief exclusions through 2026 similarly prevents state and federal recovery grants from being clawed back via unexpected income tax liabilities.

Impact on Tax Professionals and CPAs

CPAs and tax practitioners play a critical frontline role when disasters strike. In the wake of major hurricanes or wildfires, clients frequently turn to their accountants asking how to document property losses, handle insurance payouts, and file amended returns.

For years, tax professionals faced an administrative nightmare trying to advise clients under constantly shifting, retroactive rules. When Congress passed tax relief packages months or years after an event, CPAs had to reopen completed returns, recalculate liabilities, and file mountains of paperwork.

By shifting to a prospective framework and embedding rules directly into the Internal Revenue Code, H.R. 5366 streamlines compliance. Tax professionals can now counsel clients with greater confidence, utilizing standardized guidelines that are clear, predictable, and permanently integrated into tax software systems.

The Roadmap to Permanent Reform

Despite these monumental improvements, the AICPA and allied professional organizations remain focused on the ultimate policy horizon: permanency.

As the expiration date of January 1, 2027, approaches for the provisions in H.R. 5366, tax advocates will return to Capitol Hill to push for permanent statutory changes. The overarching goal is to remove sunset clauses entirely, ensuring that every future generation of disaster victims is automatically protected by a robust, predictable, and equitable federal tax relief framework from day one.

As the president prepares to sign H.R. 5366 into law, the message from Washington and the accounting profession is clear: while the nation has taken a historic step toward modernizing disaster relief, the work of building a truly permanent safety net continues.