- President Trump signed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act on September 11, 2026.
- The law lets qualified wildfire relief payments for Eaton Fire survivors stay outside federal gross income.
- Eaton recovery compensation has exceeded 410 million dollars, and taxpayers should keep records of covered losses.
President Donald Trump signed H.R. 5366 on September 11, 2026, giving the Doug LaMalfa Federal Disaster Tax Relief Certainty Act a new effect for Eaton-related wildfire compensation. The law lets eligible payments stay outside federal gross income under the statute’s requirements.
The change reaches payments received in 2026 or later. That includes compensation connected to the Eaton Fire, which occurred in January 2025 and affected communities including Altadena and Pasadena.
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The earlier wildfire tax exclusion expired on December 31, 2025. The new measure addresses payments that arrive after that date, provided they meet the law’s conditions.
Rep. Judy Chu described the legislation as “a major victory” and said it would help survivors keep more of their compensation for rebuilding.
The exclusion covers several kinds of wildfire compensation
The law applies to qualified wildfire relief payments linked to federally declared wildfire disasters. It covers more than damage to a house.
Eligible compensation can involve real property loss or damage, personal property loss or damage, additional living expenses, lost wages, personal injury, death and emotional distress. The amounts must not have been compensated by insurance or another source.
That framework can include certain settlement payments. The payment must still fit the statutory categories and other requirements.
The rule does not turn every wildfire-related payment into tax-free income. Its treatment depends on what the compensation represents and whether another source already covered the loss.
Payments received after 2025 can still fall within the new rule
The law applies to payments received in taxable years beginning after December 31, 2025. It also covers qualifying payments tied to federally declared wildfire disasters before January 1, 2027.
| Provision | Date or threshold | Effect |
|---|---|---|
| Earlier wildfire exclusion | December 31, 2025 | The prior exclusion expired |
| New payment rule | Taxable years beginning after December 31, 2025 | Eligible compensation can remain outside federal gross income |
| Covered disaster period | Before January 1, 2027 | The payment must relate to a qualifying federally declared wildfire disaster |
The timing allows an eligible settlement to retain the exclusion even when payment comes after the previous deadline. The law’s language also extends beyond one payment program or one form of compensation.
As of September 2026, the new rule is part of a broader disaster-tax measure rather than a standalone provision limited to the Eaton Fire.
Separate disaster-loss rules reach back to tax years after 2024
H.R. 5366 also extends provisions for certain casualty losses and disaster-related deductions. Those provisions apply to taxable years beginning after December 31, 2024.
For qualified disaster losses, the law removes the 10% of adjusted gross income floor through the end of 2026. It also increases the per-event threshold from $100 to $500.
Those deductions operate separately from the gross-income exclusion for settlement payments. A compensation payment and a casualty-loss deduction therefore require different tax analysis.
The measure passed the House on April 27, 2026, before clearing the Senate on August 7, 2026. The House sponsors included Rep. Greg Steube, Rep. Mike Thompson and Rep. Jimmy Panetta.
Sen. Adam Schiff and Sen. Rick Scott sponsored the Senate version. The law carries Rep. Doug LaMalfa’s name.
The Eaton recovery program has paid more than $410 million
Southern California Edison’s Wildfire Recovery Compensation Program has been part of the recovery effort following the January 2025 fire. The company said its compensation payments had exceeded $410 million.
The program’s payments form part of the wider settlement and recovery activity involving people in Altadena and Pasadena. The new federal rule addresses how qualifying compensation is treated for federal income-tax purposes.
The American Institute of CPAs praised the measure’s bipartisan support and urged Congress to make disaster tax relief permanent. The enacted law instead sets specific eligibility rules and dates.
The cutoff for covered federally declared wildfire disasters is before January 1, 2027. Compensation tied to a qualifying disaster must also satisfy the law’s categories and exclusions.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
