Biden Signs Federal Disaster Tax Relief Act of 2023 and VETT Act to Provide Targeted Tax Relief for Disaster Victims and Veterans

3 minutes

President Joe Biden (D) has signed two significant tax relief measures aimed at supporting disaster victims and veterans. The Federal Disaster Tax Relief Act of 2023 (H.R. 5863) will provide tax relief to individuals affected by federally declared disasters, with specific provisions for wildfire victims and those affected by the East Palestine train derailment. Meanwhile, the VSO Equal Tax Treatment Act (VETT Act, H.R. 1432) expands the deductibility of charitable contributions to federally chartered veterans' service organizations (VSO), ensuring these groups receive equitable tax treatment.

Report from our correspondent Jannica Santos, Attorney

person writing on paper

Federal Disaster Tax Relief Act of 2023

H.R. 5863 will extend disaster-related personal casualty loss provisions originally established in the Taxpayer Certainty and Disaster Tax Relief Act of 2020. H.R. 5863 ensures that taxpayers impacted by federally declared disasters can claim deductions for unreimbursed personal property losses attributable to such events.

H.R. 5863 will also exclude qualified wildfire relief payments from gross income under the Internal Revenue Code (IRC). The exclusion applies to payments compensating individuals for expenses, damages, or losses incurred due to federally declared wildfire disasters after 31 December 2014. Compensation can include amounts for additional living expenses, lost wages (excluding employer-paid wages), personal injury, emotional distress, and other damages, provided these are not covered by insurance or other sources. To prevent double benefits, however, H.R. 5863 disallows deductions or credits for expense covered by a wildfire relief payment that is excluded from a taxpayer's taxable income. In addition, taxpayers cannot increase the value (basis) of any property because of a wildfire relief payment that is excluded from the taxpayer's taxable income. The exclusion applies to payments received for taxable years beginning after 31 December 2019 and before 1 January 2026. H.R. 5863 also extends the statute of limitations for claims related to wildfire relief exclusions, allowing affected taxpayers one additional year from the enactment date to file claims for refunds.

Moreover, H.R. 5863 provides targeted relief to individuals impacted by the East Palestine train derailment, which occurred on 3 February 2023, in East Palestine, Ohio. Under H.R. 5863, payments associated with the derailment will qualify as disaster relief payments under section 139(b) of the IRC. This includes compensation for:

  • damages and losses, including loss of real property value;
  • expenses, such as closing costs and realtor commissions; and
  • inconveniences, including limited access to real property.

To qualify, the payment must come from:

  1. a federal, state or local agency;
  2. Norfolk Southern Railway; or
  3. any subsidiary, insurer, or agent of Norfolk Southern Railway or any related person.

The provision applies retroactively to payments received on or after 3 February 2023.

VSO Equal Tax Treatment Act (VETT Act)

H.R. 1432 allows taxpayers to deduct charitable contributions made to certain federally chartered veterans' service organizations (VSOs) under IRC section 501(c)(19).

More specifically, it expands the definition of deductible charitable contributions to include donations to federally chartered VSOs. Under prior law, while contributions to many nonprofit organizations were deductible, federally chartered VSOs did not receive the same treatment.

H.R. 1432 also amends the percentage limitations under IRC section 170(b)(1)(A) to include federally chartered VSOs, aligning them with the deduction rules for other qualified charities. The changes apply to taxable years beginning after the enactment of the Act on 12 December 2024.

President Biden signed both bills on 12 December 2024 (12 December 2024 News Release).