Wildfire Tax Relief Extended for LA Fire Rebuilds

If you are rebuilding after the 2025 Los Angeles fires, here is one less thing to think about. The U.S. Senate passed a bill August 7, 2026 that keeps insurance settlement money on the 2025 LA fires out of federal taxable income. The bill passed unanimously and now heads to the President’s desk.

It is called the Protect Innocent Victims of Taxation After Fire Extension Act, folded into a larger bill called the Doug LaMalfa Federal Disaster Tax Relief Certainty Act. The relevant part: any compensation you receive for losses and damages from a federally declared wildfire before January 1, 2027 is not taxable. That covers the 2025 LA fires.

The 2024 law did the same thing, but it expired at the end of 2025. The new bill also lets you claim the exemption in the year you actually receive the payment. If you got a payment in 2024 and reported it as taxable income, you can amend your return for a refund. Talk to your tax preparer about it.

We are not tax attorneys, and this is not tax advice. What we can tell you is that we create grading plans in Altadena and grading plans in Pacific Palisades every week, and the topic of insurance settlement taxes comes up with homeowners mid-rebuild. The answer through the end of 2026 is no. That means settlement money can go into the rebuild.

Senator Padilla’s office has the full press release on the bill. When the President signs, the effective date and any final language changes will be in the final statute. We will update this post if anything material changes.

In the meantime, if you are early in your rebuild, the grading and drainage plans we create for hillside fire rebuilds in Altadena and Pacific Palisades is a good starting point. We work through LA on these rebuilds every week, and getting the grading and drainage plans right early is what makes the rest of the rebuild move faster.