Disaster Survivors Tax Relief and Recovery Act

This bill provides tax relief for individuals and businesses affected by certain major disasters declared between January 1, 2025, and 60 days after enactment, with incident periods starting on or after December 28, 2024, and on or before enactment. It modifies rules for earned income credits, charitable contributions, retirement fund withdrawals and loans, personal casualty losses, wildfire compensation exclusion, and low-income housing credits.

Sec. 2, Temporary special rule for earned income: For a qualified individual whose 2025 earned income is less than the prior year, the child tax credit (section 24(d)) and earned income credit (section 32) may be computed using the prior year's earned income instead. A qualified individual's principal place of abode was in a qualified disaster zone or area and they were displaced.

Sec. 3, Temporary modification of charitable contribution limits: Cash contributions for relief in qualified disaster areas made from January 1, 2025, through 60 days after enactment are disregarded for certain percentage limits. For individuals, the deduction is limited to the excess of contribution base over other charitable contributions, with carryover. For corporations, the limit is 100% of taxable income, with carryover. The limit on food inventory contributions is increased from 15% to 25% for 2025.

Sec. 4, Special disaster-related rules for retirement funds: Allows tax-favored withdrawals (no 10% early distribution penalty) up to $100,000 per disaster for individuals in a qualified disaster area who sustained economic loss. Distributions can be repaid within 3 years. Income from the distribution is included ratably over 3 years unless the taxpayer elects otherwise. Recontributions are allowed for withdrawals intended for home purchase in a disaster area that were not used due to the disaster. Loan limits from qualified plans are increased to $100,000, and repayment due dates may be delayed for one year. Plan amendments to implement these rules must be made by the end of the first plan year beginning on or after January 1, 2027.

Sec. 5, Special rules for qualified disaster-related personal casualty losses: For individuals with a net disaster loss, the $100 floor per casualty is reduced to $500, the 10%-of-AGI threshold is applied only to non-disaster losses, the standard deduction is increased by the net disaster loss, and the alternative minimum tax adjustment for standard deduction does not apply to that increase.

Sec. 6, Extension of exclusion from gross income for wildfire compensation: Amends the Federal Disaster Tax Relief Act of 2023 to extend the exclusion for compensation for losses from certain wildfires from 2026 to 2036.

Sec. 7, Additional low-income housing credit allocations: For calendar years 2026 and 2027, each state's housing credit ceiling is increased by amounts allocated to buildings in qualified disaster zones, limited to $8.25 per state resident. The placed-in-service deadline for such credits is extended by one year.

Sec. 8, Definitions: Defines "qualified disaster area" as an area with a major disaster declared under the Stafford Act between January 1, 2025, and 60 days after enactment, with incident period starting on or after December 28, 2024, and on or before enactment. "Qualified disaster zone" is the portion of that area determined to warrant individual or public assistance. "Qualified disaster" is the disaster for which the declaration was made. "Incident period" is the period specified by FEMA, not ending after 30 days after enactment.