Thousands of survivors of Eaton fire 2025 In Altadena, California, they chose to accept a settlement offered by the facility accused of causing it, forgoing future lawsuits to get a quicker payment that could help them rebuild or move.
But unless a bill that passes through Congress becomes law, that money could be taxed as income, taking large chunks of their payments and potentially depriving them of other government benefits.
“There was terrifying disbelief,” said Bree Jensen, communications director for the Eaton Fire Long-Term Recovery Group, while informing his fellow residents of the tax.
Thousands of others suing utilities face the same prospect, in addition to fire survivors Colorado, Hawaii and Oregon After the tax break on wildfire-related compensation expires at the end of 2025.
In recent years, Congress has shielded wildfire settlements from taxes, but legislation to do so has been short-lived and difficult to pass, leaving gaps between laws that risk burdening some survivors with a potential tax burden on their compensation. A bipartisan House bill to extend the tax break passed out of committee last month, but the timeline for it to come up for a vote and when the Senate will take up the measure is unknown, leaving survivors in a financial bind.
“We have to assume we don’t have that money, so we make decisions, choose cheaper materials, and ditch solar,” said one Altadena homeowner, who spoke on the condition of anonymity because she feared compromising her expected settlement of about $700,000. If this money is counted as income, she expects taxes to reach 37%.
The homeowner had hoped accepting the settlement would bring her family home faster, after she, her husband and their four pets spent more than a year moving between relatives’ homes and rentals.
“All we wanted was to rebuild a comfortable home and get out of the situation we were in,” she said, adding that construction costs alone were estimated at about $1 million.
While the survivors watch the legislators fight Iran war and Record Department of Homeland Security shutdownSome fear that the priority for extending tax relief in disaster situations will be revoked.
“People have low expectations about actually getting anything done,” said Gene Couch, a survivor of the 2021 Marshall Fire and a city council member in Superior, Colorado.
Utility equipment is believed to have sparked some of the deadliest and most destructive fires in recent years. Billion dollar settlements They become common after these fires but take years to resolve.
As construction costs rise and insurance becomes more expensive and difficult to secure, compensation for lawsuits has become a critical element in determining the number of families starting over.
“It’s the difference between rebuilding cities and not rebuilding them, quite frankly,” said attorney Doug Boxer, who has represented more than 17,000 Californians in cases against utilities and is part of the L.A. Fire Justice coalition that is suing Southern California Edison and its parent company, Edison International, on behalf of more than 2,000 clients.
SCE and Edison International They admitted that their power equipment may have started the Eaton fireWhich destroyed 9,000 buildings and killed 19 people. Last year, the company announced a compensation program for those affected, promising quick payouts based on the value of a person’s losses, plus an additional bonus for not joining the lawsuit against the company.
More than 2,800 families applied for the compensation program. Thousands more are joining lawsuits against the company. The investigation into the cause of the Eaton fire is ongoing.
Jensen, whose home also burned, said families can’t afford to lose part of their tax payments. “It sounds like a lot of money, but not in terms of how much it actually costs to build in the community.”
Payments related to federally declared wildfire disasters from 2015 through 2026 will not count toward taxable income, according to The legislation was approved unanimously By the House Ways and Means Committee last month. This applies to payments received in 2026 and later.
The measure would extend the expanded federal disaster property loss tax credit through this year, a provision that has helped attract bipartisan support from lawmakers representing states vulnerable to hurricanes and other severe weather.
Florida Rep. Greg Steube – Republican championed the 2024 tax relief bill and introduced its successor with fellow Republican Rep. Doug LaMalfaThe now-deceased Democratic lawmaker, along with Democratic Reps. Mike Thompson and Jimmy Panetta of California, told the Associated Press that he expected the legislation to eventually pass, but acknowledged that “the exact timeline remains uncertain.”
Steube, whose constituents in Southwest Florida can take advantage of a personal injury loss deduction, pledged to push the law forward.
Two similar bills have been introduced in the Senate, but no further action has been taken.
Having lobbied for past and current bills as executive director of the survivor advocacy nonprofit After The Fire, Jennifer Gray Thompson said she believes lawmakers understand the partisan nature of the disaster tax credit.
“As these disasters occur in quick succession, we will have to adapt at all levels, and our tax code will have to adapt,” she said.
However, Gray-Thompson said she could not be sure when action would be taken.
Maui residents face similar challenges as they wait for payment from a $4 billion settlement with Hawaiian Electric. Only about 180 homes were rebuilt in Lahaina out of 2,200 structures destroyed.
What Lahaina survivors need most is “certainty,” Maui County Sheriff Richard Bessen wrote to lawmakers in a letter supporting the tax break.
While the majority of destroyed homes in Superior have been rebuilt, Kawash, the city council member, said most survivors are still catching up financially after finding themselves underinsured.
She also worries that her constituents could be denied income-qualifying government benefits for food, health care or veterans support if their wildfire payments are counted as income.
“This has second- and third-order impacts on their lives that will harm them,” Kawash said.
While survivors waiting for relief can defer taxes or amend past returns, resolving issues related to government programs, such as qualifying for college financial aid, is much more difficult, Gray Thompson warned. “There’s no way to undo it,” she said.
Meanwhile, many in Altadena feel they are constantly facing new obstacles in returning home, said another resident who also lost his home and insisted on remaining anonymous due to ongoing lawsuits.
He said imposing taxes “would actually add more pain and suffering to us.”