S. 496 — Wildfire Victim Tax Relief and Recovery Act

This section treats Texas Panhandle fire payments as qualified disaster relief payments under section 139(b) of the Internal Revenue Code of 1986, excluding them from gross income. (As background, IRC §139 excludes such payments—typically made by governments or specified entities after a declared disaster—from recipients' taxable income.) Texas Panhandle fire payments are amounts received by or on behalf of an individual as compensation for losses, damages, expenses, real property value loss, closing costs (including realtor commissions), or inconvenience (including access to real property) resulting from any of the following wildfires: (1) Smokehouse Creek Fire (Hutchinson County, ignited February 26, 2024); (2) Windy Deuce Fire (Moore County, ignited February 26, 2024); (3) Grape Vine Creek Fire (Gray County, ignited February 26, 2024); (4) 687 Reamer Fire (Hutchinson County, ignited February 27, 2024); or (5) Roughneck Fire (Hutchinson County, ignited March 3, 2024)—if provided by a federal, state, or local government agency; Xcel Energy; or any subsidiary, insurer, agent, or related person of Xcel Energy. The provision applies to amounts received on or after February 26, 2024.

This section expands involuntary conversion treatment under Section 1033(e) of the Internal Revenue Code to include livestock sold due to fire (previously limited to drought, flood, or other weather-related conditions or disease), permits an extended four-year replacement period for such sales (previously two years), and allows replacement of such livestock with other property under Section 1033(f). (Thus, taxpayers may defer gain recognition by timely reinvesting sale proceeds in qualifying replacement property.) The amendments apply to taxable years beginning after December 31, 2023.

This section expands the special income deferral rule under Section 451(g) of the Internal Revenue Code to include livestock sales on account of fire (previously limited to drought, flood, or other weather-related conditions causing a disaster area designation), for taxable years beginning after December 31, 2023. (Thus, eligible taxpayers treat such proceeds as received in the following taxable year; the section also makes a conforming change to the subsection heading.)