GOP tax bill would end deduction for wildfire and earthquake victims — but not recent hurricane victims

The House Republican tax bill would eliminate the deduction for personal losses from wildfires, earthquakes and other natural disasters, but keep the break for victims of the recent severe hurricanes.

If the bill becomes law, the deduction would disappear next year, but would be available for victims of the massive wildfires that struck Northern California last month - as long as they can figure out their uninsured losses and include them on their 2017 tax return.

The legislation specifically repeals the deduction for personal casualty losses. The Internal Revenue Service describes casualty losses as including those from “natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.”

In the case of a major disaster, Congress still would be able to pass special legislation offering tax breaks for victims, as it has done in the past.

But such bills would be difficult to pass for smaller scale incidents that still are devastating to the victims, said Rep. Brad Sherman (D-Porter Ranch).

“Let's say your home burns down and it isn't a disaster that CNN covers,” he said. “You're affected the same way, whether it's nine of your neighbors or 900 of your neighbors that lose homes.”

Rep. Mike Thompson (D-St. Helena) called the elimination of the deduction “cruel” and “heartless.”

“There's never been a fire like this in our country,” Thompson said of the Northern California wildfires.

“Do you really think that we're going to be able to go in, assess all of the costs, get everything cleaned up, figure out where people are going to stand in time to do their taxes?” Thompson told colleagues on the House Ways and Means Committee on Monday night as they began debating the legislation. “It's not going to happen.”

Rep. Tom Rice (R-S.C) said California residents could file amended 2017 returns later. And Rep. Kevin Brady (R-Texas), the committee's chairman, said he planned to introduce legislation within the next month offering special tax relief for wildfire victims.

But Thompson and some California officials are concerned that killing the deduction would hurt people in the state.

“Eliminating the deduction will place even greater strain on residents of our region at a time when our county is most in need of assistance,” Shirlee Zane, chair of the Sonoma County Board of Supervisors, wrote to Thompson.

The Northern California wildfires last month destroyed nearly 8,800 structures and killed 43 people, she said.

Even more frustrating to some California officials is the decision by Brady to grandfather in losses from hurricanes Harvey, Irma and Maria. Brady's district is just north of Houston, which was severely damaged by Hurricane Harvey.

Santa Rosa Mayor Chris Coursey said that move “smacks of political favoritism.”

“Please, let's not play politics with families who are suffering the very real impacts and challenges of recovering from this fire disaster,” Coursey wrote to Thompson in urging him to fight the tax change.

The deduction for personal casualty losses is one of many individual breaks that would be eliminated in the House Republican tax bill in an effort to streamline the tax code and produce more revenue to help offset cuts to corporate, business and individual rates.

The deduction covers “losses arising from fire, storm, shipwreck or other casualty, or from theft,” according to a summary of the bill, which was unveiled last week.

The legislation would continue the special disaster relief tax breaks included in legislation in September aimed at victims of hurricanes Harvey, Irma and Maria.

That bill, signed into law by President Trump, expanded the personal casualty deduction for those disasters. It waived the requirements that taxpayers itemize their returns and that losses must exceed 10% of adjusted gross income.

“So the folks in Texas who lost their homes in a hurricane, you take care of them,” Thompson told Brady.

“But anybody else who gets a disaster, the 9,000 people in California … most of which are in my district, who just lost their homes to the worst fires we've ever seen, you'd take away the ability to benefit from the tax code,” Thompson said. “Why would you have done that?”

Brady said he hoped to pass a special disaster relief bill similar to the one for the hurricanes that would allow last month's California wildfire victims to claim losses even if they don't itemize their deductions.

“If you'd like to work together to provide relief not just for those who itemize but [for] those who do not in those wildfires then let's work together,” Brady told Thompson. Thompson said he would work with Brady on that legislation.

Sherman, whose district was hit by the Northridge earthquake in 1994, said the tax bill change would leave Americans dependent on congressional action in the case of a disaster. Such special legislation to allow personal loss deductions would add to the cost of disaster aid bills and might mean less federal funding for other recovery assistance, he said.

“Imagine if, God forbid, we have an earthquake and the California delegation is back here trying to fight simultaneously for disaster relief to rebuild infrastructure on the one hand and fair treatment of individuals on the other,” he said. “If we have to fight two battles, we might only win one.”

jim.puzzanghera@latimes.com