HR 5863:
The Political Fight.
By Adam Libman, CRTP · California Registered Tax Preparer · 25 years in tax controversy
A law on the books — HR 5863, the Federal Disaster Tax Relief Act — can exclude your entire Edison settlement from federal income tax, but under current law payments had to be received by December 31, 2025; most Eaton Fire survivors will not receive their settlement until 2027 or later. Whether Congress extends the deadline, and whether California conforms, will determine whether thousands of fire families owe a third or more of their settlement to governments that didn't help them put out the fire. This post is for every Eaton Fire survivor with an active Edison claim who needs to understand the legislative fight — and what to do about it right now.
Read all 15 posts in this series → Every Eaton Fire tax issue mapped in one place — with the unique angle each post takes.
However, the FDTRA wildfire payment exclusion expired December 31, 2025. Edison payments received in 2025 may qualify for the FDTRA exclusion. Payments received in 2026 and later do not — under current law, those payments are federally taxable unless §104 (physical injury) or §1033 (total loss deferral) applies.
The One Big Beautiful Bill Act (OBBBA, Pub. L. 119-21, July 4, 2025) followed FDTRA and added the Qualified Disaster Loss designation for the Eaton Fire, eliminating the federal 10% AGI floor on casualty losses. California has not conformed to either law.
2025 payments: FDTRA exclusion may apply — analyze alongside §104 and §1033.
2026+ payments: FDTRA exclusion unavailable. Federal taxability depends entirely on §104 (physical injury allocation) and §1033 (total loss deferral). California payments remain excluded under R&TC §17138.7 through 2029.
The settlement timing decision now has a federal tax dimension it didn't have before. Clients who can settle in 2025 have one more federal tool available. Clients settling in 2026 are working with a shorter federal toolkit — but California is still fully excluded.
These numbers are devastating to you. To us, this is what we do every day.
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Book an Eaton Fire Tax ConsultMy parents' house in Sierra Madre came close to being a total loss. They made it through — smoke damage, mandatory evacuation, weeks of uncertainty — but the more than twenty Eaton Fire families I know personally were not all as fortunate. Many of them lost everything. And right now, in the middle of trying to rebuild their lives, they are facing the question of how much of their Edison settlement they will owe in taxes. Two significant laws have now been enacted. The Federal Disaster Tax Relief Act (FDTRA, Pub. L. 118-148) was signed December 12, 2024 — this is the enacted version of HR 5863. The One Big Beautiful Bill Act (OBBBA, Pub. L. 119-21) followed on July 4, 2025. Together these laws provide meaningful federal relief — but with a critical limitation that most Eaton Fire survivors will face. And separately, California enacted its own wildfire settlement exclusion (R&TC §17138.7) that in some ways goes further than either federal law. This post has been updated to reflect current enacted law. The short version: the federal FDTRA exclusion expired December 31, 2025 — most Eaton Fire survivors who settle in 2026 or later cannot use it. California's exclusion under SB 159 remains in place through 2029 and covers the entire qualifying settlement amount. Is My Edison Wildfire Settlement Taxable Income? The answer now depends on whether you are asking about federal tax or California tax — they run on separate tracks. Federal: Under IRC §61, a payment from a third party compensating you for a loss is generally gross income. The FDTRA created a federal exclusion for qualifying wildfire payments — but it expired December 31, 2025. For Edison payments received in 2026 and later, the federal exclusion is unavailable under current law. Federal taxability depends on §104 (physical injury allocation) and §1033 (total loss deferral). California: R&TC §17138.7 (enacted by SB 132 and SB 159 in 2025) excludes qualifying wildfire settlement amounts from California gross income through 2029. This exclusion covers the entire settlement — no allocation required. For California filers, California tax on a qualifying Edison settlement is zero regardless of federal treatment.
The 2025 Payment Window
For clients who received Edison payments in 2025, both the FDTRA and the California exclusion may apply simultaneously. FDTRA handles federal; §17138.7 handles California. No double-benefit rule prevents their concurrent use on different tax systems.The 2026+ Reality
The FDTRA deadline has passed. For Edison payments received in 2026 or later, the federal toolkit is: §104 (physical injury — permanent exclusion, requires allocation in agreement), §1033 (total loss deferral, requires reinvestment in replacement property), and open transaction planning for the return year. California remains fully excluded under §17138.7 through 2029. What QualifiesThird-Party Utility Payments — Not Insurance, Not Land Sales
The HR 5863 exclusion covers payments from entities liable for causing the disaster — utility companies. Your homeowner's insurance proceeds are handled under separate §1033 rules. A future land sale is a capital gain event. Only the Edison-sourced payment qualifies for the HR 5863 exclusion, and it must be properly characterized and documented to survive scrutiny.
The families I know personally from Sierra Madre and Altadena didn't cause the fire. They didn't choose to be in a federally declared disaster. And the settlement they're waiting for — already inadequate to make them whole — shouldn't be cut by a third before they can use it to rebuild. That's not a political position. That's math.
Why hire Adam — not just read the blog:
✓ I stress-test your assumptions
✓ I file the return correctly
✓ I tell you which lane you're actually in
✓ I bridge your tax & legal strategy
And if the IRS ever questions it — audit representation is included. I back up what I put in writing.
Book an Eaton Fire Tax ConsultDoes HR 5863 Apply to the Eaton Fire Edison Settlement?
The Eaton Fire qualifies as a federally declared disaster — that threshold is met. The Edison liability fits the "third-party tortfeasor" definition the law contemplates. The structure of the exclusion applies to this situation.
What doesn't apply — yet — is the payment timeline. Here's where the legislation stands as of March 2026:
| Legislative Path | Status (March 2026) | What It Would Do |
|---|---|---|
| Current HR 5863 law | Enacted | Excludes qualifying payments received by December 31, 2025 |
| Federal extension to Dec 31, 2030 | Proposed, not enacted | Would cover Eaton Fire Edison settlements distributed in 2027–2030 |
| California conformity to federal extension | Not yet determined | Would exclude the same payments from CA state income — saves another 9.3–13.3% |
| California standalone exclusion | Not proposed as of writing | Would provide CA relief independent of federal action |
What Is the Payment Deadline for the HR 5863 Wildfire Tax Exclusion?
Under current law: December 31, 2025. Under the proposed extension that has not yet been enacted: December 31, 2030.
The federal political environment for getting this extension passed is genuinely difficult. The current congressional majority is focused on extending the 2017 Tax Cuts and Jobs Act provisions. Any new tax relief needs a budget offset or must be included in a reconciliation package. California's congressional delegation will fight hard for this — but the delegation's political influence with the current Republican majority is limited.
What could move the needle: Republican members from fire-affected districts (not just California) and constituent pressure that makes the issue politically costly to ignore. The legislative aides who staff House Ways and Means Committee members and Senate Finance Committee members are the people who actually put items on legislative agendas. They respond to organized constituent volume, not individual letters that get routed to form-response queues.
Sacramento is a separate, equally complicated story. The California Democratic supermajority controls whether California conforms to an extended federal exclusion or enacts its own. Here's the tension they haven't resolved publicly: a statewide Edison settlement of $10–15 billion distributed to California households generates roughly $1–2 billion in California income tax at top bracket rates. That revenue is not trivial for a state that runs structural deficits. Sacramento Democrats say they support fire survivors. Sacramento budget writers need the money. Those two things are in direct conflict, and the governor knows that news stories about fire families writing $200,000 checks to Sacramento is politically toxic — but the revenue conversation happens in rooms that are harder to observe.
Do not assume California conformity until it is enacted law. Do not file your return claiming an exclusion that does not yet exist.
Who Should I Contact in Congress to Extend Wildfire Tax Relief?
The most effective contacts are not the members themselves — it's their legislative aides. An aide who covers tax policy on the House Ways and Means Committee or Senate Finance Committee is the person whose job it is to flag constituent priorities and move them onto legislative agendas. Here's how to do this effectively:
Call the District Office, Ask for the Tax Policy or Constituent Services Aide
If you're in the Altadena/Pasadena area, you're in California's 27th or 28th Congressional District. Call the district office (not Washington D.C.). Say: "I am an Eaton Fire survivor. HR 5863 has a December 2025 payment deadline that excludes my Edison settlement. I am asking [Member] to support extending the deadline to 2030 in any upcoming tax legislation." Reference HR 5863 by name and number. Ask for a callback confirmation.
Senate Finance Committee Member — Highest Priority Federal Contact
Senator Alex Padilla sits on the Senate Finance Committee — the committee of jurisdiction for all tax legislation. His Los Angeles regional office handles constituent contacts. Call and deliver the same message: Eaton Fire survivor, HR 5863, December 2025 deadline problem, request extension to 2030. Volume of calls from fire-affected constituents gets reported directly to D.C. staff as a priority item.
Find Your Assembly Member and State Senator at findyourrep.legislature.ca.gov
Call the district office. Ask for the tax or constituent services aide. Tell them: you are an Eaton Fire survivor, California currently has no protection for Edison settlement income, and you need California to either conform to an extended federal HR 5863 exclusion or enact its own wildfire settlement income exclusion. Be specific that the revenue consequence — potentially $200,000+ in state tax on a settlement that doesn't make you whole — is not acceptable.
Connect With Organized Eaton Fire Survivor Groups
Individual calls matter. Organized constituent campaigns on the same day matter more. The Eaton Fire survivor community has developed real advocacy infrastructure. Connect with recovery groups tracking this legislation. A hundred calls to a district office in one week from a single zip code creates a constituent priority flag that a dozen scattered calls over six months never generates.
Frequently Asked Questions
The blog teaches you the map.
I tell you where the landmines actually are on your map.
Reading every post here is free and you should do it. But here is what the blog cannot do for you:
Stress-test your specific assumptions. The frameworks in these posts are clean. Your situation is not. I ask the questions you don't know to ask — about your basis, your insurance allocation, your Edison timeline, your attorney's settlement language — and find the assumptions that are wrong before the IRS does.
Tell you which lane you're actually in. The five lanes look clean on paper. In real life, the facts are always messier. I've worked through 20+ Eaton Fire situations. Pattern recognition matters when a wrong lane assignment can cost you $100,000.
File the return correctly. Knowing what should go on your return and knowing how to prepare it are two different things. I prepare the return, draft the election language with your actual numbers, and make sure the IRS sees exactly what you intend them to see — not an approximation of it.
Coordinate your tax strategy with your legal strategy. Your Edison attorney is negotiating the settlement. Your insurance attorney is working the claim. Neither of them is thinking about your tax position. I bridge that gap — before you sign anything that locks in a bad outcome.
Stand behind the work if the IRS comes knocking. Audit representation is included in your fee. I back up what I put in writing. I've been doing this for 25 years and I'm not going anywhere. If we file it together and the IRS questions it, I'm in the room with you — not sending you back to figure it out alone.
25 years in tax controversy. 100,000+ returns. IRS, FTB, and CDTFA matters. Adam Libman is a California Registered Tax Preparer (CRTP) — not a CPA, EA, or attorney.
The tax side of this doesn't have to be one more thing that breaks you.
These numbers are emotional for you. For us, this is the work. We've sat across from 20+ Eaton Fire families, run the math, figured out the lane, and filed the return correctly. We make this manageable.
✓ Stress-test your assumptions
✓ Know which lane you're actually in
✓ File the return correctly
✓ Bridge your tax & legal strategy
🛡 Audit representation included. I back up what I put in writing. I've been doing this 25 years and I'm not going anywhere.
Book an Eaton Fire Tax ConsultAdam Libman is a California Registered Tax Preparer (CRTP) — not a CPA, EA, or attorney. Nothing here is legal advice.
Eaton Fire Tax Series
START HERE
Eaton Fire Taxes: Start Here — Five Lanes, Two Decisions
TIMING
Don't Rush to Deduct the Casualty Loss
THE TRAP
The Deemed Election Trap: Gain You Never Reported
FOUNDATION
What's Taxable, What's Not — Insurance vs. Edison
SERVICE
Fractional CFO for Trade Contractors
ALL POSTS
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