26 U.S.C. § 139 — Disaster relief payments

This section keeps certain disaster-relief payments out of your taxable income. (a) General rule. If you receive a "qualified disaster relief payment," it is not counted as gross income. (b) Qualified disaster relief payment defined. This term covers four kinds of payments: (1) money to cover reasonable personal, family, living, or funeral costs caused by a qualified disaster; (2) money to repair or replace your home or its contents because of a qualified disaster; (3) payments from a common carrier (like an airline) because of a death or physical injury from a qualified disaster; and (4) payments from a federal, state, or local government for the general welfare in connection with a qualified disaster. In every case, the payment only counts as tax-free to the extent the expense it covers was not already paid by insurance or something else. (c) Qualified disaster defined. A "qualified disaster" is: (1) a disaster from a terrorist or military action; (2) a disaster officially declared by the federal government; (3) a disaster from a common-carrier accident, or any other event the Secretary decides is catastrophic; or (4) for government general-welfare payments under (b)(4), a disaster that a federal, state, or local authority decides deserves assistance. (d) Coordination with employment taxes. These disaster payments, and the disaster mitigation payments described in subsection (g), do not count as self-employment earnings, wages, or other compensation for payroll tax purposes. (e) No relief for certain individuals. The tax-free treatment in subsections (a), (f), and (g) does not apply to anyone the Attorney General identifies as having taken part in or conspired in a terrorist action, or to that person's representative. (f) Exclusion of certain additional payments. Payments received under section 406 of the Air Transportation Safety and System Stabilization Act are also not counted as gross income. (g) Qualified disaster mitigation payments. (1) These payments — money paid to a property owner under the Stafford Act or the National Flood Insurance Act to reduce future hazard damage to that property — are not counted as gross income. (2) This does not include money received from selling or otherwise disposing of the property. (3) Excluding this money from your income does not increase the property's basis (its value for tax purposes) at all. (h) Denial of double benefit. If a payment under this section is excluded from someone's income, that same person cannot also claim a deduction or credit for the expenses that payment covered.