The tax burden comes at a critical moment for wildfire survivors across the country. With utility settlements becoming essential to rebuilding efforts — particularly as insurance becomes more expensive and difficult to secure — the uncertainty over taxation is delaying reconstruction decisions from Altadena to Hawaii to Colorado.
Thousands of survivors from the 2025 Eaton Fire in Altadena, California, who accepted settlement payments from the utility accused of sparking the disaster now face federal tax bills that could consume significant portions of their funds. Unless Congress passes pending legislation, the survivors could lose tens of thousands of dollars to taxes, at a time when construction costs have soared and many are struggling with insurance complications.
The rebuilding calculation
The tax exemption that had sheltered wildfire survivors from this burden expired at the end of 2025. A bipartisan House bill to restore it passed committee, but the timeline for a floor vote remains uncertain, keeping survivors in limbo over the cost of their own recovery.
“We have to assume we don’t have that money, so we’re making decisions, choosing cheaper materials, forgoing the solar,” said one Altadena homeowner, who spoke on the condition of anonymity because of ongoing litigation. The woman expects a $700,000 settlement but projects that taxes could consume 37% of it — a reduction of more than a quarter-million dollars. She is scaling back her rebuilding plans as a result.
The scope of the damage
The 2025 Eaton Fire destroyed 9,000 structures and killed 19 people, according to Southern California Edison and its parent company, Edison International, which acknowledged their power equipment may have sparked the blaze. The utility has offered a compensation program for affected residents, and more than 2,800 households have applied.
Thousands more are pursuing lawsuits rather than accepting the utility’s fast-payout option. All face the same tax exposure unless Congress acts.
“It sounds like a lot of money, but not in regards to how expensive it is to actually build in the community,” said Bree Jensen, communications director for the Eaton Fire Long-Term Recovery Group. Her own home burned in the fire.
Construction costs for a single home in Altadena now exceed $1 million, survivors report. Settlement payouts, while substantial, leave families scrambling to close the gap between what insurance covers and actual rebuilding expenses. A tax hit would force many to defer reconstruction indefinitely.
The legislative path
The House Ways and Means Committee unanimously approved a bipartisan bill that would shield payments from federal wildfire disasters occurring between 2015 and 2026, with coverage applying to payouts received in 2026 and after. The measure would also extend broader tax relief for property losses from federally declared disasters through 2026 — a provision that attracted support from lawmakers in hurricane-prone states as well as wildfire states.
Rep. Greg Steube of Florida, who championed the bill, said he expects it to ultimately pass but acknowledged that the exact timeline remains uncertain.
Two similar bills have been introduced in the Senate, though further action has not been taken.
A multi-state crisis
The problem extends far beyond Altadena. Survivors in Colorado, Hawaii, and Oregon face identical risks. A $4 billion settlement with Hawaiian Electric Company is expected to begin flowing to Maui residents, but in Lahaina, only about 180 homes have been rebuilt out of 2,200 structures destroyed — a reconstruction pace that will slow further if settlements are taxed.
“Certainty” is what Maui County Mayor Richard Bissen said his constituents need most in a letter to lawmakers supporting tax relief.
Jenn Kaaoush, a survivor of the 2021 Marshall Fire and a town council member in Superior, Colorado, raised broader concerns about taxation. “This has second- and third-order impacts on their life that will do harm,” she said. Taxed payments could disqualify families from income-qualified government benefits for food assistance, health care, and veterans’ support.
Jennifer Gray Thompson, who leads the nonprofit After The Fire and has lobbied for disaster tax relief, cautioned that the problem extends deeper than simple tax reduction. “There’s no way to undo” complications arising from qualified government programs if settlements are counted as income, she said. “You can defer taxes or amend past returns. You can’t fix your college financial aid eligibility after the fact.”
As construction timelines stretch and material costs climb, survivors are making rebuilding decisions based on the assumption that no tax relief will arrive. Congressional resolution remains politically uncertain, caught in a crowded legislative calendar where wildfire survivors are competing for attention amid debates over broader fiscal and security matters.