U.S. Rep. Dennis Ross (R-FL) recently sponsored a bill that will allow individuals to set aside money annually in tax-preferred accounts to use for natural disaster mitigation expenses.
The Disaster Savings Accounts (DSA) Act would establish a new tax-preferred savings account to either fortify residential property in preparation for an impending natural disaster or use to rebuild and cover damages.
Homeowners will be allowed to contribute up to $5,000 annually in pre-tax dollars to be used for DSA-qualified expenses, and any balance would roll over at the end of each year.
In addition to the traditional expenses associated with disaster mitigation and repair of a residence, homeowners could utilize DSA Act funds for uninsured personal casualty losses for their homes. This process will help mitigate, and even avoid altogether, insurance premium increases in instances where available DSA Act funds for smaller-value damages would allow homeowners to avoid tapping into insurance coverages for damage repairs.
“One common thread joins us all across the nation, and that is the unexpected risk posed to our families and communities by natural disasters, like we experienced last year with Hurricanes Hermine and Matthew,” Ross said. “This legislation provides critical relief to Americans in disaster-prone states, allowing them to proactively save pre-tax dollars for use toward disaster preparation and recovery expenses.”
Funds could be used for purchases like cement-fortified walls, storm shutters and generators.
“This type of savings will help reduce federal costs to taxpayers because every dollar spent on mitigation can save up to four dollars in future disaster recovery spending,” Ross said. “The DSA Act is a common-sense solution that will help keep families and their properties safe, as well as give Americans more control over their money.”
Examples of hazards include earthquakes, floods, hail, hurricanes, lightening, power outages, sinkholes, tornadoes, wildfires and any other natural disaster. Remaining DSA funds may roll over into the following year.
The accounts would have a 20 percent penalty tax on funds withdrawn from a DSA and used for purposes other than disaster mitigation expenses.