The "Shelter Act" introduces two new tax credits to encourage investments in disaster mitigation for both individuals and businesses, effective for taxable years beginning after December 31, 2025. These credits aim to enhance resilience against natural hazards by offsetting a portion of the costs associated with protective measures.

For individuals, the bill establishes a nonrefundable personal credit equal to 25 percent of qualified disaster mitigation expenditures. This credit is capped at $3,750 annually, or $7,500 for joint filers, with a cumulative limit of $15,000 per qualified dwelling unit. The credit begins to phase out for taxpayers with an adjusted gross income exceeding $100,000, becoming fully unavailable at $150,000, with these thresholds adjusted for inflation.

A qualified dwelling unit must be located in the United States or its territories and be in an area that has experienced a federal natural disaster declaration, received FEMA hazard mitigation assistance, or is designated as a community disaster resilience zone. Qualified disaster mitigation expenditures encompass a wide range of improvements, including strengthening roofs, protecting openings from debris, elevating structures, installing storm shelters, and implementing wildfire-resistant construction. These expenditures must address hazard types identified in applicable State or tribal mitigation plans and cannot be reimbursed by government entities.

The bill also creates a business-related credit for disaster mitigation, allowing businesses to claim 25 percent of their qualified expenditures, up to a maximum of $5,000. This business credit phases out for taxpayers with average gross receipts between $5 million and $10 million over the preceding three taxable years. Similar to the personal credit, the business's place of business must meet specific location criteria related to natural disaster declarations or resilience zones.

Both credits require that mitigation work complies with the latest consensus-based codes and standards, and they include labor and inspection costs in the eligible expenditures. Taxpayers must provide adequate documentation to claim these credits, and unused personal credit amounts can be carried forward for up to five years. The legislation explicitly prevents claiming both credits for the same expenditure, ensuring no double benefit.