Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Borrego/Sanchez
LAST UPDATED
ORIGINAL DATE 2/25/25
SHORT TITLE Home Fire Recovery Tax Credit
BILL
NUMBER House Bill 568
ANALYST Torres
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
PIT/CIT
($18,900.0)
to
($105,000.0)
($18,900.0)
to
($105,000.0)
($18,900.0)
to
($105,000.0)
($18,900.0)
to
($105,000.0)
Recurring General Fund
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
New Mexico Attorney General (NMAG) Taxation and Revenue Department (TRD)
SUMMARY
Synopsis of House Bill 568
House Bill 568 creates a second Home Fire Recovery Income Tax Credit, which provides an
income tax credit for taxpayers who construct a new site-built home to replace a home destroyed
by wildfire in calendar years 2021 through 2023. The credit applies only to taxpayers whose
homes were destroyed by wildfire and who incur qualified site-built home expenditures for
reconstruction on the same property. The credit is equal to the amount of qualifying expenditures
with no caps or limits on credit amount, unlike the existing credit of $50,000 per home and $5
million per year. Furthermore, this credit expands the amount of the current credit by not
requiring compensation from the state take place after other compensation and insurance. Any
unused portion of the credit may be carried forward for up to three consecutive taxable years and
is not refundable.
To claim the credit, a taxpayer must apply for certification of eligibility from the Construction
Industries Division (CID) of the Regulation and Licensing Department within 12 months of
completing the home. The application must include proof of property ownership, evidence of
wildfire destruction, documentation of construction expenditures, and a sworn statement
verifying the completion of the home. CID will issue tax credit certificates to eligible applicants
and report these certifications to the Taxation and Revenue Department (TRD). House Bill 568 – Page 2
The credit is available for taxable years beginning on or after January 1, 2025, and the program
will expire on January 1, 2032.
FISCAL IMPLICATIONS
A version of this credit already exists in current law (Section 7-2-18.35 NMSA 1978) as
considered and amended in the 2024 tax package (HB252). This bill duplicates the credit by
creating a new section of statute and repeating the credit rather than amending or repealing
existing law. The costs represented in this analysis would be in addition to the costs of the
existing credit for the same purpose. See Attachment 1 from the Taxation and Revenue
Department highlighting the differences between the currently enacted credit from 2024 and the
second credit proposed in this bill.
This bill creates a tax expenditure with a cost that is difficult to determine but likely significant.
LFC has serious concerns about the substantial risk to state revenues from tax expenditures and
the increase in revenue volatility from erosion of the revenue base. The committee recommends
the bill adhere to the LFC tax expenditure policy principles for vetting, targeting, and reporting
or action be postponed until the implications can be more fully studied.
The table on page one presents an estimate of potential impacts intended to illustrate a magnitude
rather than an exact amount. To gauge potential impacts, LFC staff utilized data from FEMA,
local builders and realtors, and published estimates of homes lost to wildfires in 2021-2023. LFC
research finds estimates of 430 homes destroyed in the Hermit’s Peak/Calf Canyon fires
1
, though
estimates range as high as 500. Over 200 homes were reported to be destroyed by the McBride
Fire. The bill would also include any other fires that destroyed homes during the allowable
period. In a small survey of builders and realtors in the previous year, LFC staff were quoted
construction costs between $200 a square foot to $300 a square foot.
For the lower end of the cost estimate, assumptions of $200 per square foot and a home size of
1,500 square feet were used, plus a 90 percent federal reimbursement rate and low tax liabilities.
The upper end of the estimate assumed 700 homes with a cost estimate of $300 per square foot
and 2,000 square feet of construction per home with no assumptions on federal reimbursement or
tax liability. Given those factors, construction costs and income tax credits could be highly
variable and even under small to reasonable assumptions on construction could amount to $420
million. The amounts and potential costs are spread over the likely time frame on page 1.
Risks to the Estimate
There is significant uncertainty in the application of this bill that makes it difficult to determine if
the actual costs would be higher or lower than these estimates.
First, it is unknown how much federal assistance will offset the cost of this credit. The bill does
not require taxpayers to seek funds from insurance or federal sources to reduce the cost of the
credit. Further, taxpayers are frequently rejected or delayed in receiving Federal Emergency
1
https://www.propublica.org/article/after-hermits-peak-calf-canyon-wildfire-quantifying-victims-suffering-
becomes-legal-battle House Bill 568 – Page 3
Management Agency funds
2
and could seek state resources despite the availability of federal
support.
Second, the credit does not limit construction costs, the size of the home, or other valuation
limits which could incentivize the construction of homes worth and costing higher than the home
being replaced or median values. This would likely result in homes much more costly than
estimated here, which would equally increase the cost to the state for this credit.
Third, taxpayers typically have insufficient tax liabilities for the full cost of construction to apply
as a credit against their tax liability. That would mean the cost could be less than presented here.
However, increased tax liabilities may exist for taxpayers receiving income-based compensation
from federal assistance. Should taxpayers receive large income-based payouts that increase state
tax liability, tax credit costs could rise as the credit is taken against a larger liability.
Furthermore, the credit also applies to business income which complicates estimation and could
increase the cost if those credits were applied to larger liabilities under business entities.
Fourth, the timing of payments is highly unpredictable. Impacts could begin in FY25 or sooner if
houses have already been completed.
Finally, federal assistance is “limited to actual compensatory damages”
3
and not replacement
value of a newly constructed home. Therefore, if taxpayers choose to construct homes greater in
cost than the value of the home lost, the entirety of the higher cost would be credited against
taxpayer’s state tax liabilities. Because of the incentive created, costs could be higher than
estimated here.
SIGNIFICANT ISSUES
This bill was originally introduced in the 2024 legislative session and ultimately included in the
tax package (HB252) and chaptered into law (7-2-18.35). It is unclear why the credit is being
created as a new section of law, again, rather than amending the existing statute to accomplish
the intent of the bill. This duplicates the credit already offered in Section 7-2-18.35 NMSA 1978,
and creates confusion by having two credits of the same name. Unlike Section 7-2-18.35 NMSA
1978, this bill excludes manufactured homes, and only applies to homes with foundations, and
that cannot be moved.
The 2022 fire season was one of New Mexico's worst, with both the largest wildfire—Calf
Canyon/Hermit’s Peak—and second largest wildfire—Black—in state history. While the Black
Fire in the Gila National Forest primarily impacted wilderness, hundreds of houses were lost in
the Calf Canyon fire northwest of Las Vegas and the McBride fire east of Ruidoso. HB10 is
intended to compensate the homeowners affected but, given the availability of federal
compensation and the socioeconomic demographics of the regions affected, it is difficult to
predict whether and how those homeowners will access the benefit.
Uptake. The U.S. Census Bureau sets the average household income in San Miguel County at
$43.5 thousand, over $15 thousand less than the state average of $58.7 thousand, and it is
2
https://www.npr.org/transcripts/1143929966
3
FEMA Legal Analysis of Noneconomic Damages, http://bit.ly/3SpBNmZ House Bill 568 – Page 4
difficult to predict whether lower income homeowners would be able to secure the upfront
financing to rebuild their homes and take advantage of the tax credit. Further, the tax burden on
these lower income homeowners might not be sufficient to make the tax credit of much value.
Potential for Loss of Federal Assistance. Delays in being able to access federal funds for
Calf Canyon Fire losses has led to two lawsuits against FEMA. Any federal compensation for
home loss would be deducted from the tax credit, but should accessing federal assistance
continue to be burdensome and slow, some residents might forgo federal assistance, knowing
they can claim a full credit against their state taxes. In effect, this would mean state dollars
would be supplanting federal dollars.
Construction Costs. Should the credit from this bill prove popular, it could indirectly trigger
high construction demand and higher construction costs. This could drive up housing costs in a
region with a population that is poorer than the state average.
Incentive for Overbuilding. While the tax credit might prove unattractive to lower income
homeowners, the credit, which is not limited to the value of the lost home, could encourage those
with greater means to seek high-cost replacements. Those households, with higher tax burden,
are also more likely to be attracted to the tax credit.
The New Mexico Attorney General adds:
This bill may be subject to Anti-Donation Clause challenges. The Anti-Donation Clause
provides, in pertinent part, that “[n]either the state nor any county, school district or
municipality, except as otherwise provided in this constitution, shall directly or indirectly
lend or pledge its credit or make any donation to or in aid of any person, association or
public or private corporation[.]” N.M. Const. art. IX, § 14. A “donation,” for purposes of
Article IX, Section 14, is “a gift, an allocation or appropriation of something of value,
without consideration.” Vill. Of Deming v. Hosdreg Co., 1956-NMSC-111, ¶ 36, 62
N.M. 18. The Anti-Donation Clause is implicated in cases where, “by reason of its nature
and the circumstances surrounding it,” government funding or aid takes on the “character
[of] a donation in substance and effect.” Id. ¶ 37. Tax credits have been deemed to violate
the Anti-Donation Clause. See, e.g., Chronis v. State ex rel. Rodriguez, 1983-NMSC-081,
¶ 30, 100 N.M. 342.
There are exceptions identified in N.M. Const. art IX, § 14, but they may not sufficiently
address the tax credits in this bill. The exceptions are: (A) care and maintenance of sick
and indigent persons; (B) & (G) veterans’ scholarship programs for specified veterans;
(C) loan programs for students of the healing arts; (D) new job opportunities in specified
instances; (E)-(F) affordable housing; and (H) essential services, meaning infrastructure
that allows for internet, energy, water, wastewater, or other similar services as provided
by law. Although there may be instances in which a taxpayer seeking to take advantage
of the tax credit identified in the bill satisfies certain of these exceptions—e.g., a recipient
of a tax credit may be indigent or affordable housing may be implicated—the exceptions
may not be broad enough to cover the intended tax credits as a whole.
TECHNICAL ISSUES
House Bill 568 – Page 5
This bill creates a duplicate credit of an existing credit. Recommend amendments be made to the
current Home Fire Recovery Tax Credit versus adding a duplicate credit. Taxpayers are currently
applying for this credit on their 2024 tax return due April 15, 2025. This will add to the
confusion if the current credit is duplicated.
The New Mexico Attorney General notes:
HB568 in its current form does not cap reconstruction costs aside from the taxpayer’s tax
liability and the extent to which the credit could be carried forward for three consecutive
taxable years.
It is unclear how Subsections (A), (C)(1)-(2), (H), and (J)(1)-(2) are intended to work
together. As the bill is drafted, taxpayer homeowners who primarily resided in their home
during the referenced wildfires are eligible for the credit. If a homeowner did not
primarily reside in an impacted home because, for example, the home was the
homeowner’s second home, the home was rented out to someone else who primarily
resided there, or the homeowner’s children lived in the home, but the taxpayer
homeowner still incurred expenditures for the construction of a site-built home on the
same property as the prior wildfire-destroyed home, such taxpayer homeowner would
nonetheless not be eligible for the credit.
Subsection (H), however, appears to provide credits to business entities and may
reference the Corporate Income Tax Act. As written, Subsection (H) would allow for a
taxpayer to be allocated the right to claim the credit from a partnership or LLC owned, at
least in part, by the taxpayer. In order for this subsection to have any effect under the bill
as otherwise drafted, it would need to be the case both that the taxpayer owns an interest
in a partnership or LLC that owned a home destroyed by the referenced wildfires, and
that the taxpayer lived in that home. This limited set of circumstances may have been
intended, but the current iteration of the bill will likely raise questions regarding the
applicability of the Corporate Income Tax Act.
OTHER SUBSTANT IVE ISSUES
In assessing all tax legislation, LFC staff considers whether the proposal is aligned with
committee-adopted tax policy principles. Those five principles:
Adequacy: Revenue should be adequate to fund needed government services.
Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
Equity: Different taxpayers should be treated fairly.
Simplicity: Collection should be simple and easily understood.
Accountability: Preferences should be easy to monitor and evaluate
In addition, staff reviews whether the bill meets principles specific to tax expenditures. Those
policies and how this bill addresses those issues:
Tax Expenditure Policy Principle Met? Comments
Vetted: The proposed new or expanded tax expenditure was vetted
through interim legislative committees, such as LFC and the Revenue
Stabilization and Tax Policy Committee, to review fiscal, legal, and
general policy parameters.
Targeted: The tax expenditure has a clearly stated purpose, long-term House Bill 568 – Page 6
goals, and measurable annual targets designed to mark progress toward
the goals.
Clearly stated purpose
Long-term goals
Measurable targets
Transparent: The tax expenditure requires at least annual reporting by
the recipients, the Taxation and Revenue Department, and other relevant
agencies
Accountable: The required reporting allows for analysis by members of
the public to determine progress toward annual targets and determination
of effectiveness and efficiency. The tax expenditure is set to expire unless
legislative action is taken to review the tax expenditure and extend the
expiration date.
Public analysis
Expiration date
Effective: The tax expenditure fulfills the stated purpose. If the tax
expenditure is designed to alter behavior – for example, economic
development incentives intended to increase economic growth – there are
indicators the recipients would not have performed the desired actions
“but for” the existence of the tax expenditure.
Fulfills stated purpose ?
Passes “but for” test ?
Efficient: The tax expenditure is the most cost-effective way to achieve
the desired results.
Key: Met Not Met ? Unclear
IT/hj
Attachments:
1. Comparison of Credits House Bill 568 – Page 7
Attachment 1 – COMPARISON OF CREDITS
Detail
Existing Law (7-2-18.35 NMSA
1978) Proposed New Bill (House Bill 568)
Effective Period Effective until January 1, 2030 Effective until January 1, 2031
Tax Credit Amount Up to $50,000 per home
Equal to the qualified site-built home
expenditures
Aggregate Limit $5 million per calendar year No aggregate limit
Eligibility
Taxpayer who incurs expenditures for
replacing a home that was destroyed
by fire in calendar years 2021 through
2023
Taxpayer who incurs expenditures
for replacing a home that was
destroyed by fire in calendar years
2021 through 2023
Eligible Expenditures
Gross expenditures for construction
or manufactured or modular home
Gross expenditures for the
construction of site-built homes
Eligibility Application
Application to the construction
industries division of RLD
Application to the construction
industries division of RLD
Proof Required
Sworn statement, contract with
builder/manufacturer
Sworn statement, contract with
builder, site-built homes
Carry Forward Period
Can be carried forward for three
consecutive years
Can be carried forward for three
consecutive years
Joint Filers Only one-half of the tax credit each Only one-half of the tax credit each
Allocation to Business
Entities Proportional to ownership interest Proportional to ownership interest
Annual Reporting Annual report by Tax & Rev Annual report by Tax & Rev
Home Definition
Includes site-built, manufactured,
modular homes Only site- built homes
Excluded
Compensations
Excludes compensation from the
Federal Hermit's Peak/Calf Canyon
Fire Assistance Act, from insurance
or other sources of compensation.
Excludes compensation from the
Federal Hermit's Peak/Calf Canyon
Fire Assistance Act