In the aftermath of Hurricanes Katrina and Rita, Congress passed the The Katrina Emergency Tax Relief Act, PL 109-73, September 23, 2005 ("the Act").

Of particular interset is Section 401 of the Act which allows any natural person in the "core disaster or Katrina disaster area" who suffered economic loss due to Hurricane Katrina to exclude from income any discharge or cancellation of indebtedness completed between 8/25/2005 and 1/1/2007. Exceptions from this exclusion are any indebtedness incurred through a trade or business, or indebtedness secured by real property outside the Hurricane Katrina disaster area.  Normally cancellation of indebtedness could be treated as ordinary income for federal income tax purposes. 
 
Other provisions involve Employer Tax Credits, Withdrawals from qualified plans, and charitable contributions.

To review the full text of The Katrina Emergency Tax Relief Act please link on the following:

 The Katrina Emergency Tax Relief Act 2005.pdf

To review the Stafford Act please link on the following:

Robert T. Stafford Disaster Relief and Emergency Assistance Act, as amended by Public Law 106-390, October 30, 2000