Disaster Tax Relief Act

By Zach Wimberger, Tax Services, Rosenfield & Co, PLLC

On September 29th 2017, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017, putting forth changes to provide tax relief for any taxpayers that have been impacted by Hurricanes Harvey, Irma, and Maria. The most notable relief this law provides taxpayers is the exceptions it makes to the current casualty loss rules, specifically to the above listed hurricanes. Any casualty losses due to the aforementioned hurricanes no longer adhere to the 10 percent Adjusted Gross Income floor. The tradeoff is that the loss must now exceed $500 instead of the normal $100. Also, under the current tax law, casualty losses may only be deducted if the taxpayer itemizes their deductions for the year. With this new exception to the law, any losses related to the hurricanes can be deducted, regardless of whether the taxpayer takes the standard deduction, or chooses to itemize. If the taxpayer chooses, they may also elect to include the disaster loss on their 2016 tax return. If you have already filed your 2016 tax return, you may amend that return to take advantage of the casualty losses. Finally, the deduction will not be reduced for any AMT purposes.

Along with the above changes to the Casualty Loss Rules, the new law provides relief in the following areas:

Restrictions to Retirement Funds:
Hurricane victims may now make a “qualified hurricane distribution” from a retirement plan of up to $100,000 without being subject to the 10 percent early withdrawal penalty that would normally result from a withdrawal if the taxpayer was under the age of 59 ½. These qualified distributions can only be taken if the taxpayer has made them on or after the following dates:

  • Harvey Victims – August 23rd
  • Irma Victims – September 4th
  • Maria Victims – September 16th

Note that these distributions must be made before January 1st, 2019. Also, these distributions may be re-contributed to the retirement plan over a period of three years starting the day after the distribution was taken, are not subject to the 20% withholding that is a normal requirement for early distributions, and allows for the re-contribution of retirement plan withdrawals related to home purchases cancelled due the Hurricanes.

Charitable Deduction Limitations:
Any charitable contributions made to qualified hurricane relief efforts are not subject to the following limitations:

  • The 50, 30 or 20 percent limitations of the taxpayer’s Adjusted Gross Income
  • The 10 percent limit of a corporations taxable income

Earned income and Child Tax Credits:
Under the new law, Taxpayers affected by the aforementioned hurricanes may elect to use 2016 earned income to qualify for an earned income credit or refundable child tax credit if it is lower than their earned 2017 income.

Wage Tax Credit for Employers:
If an employer experienced a period of inoperability as a result of one of the hurricanes, and continued to pay eligible employees during that period, the new law puts in place an Employee Retention credit for an amount of 40 percent of qualified wages, up to $6,000 per employee. To qualify for the credit, the employer must have conducted an active trade or business in the disaster area of each hurricane (designated by FEMA) and must have been inoperable on any days after the date of the storm. The dates are the same as those listed in the retirement funds section above. If an employer is claiming the Work Opportunity Tax Credit for any employee, they may not also claim the Employee Retention Credit for the same employee.

If you were affected by Hurricanes Harvey, Irma, or Maria, please take note of the above relief provided by the new Disaster Relief Law. There are several substantial benefits granted by this new law and we will be keeping in touch with our clients for the upcoming tax year to determine how you can receive the full benefit from the relief provided.

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