Tax Planning Series: Disaster Tax Relief Signed Into Law Providing Tax Breaks to Hurricane Victims
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 was signed into law a few weeks ago by President Trump. The law aims to provide relief to victims of Hurricanes Harvey, Irma, and Maria. The Act not only increases deductions for personal casualty losses, it also has provisions for taxpayers who take the standard deduction. Additional relief can be found in the following areas: tax credits for employers, suspended limits for charitable giving, grants access to retirement funds, and enhanced earned income and child tax credit benefits. H.R. 3823 (9/29/2017)
The act, which extends through March 31, 2018, also modifies requirements for purchasing flood insurance, has enhanced benefits for federal aviation programs, aviation taxes, and public health programs.
Casualty Loss Deduction
Typically, deductions for casualty losses are subject to a 10% of gross income threshold and must exceed $100. The new law increases the floor to $500, but removes the 10% threshold. Additionally the law allows tax payers to claim a casualty loss even if they do not itemize their deductions. The loss will simply be added to the standard deduction.
The loss must have occurred as a result of a disaster and is limited to designated areas. The deduction is also limited to “net disaster loss” which is defined as the losses over and above any personal casualty gains.
Retirement Plan Rule Changes
Retirement plans have also been given many enhancements for victims of disasters. The 10 percent early withdrawal penalty has been lifted for hurricane losses but limited to $100,000. This cannot be limited by the employer’s rules or governing plan document. The employee also has the right to return the distributed amount back to the plan for a three year period. Employees can also stretch the tax consequences of the distribution over three years, and loans have been increased for qualified distributions from $50,000 to $100,000.
Enhancements for Charitable Contributions
Charitable contributions made between August 23, 2017, and December 31, 2017, that are to a charitable organization and made for relief efforts in Hurricane disaster areas will not be limited as they have been in the past. To take advantage of this temporary change, the taxpayer must make the election.
Changes to the Earned Income Credit and Child Tax Credit
For families that will qualify for child tax credits in 2017, they will have the option to substitute their 2016 income in place of their 2017 income if the change would be to their advantage. This will benefit families that have had a drop in income due to loss of wages.
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Disclaimer: This content was developed from sources believed to be providing accurate information. The information in this material is not intended to provide legal or tax advice. You should consult your legal or tax advisor for information concerning your individual situation.