2017 Disaster Tax Relief Bill – Part I
Congress has recently passed and the President has signed the “Disaster Tax Relief and Airport and Airway Extension Act of 2017”. While the name may be long and confusing, this new bill has several tax provisions for the victims of Hurricanes Harvey, Irma, and Maria that are of interest.
Changes in Casualty Loss Rules
Casualty losses are generally subject to the following limitations:
• The loss must exceed $100 per casualty.
• You must itemized deductions to be able to claim such a loss.
• Only the amount of loss that exceeds 10% of your Adjusted Gross Income (AGI) is deductible.
• Casualty losses may be reduced for taxpayers in an Alternative Minimum Tax (AMT) situation.
Under the new bill, the $100 per-casualty limit is increased to $500, but the other limitations have been removed for qualifying taxpayers (those in the hurricane-effected areas as declared by the bill).
Access to Retirement Funds
Qualified employer retirement plans typically have limitations on how much can be taken out of the plan without it being treated as a taxable distribution subject to income tax and a 10% penalty for early withdrawal.
“Qualified Hurricane Distributions” are made to individuals whose principal residence was located in a Hurricane Harvey, Irma, or Maria disaster area and who sustained an economic loss due to one of these hurricanes. The distribution must be made after the date of the hurricane but before January 1, 2019. Under the new bill, many of the limitations mentioned above have been modified, including:
• Qualifying distributions can be taken up to $100,000 as a loan (to be paid back) without being considered taxable income.
• Qualifying distributions are exempt from the 10% early withdrawal penalty.
• If such distributions have be included in income (not to be paid back as a loan), the inclusion may be spread out over 3 years beginning with the year that any amount is required to be included in income.
Suspended Limitations on Charitable Deductions
“Qualified contributions” must be paid in cash between August 23, 2017 and December 31, 2017, to organizations for the specific relief efforts in the Hurricane Harvey, Irma, or Maria Disaster areas. For such “qualified contributions, the new bill:
• suspends the typical 50% of AGI limits
• removes such qualifying hurricane contributions from the limitation calculation on other charitable contributions not related to hurricane relief
• eases the rules on the treatment of excess contributions
• excludes such qualifying contributions from the limitations typically calculated on an individual’s overall itemized deductions.
There is simply too much material to cover in one blog, so please check back for Part II to be released shortly. As always, if you have any questions or would like additional information, please contact our office to schedule a consultation.