Tax Alert: Disaster Tax Relief Bill

On September 29, 2017, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (H.R. 3823) to provide temporary relief to taxpayers impacted by Hurricanes Harvey (August 25, 2017), Maria (September 4, 2017) and Irma (September 16, 2017).

The new law:

  • Eliminates the requirement for personal casualty losses to exceed 10% of a taxpayer’s adjusted gross income in order to qualify for the deduction;
  • Removes the requirement for taxpayers to itemize deductions in order to qualify for personal casualty loss deductions;
  • Allows taxpayers to take qualified hurricane distributions of up to $100,000 from retirement funds (i.e. Individual Retirement Account) without incurring the 10% early withdrawal penalty and spread the income inclusion over a 3 year period. This is allowed for individuals whose principal place of abode is located in an area impacted by either hurricanes Harvey, Maria or Irma;
  • Permits taxpayers to recoup the tax paid on qualified withdrawals from retirement plans if these funds are re-contributed over a 3 year period beginning with the date of the withdrawal;
  • Allows taxpayers to avoid the tax on withdrawals from retirement plans by re-contributing the funds that were earmarked for the purchase or construction of a home that was cancelled as a result of the hurricanes. The funds must be re-contributed between August 23, 2017 and February 28, 2018;
  • Increases the amount taxpayers can borrow from a qualified employer plan from $50,000 to $100,000;
  • First repayment to a qualified employer plan can be delayed by one year if such repayment occurs during a qualified beginning date (see above dates) and ending on December 31, 2018;
  • Qualified hurricane relief donations made between August 23, 2017 and December 31, 2017 are not subject to the various charity contributions limitation imposed on individual taxpayers, i.e. 50%, 30% or 20% or Adjusted Gross Income (“AGI”);
  • Qualified hurricane relief donations made between August 23, 2017 and December 31, 2017 are not subject to the overall deductibility limitation on itemized deductions (for the 2017 tax year, certain itemized deductions are phased out once the AGI of a joint married filer exceeds $313,800);
  • In the case of Corporate taxpayers, this suspends the 10% charitable contribution deduction limitation for qualified hurricane relief for donations made between August 23, 2017 and December 31, 2017;
  • Provides employers located in the disaster zones with an employee retention credit of up to $2,400 per employee; and
  • Allows taxpayers to substitute earned income from the current year with earned income from the preceding year for purposes of computing the earned income tax credit.

To learn more about how the new law impacts you, please contact a Sax advisor at (973) 472-6250.

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