To speed recovery to the devastated areas of Hurricanes Harvey, Irma and Maria, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Relief and FAA Act of 2017) on September 29, 2017. This letter highlights the tax relief included in the Disaster Relief and FAA Act of 2017 available to individuals impacted by the hurricanes. These provisions include adjustments to limitations and reductions on the personal casualty loss deduction, flexibility for the use of retirement funds, suspension of limitations on charitable contributions, and special rules for determining earned income for purposes of the child tax credit and the earned income credit.
Personal casualty losses. In general, casualty losses are taken as an itemized deduction subject to a $100 reduction per loss occurrence. The total annual deduction for all personal casualty and theft losses is further limited to that amount which exceeds 10 percent of the taxpayer's adjusted gross income. However, the Disaster Relief and FAA Act of 2017 modifies the reduction to $500 per occurrence but eliminates the need to exceed 10 percent of adjusted gross income. In addition, for taxpayers who do not itemize, the standard deduction is increased by the amount of the disaster loss.
Special rules for the use of retirement funds. Many victims of the hurricanes may be able to access retirement funds without triggering the standard early withdrawal penalties.
Special rule for determining earned income. Individuals whose principal residence was in a hurricane disaster area and who is displaced as a result may elect to calculate their refundable child tax credit and earned income credit for 2017 by using their earned income from the preceding tax year.
Charitable contributions. Individuals are allowed to elect to temporarily suspend for all "qualified contributions" the 50-percent contribution base limitation, and the limitation on overall itemized deductions. Qualified contributions means
Recovering from a disaster of this magnitude takes time and there are many decisions to be made. We are here to help you. Please call our office to discuss how this tax relief may benefit you.