Under the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Act) enacted on September 29, 2017, the IRS provides tax relief for those affected by hurricanes Irma, Harvey and Maria. Deductions for personal casualty losses and distributions from retirement plans are impacted. In addition, contribution limits have been suspended, meaning those still considering donating to the relief effort must do so by year-end to take full advantage of the tax benefits.
Qualified Charitable Contributions
Under the Act, charitable contribution Adjusted Gross Income (AGI) limitations for qualified charitable contributions have been suspended. Qualified charitable contributions include those made to charitable organizations for relief efforts in the Hurricane Harvey, Irma or Maria disaster areas. Contributions must be made between August 23, 2017, and on or before December 31, 2017. The taxpayer also must receive written acknowledgment that the contribution was for relief efforts.
Personal Casualty Losses
Additionally, a larger deduction for personal casualty losses is allowed under the Act. Previously, a taxpayer was allowed a casualty loss deduction equal to the amount of loss in excess of 10% of AGI, decreased by $100 per casualty. For eligible taxpayers in the affected areas, the 10% AGI limitation has been waived, with the $100 per casualty limitation being increased to $500. This allows taxpayers to take a larger deduction on their losses.
Additionally, under the Act, eligible taxpayers are allowed to take the casualty loss regardless of whether they itemize or take the standard deduction, whereas under the old rules only taxpayers who itemize would have been able to take the deduction. Taxpayers may elect to claim the casualty loss in the year immediately preceding the disaster, thus accelerating the tax benefit.
The Act also provides relief by allowing taxpayers to access their retirement accounts to help recover from the disasters. Normally, distributions from a qualified retirement plan before the age of 59 ½ is subject to a 10% penalty on the amount withdrawn, and loans from a 401(k) are limited to the lesser of $50,000 or half of the value of the plan. Under the Act, the 10% penalty for early withdrawal has been waived, and the maximum value of a loan has been increased to $100,000. Additionally, the taxable income related to the distributions is permitted to be spread over a three-year period.
If you are a victim of the hurricanes, consult with your tax advisor to take advantage of these benefits. If you would like to contribute to the relief efforts, make a point to do so before year-end!
Contact a member of your service team for more information.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.