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On September 29, 2017, the President signed into law the “Disaster Tax Relief and Airport and Airway Extension Act of 2017.” The new law contains tax provisions designed to help victims of Hurricane Harvey, Hurricane Irma, and Hurricane Maria. The tax provisions contained in the new law apply to the disaster zones and areas declared by the President prior to September 21, 2017, and prior to October 17, 2017 for hurricane Harvey and hurricane Irma, to warrant individual and public assistance from the federal government. For specific locations of affected disaster areas, see the official FEMA website at www.fema.gov.

The following is a summary of the tax provisions contained in the new law.

Qualified Hurricane Distribution

A qualified hurricane distribution means any of the following:

  • Any distribution from an eligible retirement plan made on or after August 23, 2017, and before January 1, 2019 to an individual whose principal place of abode on August 23, 2017, is located in the Hurricane Harvey disaster area and who has sustained an economic loss by reason of Hurricane Harvey.
  • Any distribution from an eligible retirement plan made on or after September 4, 2017, and before January 1, 2019, to an individual whose principal place of abode on September 4, 2017,is located in the Hurricane Irma disaster area and who has sustained an economic loss by reason of Hurricane Irma.
  • Any distribution from an eligible retirement plan made on or after September 16, 2017, and before January 1, 2019, to an individual whose principal place of abode on September 16, 2017, is located in the Hurricane Maria disaster area and who has sustained an economic loss by reason of Hurricane Maria.

Disaster relief for hurricanes:

Special rules apply for qualifying taxpayers who have a net disaster loss to their primary residence
for one of the following areas.

  • Hurricane Harvey, on or after August 23, 2017,
  • Hurricane Irma, on or after September 4, 2017, or
  • Hurricane Maria, on or after September 16, 2017.

Relief

If the taxpayer has a net disaster loss for the year, this same relief also applies to the California wildfire disaster area:

  • The 10% AGI limitation does not apply to the net disaster loss,
  • The $100 per casualty limit is increased to $500 per casualty,
  • The standard deduction is increased by the disaster loss, and
  • The portion of the standard deduction increased by the disaster loss is allowed as a deduction against alternative minimum taxable income for purposes of the AMT.

Losses on business and income-producing property:

Losses on business property (other than employee property) and income producing property are not subject to the above limitations. However, if the loss involved a home used for business or rented out, the deductible loss may be limited.

When to Deduct a Casualty or Theft Loss

Casualty or theft losses are deductible in the later of:

  • The tax year the casualty occurred, or the theft was discovered.
  • The tax year the reimbursement amount (if any) can reasonably be determined, or it is determined that no additional reimbursement will be received. [Reg. §1.165-1(d)]

This same relief also applies to federally declared disasters.