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New Law Gives Flood Victims Tax Breaks

October 11

The last time we "talked," I offered recommendations on how to protect your valuable information during a natural disaster. It's now almost two months after Hurricane Harvey wreaked havoc on the greater Houston area, and so many of you are just starting what will likely be a long recovery process.

Today I bring you some good news from the Federal Government in the form of tax relief for all residents of the three Presidentially declared disaster areas affected by Hurricanes Harvey, Irma, and Maria, regardless if they experienced flood damage or not.

On September 29, 2017, President Trump signed House Resolution (H.R.) 3823, otherwise known as the "Disaster Tax Relief and Airport and Airway Extension Act of 2017," into law. This legislation relaxes several tax provisions with the goal of allowing individuals and business owners more options for becoming financially whole.

Here are some key provisions of H.R. 3823 (taken from the signed legislation):

  • Eased Casualty Loss Rules: Normally taxpayers can only deduct losses (e.g. from flooding) that exceed 10% of Adjusted Gross Income (AGI). H.B. 3823 eliminates the 10% floor and the requirement for itemizing losses.
  • Liberalized Retirement Plan Rules: The previous law penalized early distributions (before 59 ½ years) by imposing a 10% penalty in addition to taxes owed. The new rules allow retirement plan (e.g. 401k) owners to withdraw up to $100,000 (prior limit was $50,000) from their plan and repay it within three years without taxes or penalties.
  • Charitable Deduction Limitations Suspended: H.B. 3823 suspended most of the standard limitations on charitable deductions (e.g. certain percentages of AGI) for cash contributions taxpayers make to organizations providing hurricane assistance. This tax relief only applies to donations made between August 23 and December 31, 2017.
  • Employee Retention Tax Credit: Business owners with flood damage that prevented them from operating for a period of time can deduct 40% of up to $6,000 of qualified wages for eligible employees.

Please make sure to work with your tax advisor to confirm whether you are eligible to take advantage of these tax breaks. If you would like a copy of the complete law or want to discuss how to leverage these benefits with your overall financial strategy, please let me know how I can help.