Hurricane Harvey Tax Update
In August 2017, at the request of Texas Governor Abbott, President Trump began making disaster declarations for Texas counties expected to be impacted by Hurricane Harvey. Additional Texas counties have been added to the Harvey disaster declaration list through October 2017 which include Dallas and Tarrant counties. (For a complete list of the Hurricane Harvey covered disaster areas: https://www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey) This declaration permitted the IRS to postpone certain deadlines for taxpayers who reside or have a business in the Presidential Disaster Areas. (For additional information click here for our Hurrican Harvey communication)
On September 29, 2017, President Trump signed into law the Disaster Tax Relief & Airport & Airway Extension Act of 2017. This new law provides additional tax relief to individuals and businesses, impacted by Hurricanes Harvey, Irma, and Maria. The focus of this communication relates to Hurricane Harvey.
Let’s begin with some definitions.
- Hurricane Harvey Disaster Zone is the portion of the Hurricane Harvey disaster area as determined/declared by President Trump.
- Hurricane Harvey Disaster Area is the area to which a major disaster has been declared by the President before September 21, 2017.
Not discussed in this article is the fact that it is possible for a taxpayer to actually have a gain related to a casualty loss which would be taxable income. Each individual’s facts and circumstances are unique. Allow one of our LGT tax professionals assist you with your personal situation.
Additional Tax Relief
Employee Retention Credit
In general, an eligible employer, may claim the Hurricane Harvey Employee Retention Credit which is equal to 40 percent of qualified wages of each eligible employee. Qualified wages for an eligible employee is limited to $6,000, or a credit maximum of $2,400.
An eligible employer is an employer which conducted an active trade or business on August 23, 2017, in the Hurricane Harvey disaster zone, and the business was inoperable, due to damage sustained by reason of Hurricane Harvey, on any day, after August 23, 2017 and before January 1, 2018.
An eligible employee is defined as an employee, in regard to an eligible employer, whose principal place of employment on August 23, 2017, was in the Hurricane Harvey disaster zone. Further, the eligible employee may only be taken into account once when determining the credit.
Qualified wages are wages, as defined by the tax code, which are paid or incurred by an eligible employer with respect to an eligible employee beginning on the date the business became inoperable and ending on the date the business resumes significant operations. The dates of which, must fall after August 23, 2017 and before January 1, 2018. Wages include those paid to an eligible employee who performs no services, performs services at a different location of the eligible employer, or performs services at the principal business location before significant operations have resumed.
Use of Retirement Funds
The law grants tax favorable treatment to qualified hurricane distributions from retirement plans by a qualified individual. In general, the tax relief is the following:
- The 10% early withdrawal penalty is waived
- Total qualified hurricane distributions may not exceed $100,000 per qualified individual
- A qualified individual may, at any time during a three-year period beginning on the day after receiving a qualified hurricane distribution, pay back the distribution to an eligible retirement plan for which the individual is the beneficiary. During this period, the qualified hurricane distribution is not subject to income tax
- However, if the qualified hurricane distribution is not paid back during the above time period, the distribution will be included in income but over a three year period
A qualified hurricane distribution is a distribution from a qualified retirement plan to a qualified individual who sustained financial hardship due to Harvey.
A qualified individual is an individual whose principal place of abode on August 23, 2017, was located in the Hurricane Harvey disaster area.
Additionally, the law increased the limit on loans from retirement plans from $50,000 to $100,000, the normal repayment period is delayed by one year and the qualified individual will have five years to repay the loan once the repayment period begins.
Temporary Suspension of Limitations on Charitable Contributions
Generally, a deduction for charitable contributions is limited based on the taxpayer’s adjusted gross income ("AGI"). However, the law suspends this limitation to qualified contributions as well as the overall itemized deduction limitation to qualified contributions.
A qualified contribution is one that is paid between August 23 and December 31, 2017, in cash, to a qualified charity organization and used exclusively for Hurricane Harvey, Irma, or Maria disaster area relief efforts. The taxpayer must obtain a contemporaneous written acknowledgement from the qualified charity.
Qualified Disaster-Related Personal Casualty Losses
Affected taxpayers in a federal declared disaster area have the option of claiming disaster related casualty losses on their federal income tax return for either the year in which the even occurred or the prior year. (see IRS Publication 547) If applicable, affected taxpayers claiming the disaster loss on their 2016 return should indicate “TEXAS HURRICANE HARVEY” at the top of their 1040 so the IRS will expedite the processing of the refund.
Tax relief provided by the law include the following:
- A qualified disaster-related personal casualty loss will not be subject to the 10% of AGI limitation. However, the qualified disaster-related personal casualty loss deduction is limited to the amount exceeding $500
- A qualified individual who is not eligible for itemized deductions, may increase their standard deduction by their qualified disaster-related personal casualty loss in excess of $500
A qualified disaster-related personal casualty loss is a casualty loss, as defined by the tax Code, which arose in the Hurricane Harvey disaster area, on or after August 23, 2017, and is attributable to Hurricane Harvey.
Earned Income & Child Tax Credits
The law also allows taxpayers to use their 2016 earned income to determine their earned income credit and their child tax credit, if they so choose.
As you can see, this law provides much needed tax relief to the victims of Hurricane Harvey, Irma, and Maria. If you have any questions regarding your personal tax situation please do not hesitate to contact our LGT tax professionals.
Foreign Financial Accounts
One final thought, in additional to income taxes, taxpayers who have a financial interest or signature authority over foreign financial accounts must file Form FinCEN114 is the aggregate value of the foreign financial accounts exceeds USD $10,000 at any time during the calendar year. The extended due date for filing this form, is Monday, October 16, 2017. However, the Department of the Treasury announced that affected taxpayers, due to Hurricane Harvey, have until January 31, 2018 to file their Form FinCEN114. However, please note, this relief is extended to any area designated by the Federal Emergency Management Agency (FEMA). For more information: https://www.fincen.gov/sites/default/files/shared/FinCEN_FBAR_Filing_Relief_09-7-2017.pdf
Let our tax professionals help provide you relief.
The material contained in this article is current as of the date produced. The information in this article is for discussion purposes only and should not be relied upon without seeking tax advice specific to your personal facts and circumstances. Any tax advice in this communication is not intended or written by Lane Gorman Trubitt, LLC to be used, and cannot be used, by a client or any other person or entity for the purposes of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any matters addressed herein.