The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the Disaster Act) included several tax relief provisions for Hurricane Harvey, Irma and Maria victims. If your business or personal property was impacted by the recent disasters or you contributed toward relief efforts, chances are these provisions may apply to you.

With 2017 coming to a close, Doeren Mayhew’s tax advisors highlight five key tax relief provisions to consider during year-end tax planning:

  1. Employee Retention Credit. Employers are eligible for a credit equal to 40 percent of the first $6,000 wages paid to each employee during the period that employer was not able to perform significant operations at its principle place of business. Qualified wages include wages paid without regard to whether the employee performed no services, performed services at a different location, or performed services at the impacted location before significant operations had resumed.
  2. Employer Relief Payments. Employers can deduct reasonable and necessary costs for repair, living and personal expenses of employees impacted by a federally declared disaster. Personal expenses also include the repair of a residence or the repair/replacement of personal property. Payments or costs made by the employer are not included in the employee’s W-2 form and are not subject to employment taxes. Additionally, the employee is not required to itemize and document expenses, so long as the payment is a reasonable estimate of the employee’s losses.
    Employer reimbursements can be in the form of cash or in-kind services or property, but the employee cannot also receive an insurance reimbursement for the same costs. The employer is not allowed to characterize normal wage payments as relief payment, and as a result, reimbursement for lost wages may not qualify.
  3. Casualty Loss Deduction. The 10 percent of Adjusted Gross Income (AGI) threshold for deducted unreimbursed personal casualty losses has been waived for disaster victims. To accelerate the benefit, taxpayers may amend their 2016 tax returns to reflect the loss.
    Losses reflect the decline in Fair Market Value (FMV) but are limited to the taxpayer’s adjusted bases in the property. The decline in value must represent the impact of the damage, not the reduction related to a decline in market conditions. It also should not reflect an estimate of lost revenue streams.
    When related to business or investment property, casualty loss computations must be made for each identifiable asset. For personal use real estate, land and buildings may be combined.
    For a total loss, the loss allowed for personal property is the lesser of the decline in FMV or the adjusted basis, while the total loss for business/investment property is its adjusted basis. To the extent that insurance reimbursements exceed the adjusted basis of the property and the repair costs, gains may be recognized unless reinvestments are made. Regulation Section 1.263-3(a) requires the capitalization of any repair costs to the extent that a property’s basis has been reduced by a casualty loss.
  4. Retirement Plan Distributions. The Disaster Act increased the amount that can be taken out as a tax-free loan from a qualified retirement plan to the lesser of $100,000 or your vested account balance and waived the mandatory 20 percent withholding tax. The loan must be recontributed within three years to avoid tax or it can be taken into income over a three-year period.
  5. Charitable Contributions. Generally, charitable contributions cannot exceed 50 percent of AGI and/or limited for higher income individual taxpayers, but these limitations have been removed or mitigated for contributions related to disaster relief. As such, individual and corporate taxpayers can elect to deduct qualified contributions made toward relief efforts in the affected areas from Aug. 23, 2017 to Dec. 31, 2017.

If you are a Texas resident and/or business located in a federally declared disaster area, these additional tax relief provisions may apply:

    • Property Taxes. Those impacted by Hurricane Harvey (sustained property damage) may be able to defer their property tax payments. This deferral allows four equal installments through July. This is limited to a personal residence and small businesses with $5 million in revenues or less. Property tax values will be determined using the value after considering the impact of Harvey.
    • Sales Tax. Sales tax should not be charged on the labor costs related to the repair of personal and nonresidential real property caused by Hurricane Harvey. As such, invoices should be itemized to show the labor charges. If sales tax was charged, a business owner should apply for a refund by filing an amended sales/use tax return to request a refund.

To ensure you or your business is taking advantage of these tax relief provisions, and or to explore other tax savings opportunities before year end, contact Doeren Mayhew’s tax advisors today.