Outlining Provisions in the 2017 Disaster Tax Relief Bill

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Catherine E. Murray
Senior Tax Analyst
Thomson Reuters Checkpoint
Columnist
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On Sept. 29, President Trump signed into law H.R. 3823, the "Disaster Tax Relief and Airport and Airway Extension Act of 2017". The Act, which had been passed by Congress the day before, provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria. Businesses that qualify for relief may claim a new "employee retention tax credit" of up to $2,400 for qualified wages paid to eligible employees.

Relief for individuals includes, among other things, loosened restrictions for claiming personal casualty losses, tax-favored withdrawals from retirement plans, and the option of using current or prior year's income for purposes of claiming the earned income and child tax credits.

Eased Casualty Loss Rules

Current law. A taxpayer generally may claim a deduction for any loss sustained during the tax year and not compensated by insurance or otherwise. (Code Sec. 165(a)) For individuals, a personal loss from a casualty is deductible only to the extent that

  1. It exceeds $100, and
  2. All casualty losses (after application of the $100-floor) for the tax year exceed 10% of adjusted gross income (AGI). (Code Sec. 165(h))

If the disaster occurs in a federally declared disaster area, the taxpayer may elect to take into account the casualty loss in the tax year immediately preceding the tax year in which the disaster occurs. (Code Sec. 165(i)) The deduction for casualty losses is an itemized deduction.

New law. The Act provides relief in a number of ways to taxpayers that suffer a "net disaster loss" (below) for any tax year.

"Net disaster loss." The Act defines a net disaster loss as the excess of “qualified disaster-related personal casualty losses” over personal casualty gains, as defined in Code Sec. 165(h)(3)(A). Qualified disaster-related personal casualty losses, in turn, are losses described in Code Sec. 165(c)(3) which arise:

  • In the Hurricane Harvey disaster area (see below for the distinction between “areas” and “zones”) on or after Aug. 23, 2017, and which are attributable to Hurricane Harvey;
  • In the Hurricane Irma disaster area on or after Sept. 4, 2017, and which are attributable to Hurricane Irma; or
  • In the Hurricane Maria disaster area on or after Sept. 16, 2017, and which are attributable to Hurricane Maria. (Act Sec. 504(b)(3))

For purposes of the Act, a disaster "zone" means the portion of the disaster area determined by the President to warrant individual or individual and publish assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of the disaster. A disaster "area" means an area with respect to which a major disaster has been declared by the President by reason of the disaster. (Act Sec. 501(a))

10% limitation removed. For taxpayers claiming a net disaster loss, the Act eliminates the current law requirement that personal casualty losses must exceed 10% of AGI to qualify for a deduction.

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About Catherine E. Murray

About Catherine E. Murray

Catherine E. Murray is a senior tax analyst with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters. Catherine is a federal tax generalist who focuses primarily on writing current awareness tax news articles for Federal Taxes Weekly Alert and also serves as the project editor for the Federal Tax Handbook. Catherine completed her B.M. in jazz studies at DePaul University, her J.D. at the Benjamin N. Cardozo School of Law, and her LL.M. in Taxation at New York Law School.

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avatar
Oct 12th 2017 03:02

As we look at the change in law around the casualty loss, changing the floor (removal of the 10% of AGI) & amending the dollar threshold from $100 to $500, I wonder how the dollar threshold is to be treated on form 4684. It is my understanding the IRS wishes to receive multiple form 4684s (thus able to see what exactly is a casualty loss [e.g. couch, loveseat, sidetable, pots&pans, etc., etc. ,etc.]) but with the way form 4684 is set up, line 11 is where the dollar threshold is recorded ($500) and it would be used to reduce the cost on each form. This results in lowering the deductions by multiples of $500 vs a single $500 instance.

Am I wrong in my understanding?

Thanks (1)
avatar
to mfhenderson
Oct 12th 2017 19:09

I have been able to answer my own question with the Instructions to form 4684. There is to be only a SINGLE $500 instance for Personal Use Property.

From the instructions to form 4684"Use a separate column for lines 2 through 9 to show each item lost or damaged from a single casualty or theft described on line 1. If more than four items were lost or damaged,
use additional sheets following the format of
lines 1 through 9."
HOWEVER
"Use a separate Form 4684 through line 12 for each casualty or theft involving property not used in a trade or business or for income-producing purposes".

Make sure your tax software has provisions for this or an overwrite available so each 4684 does not deduct $500.

Thanks (1)