In the wake of this year’s devastating hurricane season, the President signed into law the “Disaster Tax Relief and Airport and Airway Extension Act of 2017” (the Act). This law provides temporary tax relief through several provisions for individuals and businesses affected by Hurricanes Harvey, Irma, and Maria.
Likely the most beneficial provisions of the Act are the easement of account access to a taxpayer’s retirement plan and the ability to recoup taxes paid on the qualified hurricane distribution. The Act states that a taxpayer in a disaster zone is eligible to withdraw a “qualified hurricane distribution” of up to $100,000 (an increase of the allowable loan amount from $50,000 to $100,000), without paying the 10% early withdrawal penalty mandated for pre-retirement withdrawals. It also removes the requirement that the participant cannot receive more than 50% of their account balance. Furthermore, the Act allows the taxpayer to disperse over a three-year period any income inclusion related to this distribution.
A qualified taxpayer can recontribute the amount of the distribution at any time over a three-year period. If the distribution is recontributed, the taxpayer can recoup any tax on the qualified hurricane distribution paid during the year (or previous year). For example: A plan participant receives a qualified hurricane distribution of $100,000 in 2017. The participant is required to include a sum of $33,333 in taxable income in 2017, 2018 and 2019. If, in 2018, the taxpayer recontributes the $100,000 into his or her retirement plan account, the taxpayer can then amend the 2017 income tax return to receive a refund of any taxes paid on the $33,333 inclusion amount.
Some of the Act’s other provisions include deductions taxpayers may take on their individual income tax returns, and the removal of certain restrictions on qualified charitable contributions and casualty losses. The Act suspends limitations, eases rules for excess contributions, and provides an exception from the overall limitation on itemized deductions for charitable contributions. Casualty losses are no longer limited. The requirements that the loss must exceed 10% of a taxpayer’s adjusted gross income, and that an individual must itemize his or her deductions (versus taking the standard deduction) to benefit from a casualty loss deduction, have been removed.
In addition, taxpayers in a disaster area have been granted further relief if they have not yet filed their 2016 business or individual tax returns. Tax returns originally due on September 15 and October 15 are granted an additional extension of time to complete these filings to January 31, 2018.
This article is merely an overview of the Act; additional provisions have not been covered here. If you have questions about other ways the 2017 Disaster Tax Relief Bill might impact you or your business, or would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below at (800) 270-9629.