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Disaster Relief Tax Provisions

The H.R. 1865 government funding legislation contains numerous tax-related provisions designed to help taxpayers affected by natural disasters and to encourage charitable donations for disaster relief. These provisions are included in a division of the bill entitled the “Taxpayer Certainty and Disaster Tax Relief Act of 2019.”

Interestingly, not all changes are related to natural disasters.

Use of retirement funds. The Disaster Act waives the 10% early withdrawal penalty for retirement fund distributions used for disaster relief, for up to $100,000. It also allows taxpayers to put their money back in retirement plans for withdrawals used for home purchases canceled due to disasters, and it provides more flexibility for loans from retirement plans for hurricane relief.

Employee retention credit for employers affected by disasters. The Act creates a 2018-2019 employee retention credit for 40% of wages (up to $6,000 per employee) paid by a disaster-affected employer to an employee from a core disaster area.

Temporary suspension of limitations on charitable contributions. The Act temporarily suspends the 60% and 10% limitations on the deduction for charitable contributions if the contributions are made for disaster relief.

Special rules for personal casualty losses. The Act eliminates the 10% floor on casualty losses caused by a natural disaster and allows the deduction even if taxpayers do not itemize their deductions.

Automatic extension of tax filing deadline. The Act gives a 60-day extension for tax filings for taxpayers with a principal residence or business in a disaster area, for federally declared disasters after December 20, 2019.

Modification of excise tax on private foundations. The Act simplifies the private foundation excise tax on investment income to replace the two-level tax with a flat 1.39% tax. This provision is designed to encourage larger, one-time donations for disaster relief and applies to tax years beginning after December 20, 2019.

Tax-exempt status of certain mutual or cooperative telephone or electric companies. The Act modifies the definition of income used to determine the tax-exempt status of a mutual or cooperative telephone or electric company to exclude certain government grants, contributions, and assistance.

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