Washington, DC - The House Committee on Ways and Means today introduced a package of disaster tax provisions targeted at businesses and families affected by the natural disasters in 2008. H.R. 7006, the Disaster Tax Relief Act of 2008 establishes a flexible, national plan for dealing with disaster relief that would extend to floods, tornadoes, wildfires, hurricanes, or any other disaster that yields a presidential disaster declaration.
“Communities across this great nation have witnessed the devastating power of Mother Nature and we must band together to give them the resources they need to recover and rebuild," said Ways and Means Committee Chairman Charles B. Rangel (D-NY). “This legislation provides a national, flexible package of economic recovery incentives to help families and businesses get their feet back under them and move forward to a brighter future."
“As history has shown, Mother Nature will continue to deal us periodic blows," said U.S. Rep. Ron Kind (D-WI) a lead sponsor of the bill. “Losing a home to a tornado that only briefly touched down is as devastating to a family as losing it in a large-scale flood or hurricane that garners national news coverage and attention. In the past, Congress has provided tax relief for disaster victims only in an ad hoc fashion, leaving many deserving individuals out. With this bill we have an opportunity change that immediately, and get help to all the families and businesses who need it to rebuild."
In 2007, 32 states received Presidential disaster declaration, but Congress provided families and businesses in only one state with disaster tax relief. Similarly, this year 30 states have already received disaster declarations, but so far none of them have received tax relief to rebuild. Under the bill, a “disaster" would be any area determined by the President to warrant assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act after Jan. 1, 2008. These tax benefits would be in place for three years, at which time Congress would need to extend them.
A summary of H.R. 7006 follows:
SEQ CHAPTER h 1H.R. 7006
Disaster Tax Relief Act of 2008
Sept. 23, 2008
Summary: H.R. 7006, the Disaster Tax Relief Act of 2008, would provide relief to taxpayers affected by Federally-declared disasters nationwide, declared after Jan. 1, 2008 and before Dec. 31, 2011. Unlike the Senate-passed disaster relief package, H.R. 7006 would provide every area in the country with equal relief in the event of a Federally-declared disaster. The program is designed to allow the Federal government to be flexible and swift in delivering tax relief to victims of Federal-declared disasters. The bill would waive the income limitations on personal loss deductions, allow businesses to write-off certain qualified disaster cleanup expenses, permit a five-year carry back for certain losses, waive certain mortgage revenue bond requirements to allow bond proceeds to be used for rebuilding, provide additional low-income housing tax credits to communities with housing losses, add a new set of disaster private activity bonds for business reconstruction, and waive certain limitations on charitable contributions for disaster relief. The bill would also increase the standard mileage rate for the charitable use of a vehicle (whether used in a disaster or otherwise).
Disaster Tax Relief Provisions
Individuals Allowed to Claim Expanded and Enhanced Casualty Loss Deductions Relating to Federal Disasters. Under current law, personal casualty losses are deductible only by taxpayers who itemize. Even for these taxpayers, casualty losses are only allowed to the extent that each loss exceeds $100 and net casualty losses exceed ten percent of adjusted gross income. The bill would allow all taxpayers who have suffered loss as a result of a Federally-declared disaster to claim a deduction for casualty losses (i.e., both itemizers and non-itemizers) and would allow these taxpayers to calculate their casualty loss deduction without regard to their adjusted gross income. In exchange, the current $100 per loss threshold would be increased to $500 in taxable years beginning after Dec. 31, 2008. This expanded relief for individuals would be available through 2011. This proposal is estimated to cost $2.453 billion over 10 years.
Businesses Allowed to Immediately Write-Off Certain Expenses Relating to Federal Disasters. Under current law, businesses are allowed to write-off the cost of certain expenses immediately but are required to capitalize (and, in certain cases, deduct over time) the cost of other expenses. Whether a business can immediately write-off an expense or must capitalize an expense depends on the facts and circumstances of the particular expense. The bill would allow businesses that have been adversely affected by a Federally-declared disaster to write-off and immediately recover demolition, repair (regardless of whether repair costs are incurred due to a casualty event), clean-up, and environmental remediation expenses (“Qualified Disaster Expenses"). This relief for businesses would be available through 2011. This proposal is estimated to cost $106 million over 10 years.
Businesses Allowed a Five-Year Carry-Back Period for Certain Losses Relating to Federal Disasters. Under current law, businesses are generally allowed to carry back net operating losses to the previous two years. When taxpayers carry losses back to prior years, they receive a refund of the taxes that they paid in the earlier year. This prompt refund can help them reinvest in their businesses or make ends meet in the aftermath of a disaster. The bill would allow businesses to carry back to the previous five years the following losses: (1) casualty losses that are attributable to a Federally-declared disaster; and (2) Qualified Disaster Expenses. This tax relief for businesses would be available through 2011. This proposal is estimated to cost $465 million over 10 years.
Mortgage Revenue Bond Financing for Individuals Suffering Home Damage as a Result of a Federal Disaster. Under current law, there is a limit on the annual amount of tax-exempt housing bonds that each state may issue. These bonds are used to provide loans to first-time home buyers and to finance the construction of low-income rental housing. Earlier this year, Congress passed legislation that would increase this national limit in 2008 to allow for the issuance of an additional $11 billion of tax-exempt bonds to provide loans to first-time home buyers, to finance the construction of low-income rental housing, and to refinance certain subprime loans. The bill would allow states to use their tax-exempt housing bonds to provide loans to repair or reconstruct homes and rental housing units that have been rendered unsafe for use as a residence by reason of a Federally-declared disaster or have been demolished or relocated by reason of government order on account of a Federally-declared disaster. Such loans are limited to the lower of (1) the actual cost of the repair or reconstruction or (2) $150,000. This proposal is estimated to cost $55 million over 10 years.
Low-Income Housing Tax Credits for States Suffering a Loss of Affordable Housing as a Result of a Federal Disaster. Under current law, there is a state-by-state limit on the annual amount of Federal low-income housing tax credits that may be allocated by each state. This limitation is currently set at $2.00 for each person residing in the state. States with small populations are provided with a special set aside. Earlier this year, the President signed into law a 20 cent increase in this limitation for each person residing in a state (and a 10 percent increase in the small-state set aside) for 2008 and 2009. Recent disasters have damaged and destroyed affordable housing in a large number of communities. The bill would provide the Secretary of the Treasury with the authority to allocate additional low-income housing tax credits to states that contain Federal disaster areas. Under the bill, the Secretary of the Treasury would have the authority to allocate additional low-income housing tax credits capable of building an additional $2 billion of affordable housing. States that have been damaged by a Federally-declared disaster would apply to the Secretary of the Treasury for these additional low-income housing tax credits. In making an allocation of these low-income housing tax credits, the Secretary of the Treasury will prioritize those states that have suffered the greatest housing losses as a result of a federally declared disaster (i.e., states with areas in which more than 1,000 dwelling units or 10 percent of the dwelling units in such county or municipality have been rendered unhabitable by reason of damage to or destruction caused by a Federally-declared disaster). This proposal is estimated to cost $1.413 billion over 10 years.
Private Activity Bond Financing for Businesses Suffering Damage as a Result of a Federal Disaster. Under current law, there is a limit on the annual amount of tax-exempt private activity bonds that each state may issue. Some states have reached their limit. Under the bill, the Secretary of the Treasury would have the authority to allow for the issuance of an additional $13 billion of tax-exempt private activity bonds to finance the replacement, repair, reconstruction, or renovation of business property that was damaged or destroyed as a result of a Federally-declared disaster. In allocating this additional bond authority, the Secretary of the Treasury will give priority to those areas that have suffered the greatest business losses as a result of a federally declared disaster (i.e., states with areas in which disaster-related damages are at least $50 million or with areas in which disaster-related damages are equal to 5 percent of the pre-disaster value of business property in such area). This proposal is estimated to cost $1.442 billion over 10 years.
Increase in Standard Mileage Rate for Charitable Use of a Vehicle. The bill would increase, through Dec. 31, 2011, the standard mileage rate used for purposes of calculating a charitable deduction from 14 cents a mile to an amount determined by the Secretary of Treasury that is not less than the standard rate used for medical purposes (currently, 27 cents a mile). This proposal is estimated to cost $506 million over 10 years.
Waiver of Charitable Contribution Limits for Relief Relating to Federal Disasters. Under current law, the amount allowed as a charitable deduction in any taxable year generally may not exceed ten percent of a corporation’s taxable income or fifty percent of an individual’s adjusted gross income. The bill generally waives these limits regarding charitable cash contributions that are made prior to Dec. 31, 2009 for relief efforts related to a Federally-declared disaster. This proposal is estimated to cost $1.609 billion over 10 years.
