From William Perez,
Your Guide to Tax Planning: U.S..
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The Internal Revenue Service and Congress have extended special tax relief provisions for the victims of Hurricanes Katrina, Rita, and Wilma. Some provisions apply only to Katrina victims, while some provisions apply to all hurricane victims. The Katrina Emergency Tax Relief Act of 2005 (KETRA, HR 3768, P.L. 109-73) and the Gulf Opportunity Zone Act of 2005 (HR 4440, P.L. 109-135) provide several tax breaks for hurricane victims. The IRS provided immediate tax relief through various administrative notices. New IRS Publication 4492 (PDF, 19 pages) collates all the tax relief measures into one convenient document. For a comprehive summary of the Gulf Opportunity Zone Act, please download the CCH Tax Briefing (PDF, 9 pages).

Available to All Disaster Victims

Tax deduction for casualty and theft losses. Residents in Presidential Disaster Areas may claim "disaster-related casualty losses on their federal income tax return for either this year [2005] or last year [2004]," according to the IRS. People can file an amended return for 2004 to claim a quick tax refund due to their losses.

Casualty losses are 100% deductible. Normally, casualty losses are subject to two limitations: $100 threshold per loss, and 10% of adjusted gross income threshold. Congress has suspended these limitations for hurricane victims.

Automatic extensions of time to file tax returns and time to pay tax debts. Taxpayers in the Presidential Disaster Areas have until February 28, 2006, to file tax returns or to make tax payments. This extends the normal October 15th deadline for personal returns and the September 15th deadline for corporate returns.

Waiver of fees and expedited service for requests of tax documents. Taxpayers may request copies of their W-2s, 1099s, and other tax documents, or request photocopies of previously filed tax returns. Requests for transcripts or photocopies of these documents should file IRS Form 4506, "Request for Copy of Tax Return," or Form 4506-T, "Request for Transcript of Tax Return." You may need copies of your tax returns and W2s if you have lost your paperwork.

Collection and audit actions by the IRS can be deferred. Simply let the IRS know you are affected by the hurricane and request a deferral of these tax matters.

Retirement plan withdrawals can be re-contributed over 3 years. Hurricane victims can withdraw up to $100,000 from retirement accounts without paying the 10% early withdrawal penalty or being subject to the mandatory 20% backup withholding. The amount withdrawn is included in taxable income. If the amount is paid back within three years, victims can file amended tax returns to reclaim the additional tax they paid in. IRS Form 8915 (a new tax form) will be used to report distributions and repayments.

Loans of up to $100,000 from employers-sponsored retirement plans. Normally, employees can borrow up to 50% of their vested balance in 401k and other retirement plans. Katrina victims can borrow up to 100% of their vested account balance, up to $100,000. Up to $10,000 can be borrowed even if it exceeds the participant's vested account balance. Loans must be repaid over a five-year period. Any amount not repaid will be considered taxable income and subject to the early withdrawal tax penalty.

First-time homeowner IRA withdrawal can be re-contributed by February 28, 2006. Taxpayers can withdraw money from their traditional or Roth IRA to purchase or to build a home. If your home purchase or construction was delayed or canceled due to Katrina, the taxpayer may re-deposit that IRA withdrawal by February 28, 2006, to avoid including that distribution as taxable income.

Extra personal exemption for housing displaced people. Taxpayers who provided free housing to Katrina victims may be eligible for an extra personal exemption worth $500. To qualify, taxpayers must house displaced persons in their main house, at no cost, for at least 60 consecutive days. Taxpayers may claim up to four extra exemptions of $500 each, for a total of $2,000 extra, on either their 2005 or 2006 tax returns.

No tax on mileage reimbursement. Taxpayers driving their own vehicles to provide charity to Katrina victims may exclude the full value of any mileage reimbursement. Mileage must be for the time period between 8/24/2005 and 1/1/2007. Taxpayers must substantiate their mileage using a travel log book or detailed expense report submitted for reimbursement.

State Tax Relief

Various state tax agencies have adopted tax relief measures. You can find information on all the states at State Responses to Katrina Disaster from the Federation of Tax Administrators.

IRS Tax and Legal Guidance

The IRS lists all federal tax relief provisions at IRS Tax Relief in Disaster Situations.