This year’s tax season looks a little different than in the past for people who live in areas that were affected by the major hurricanes in 2017. The IRS is still focused on accommodating the various tax needs, including relief efforts, of individuals impacted by the disasters.
On September 29, Congress passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017, and President Trump signed it into law shortly thereafter. The legislation modifies a few key tax provisions relative to individuals and businesses located in areas affected by Hurricanes Harvey, Irma and Maria. This includes the U.S. Virgin Islands.
Some of the tax changes the IRS began working on as a result of this bill include the following:
- Easier withdrawals and loans from retirement plans such as IRAs and 401(k)s to help disaster-stricken taxpayers get their hands on the liquid cash they need;
- Various employment-related tax credits to help hurricane-affected taxpayers during tax season;
- Additional deductions for charitable contributions, especially those made toward organizations assisting with disaster relief efforts;
- Additional deductions for personal casualty losses, providing some relief for those who lost significant assets during the storms;
- Adjustments to income requirements for the Child Tax Credit and Earned Income Tax Credit.
Steps affected individuals and businesses can take
While the above describes the steps the federal government has taken to make tax season easier on individuals, there are specific strategies affected individuals and businesses can use to realize some savings this tax season as well.
For example, if you suffered property damage from the hurricane(s), you may qualify for a tax break that helps you offset losses not covered by insurance. Under federal law, losses resulting from disasters such as hurricanes and floods are deductible if not reimbursed by insurance. However, if your property is insured and you did not file a homeowner’s insurance claim, you cannot take this deduction.
Only individuals who itemize their taxes can take the write-off for damage to personal property, such as a home or vehicle—and there are some offsets that apply to these losses. When taking the deduction, you must reduce the value of the loss by $100, and then deduct the balance only to the level at which it exceeds 10 percent of your adjusted gross income. For example, if you suffered $20,000 in damage during Hurricane Maria and your adjusted gross income is $100,000, you would subtract the $100, then $10,000 (representing the 10 percent of AGI) from the remaining $19,900. The $9,900 that remains is the amount of money you can deduct on your tax return.
One thing is clear: these deductions and tax policies can be confusing to navigate. For more information and guidance on the various tax considerations in the wake of Hurricanes, meet with a knowledgeable tax planning attorney in the U.S. Virgin Islands.
Nash Davis is an associate in the Real Estate and Financial Services and the Corporate, Tax & Estate Planning Practice Groups of BoltNagi PC, a full service business law firm on St. Thomas, U.S. Virgin Islands.