Posted by : Daniel Stoica in (Articles, Federal Income Tax, Income Taxes, Tax Filing, Tax Forms, Tax Help, Tax Law, Tax Tips) On: June 6th, 2011
Tagged Under : accounting, changes, Daniel Stoica, Depreciation, disbursement, law, losses, National Disaster Relief Act, operating loss, professional, property, property damage, relief, Tax, tax benefits, tax professional, taxpayer
The National Disaster Relief Act of 2008 provides tax relief for victims of federally declared disasters. Before the passage of the National Disaster Relief Act, Congress gave tax benefits for taxpayers affected by a disaster that were specific to that particular disaster. The National Disaster Relief Act provides tax benefits that can be used by those who are affected by a federally declared disaster. It replaces the way the government provides benefits for disaster victims in the weeks or months following the disaster. If you have been affected by a federally declared disaster, speak with a tax professional about your options.
Major parts of the National Disaster Relief Act are listed below:
Losses Due to Federally Declared Disasters
Section 706 of the National Disaster Relief Act gives relief to taxpayers whose personal-use property was damaged or destroyed by a casualty in a federally declared disaster area.
The new law removes the 10% of adjusted gross income limitation for net disaster losses and lets individuals claim the net disaster losses even if they do not itemize their deductions.
To qualify, the loss must be due to a federally declared disaster and happen in an area determined by the President to warrant federal assistance. Information on disaster declarations and the areas they include can be found at the Federal Emergency Management Agency (FEMA) Web site.
Disbursement of Qualified Disaster Expenses
Section 707 of the National Disaster Relief Act allows taxpayers to deduct qualified disaster expenses. Qualified disaster expenses are expenses paid within a business or with business-related property that would be capitalized and that are:
-For the reprieve or control of hazardous substances that were released because of a federally declared disaster;
-Debris removal of structures on real property damaged or destroyed by a federally declared disaster; or
-For the repair of business property damaged by a federally declared disaster.
A federally declared disaster is any disaster determined by the President to need help by the federal government under the Stafford Act.
Net Operating Losses Attributable to Federally Declared Disasters
A net operating loss is held back two years and carried forward 20 years. Section 708 of the National Disaster
Relief Act lets taxpayers hold back a disaster loss for 5 years. A qualified disaster loss is the taxpayer’s net operating loss for the taxable year or the sum of the following:
-The taxpayer’s losses allowable for the tax year due to a federally declared disaster in a disaster area; and
-The taxpayer’s deduction in the tax year for qualified disaster expenses.
Special Depreciation Allowance for Qualified Disaster Property
Section 710 of the National Disaster Relief Act gives a 50% depreciation allowance for purchases of disaster assistance property. It lets taxpayers take 50% off of the cost of qualified disaster assistance property plus the normal depreciation allowance.
To qualify for the depreciation allowance, at least 80% of the use of the property must be in the disaster area and be business property used by the taxpayer in the disaster area. The property owner must also fix any property damage, or replace the property.
Increased Expensing for Qualified Disaster Assistance Property
A taxpayer may choose to “expense up” to a certain amount or dollar limit if the property is placed in service during the tax year. This limit is reduced, but not below zero, if the cost of of the property placed in service during that year passes a certain amount, or reduced dollar limit.