Rep. Kind Introduces Fair Disaster Tax Relief Act to Establish Nationwide Permanent Disaster Relief Program

Legislation Would Help Families in Wisconsin Affected By Flooding,

All States That Have Suffered Disasters

Washington, DC – U.S. Rep. Ron Kind (D-WI), member of the House Committee on Ways and Means, announced he will introduce today the Fair Disaster Tax Relief Act, legislation establishing a nationwide, permanent disaster relief program for families and businesses affected by floods, tornadoes, wildfires, hurricanes, or any other disaster that yields a presidential disaster declaration. The bill currently has 13 original cosponsors from nine states.

“Ten states in the Midwest, including Wisconsin, experienced devastating floods earlier this year, and this bill will go a long way to give those families and businesses the help they need to rebuild,” Rep. Kind said. “But beyond the Midwest flooding, there were fifteen other states that received presidential disaster declarations in the first half of 2008 that are also in need of relief. I think it is about time that we have a mechanism in place to help families – regardless of what state they live in or how far-reaching the disaster – without having to wait for Congress to act each time something happens.”

Under the Fair Disaster Tax Relief Act, 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 January 1, 2008. The bill includes four provisions that would better allow families and businesses to recover expenses they incur as a result of the disaster and gain housing assistance. The bill, which would make these tax benefits permanent, is estimated to cost $13.5 billion over ten years, and would be completely paid for through revenue-raising measures that have yet to be determined.

“As history has shown, Mother Nature will continue to deal us periodic blows,” Rep. Kind continued. “And 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. For example, last year presidential disaster areas were declared in 32 states, but Congress provided families and businesses in only one state with disaster tax relief. With this bill we can change that, and get every family and business who qualifies tax relief to help them rebuild and move on.”

The bill includes the following provisions:

Writing Off Qualified Disaster Expenses

If a taxpayer spends money to clean up after a disaster, they may be unable to recover these expenses right away. Instead, the taxpayer may be required to capitalize these expenses and recover these costs over time. The period of time over which these expenses may be recovered can be as long as 39 years.

The Fair Disaster Tax Relief Act would allow disaster victims and businesses to write off and immediately recover demolition, clean up, repair, and environmental remediation expenses.

Reforming Casualty Loss Rules

When property (e.g. a house, a car, or a roof) is destroyed in a disaster, taxpayers are only allowed to claim a loss that exceeds $100 and 10 percent of their adjusted gross income (AGI). For example, if a family with an AGI of $60,000 loses its $10,000 car in a flood, the family would only be allowed to claim a loss that exceeds $100 and $6,000 (i.e. 10 percent of $60,000). Therefore, they would only be able to claim a loss of $3,900.

The Fair Disaster Tax Relief Act waives the restrictive 10 percent rule and raises the $100 floor to $500. With these improvements, the family described above would be able to claim a loss of $9,500 for their destroyed car.

Extending Carry Back for Losses and Qualified Disaster Expenses

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. Under current law, taxpayers can carry losses back two years.

The Fair Disaster Tax Relief Act would allow taxpayers to carry back losses five years instead of two. This will increase the pool of income taxes that may be offset by the disaster losses and, therefore, can increase the size of a disaster victim’s refund.

Providing Housing Assistance for Disaster Victims

Under current law, states are allowed to issue tax exempt bonds to finance low-interest loans to first-time home buyers and to build low income rental housing.

The Fair Disaster Tax Relief Act would allow States to use these tax exempt bonds to also finance low-interest loans to taxpayers whose principal residence has been damaged by a disaster. These loans can be used to make repairs or reconstruction up to $150,000.

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