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Friday, February 22, 2013

Tax Provisions to Assist with Disaster Recovery

Erika K. Lunder
Legislative Attorney

Carol A. Pettit
Legislative Attorney

Jennifer Teefy
Information Research Specialist

Relief after a natural or man-made disaster may come from what many might consider an unlikely source: the Internal Revenue Code (IRC). The IRC includes several tax relief provisions that apply to affected taxpayers. Some of these provisions are permanent. The following are among the permanent provisions discussed in this report:

  • casualty loss deductions, IRC Section 165; 
  • exemption from taxation for disaster relief payments to individuals, IRC Section 139; 
  • exemption from taxation for certain insurance payments, IRC Section 123; and 
  • deferral of gain from the involuntary conversion of homes destroyed or damaged by a disaster, IRC Section 1033. 

In recent years, Congress has enacted tax legislation generally intended to assist victims of specific disasters; as a result, these laws were temporary in nature. One act, however, provided more general, but still temporary, relief for any federally declared disaster occurring prior to January 1, 2010. The acts providing temporary relief include the following:

  • The Job Creation and Worker Assistance Act of 2002, P.L. 107-147, which provided tax benefits for areas of New York City damaged by the terrorist attacks of September 11, 2001; 
  • The Katrina Emergency Tax Relief Act of 2005 (KETRA), P.L. 109-73, which provided tax relief to assist the victims of Hurricane Katrina in 2005; 
  • The Gulf Opportunity Zone (GO Zone) Act of 2005, P.L. 109-135, which provided tax relief to those affected by Hurricanes Katrina, Rita, and Wilma in 2005; 
  • The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill), P.L. 110-234, which provided tax relief intended to assist those affected by severe storms and tornados in Kansas in 2007; and 
  • The Heartland Disaster Tax Relief Act of 2008, P.L. 110-343, which provided tax relief to assist recovery from both the severe weather that affected the Midwest during the summer of 2008 and Hurricane Ike. This act also included general disaster tax relief provisions that applied to federally declared disasters occurring before January 1, 2010. 

This report provides a basic overview of existing, permanent provisions that benefit victims of disasters, as well as past, targeted legislative responses to particular disasters. The relief is discussed without examining either the qualifications for or the limitation on claiming the provisions’ benefits. In light of Hurricane Sandy, this report is designed to help Congress identify previous legislative responses to recent disasters.

Date of Report: February 6, 2013
Number of Pages: 23
Order Number: R42839
Price: $29.95

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