Income Tax Relief in Times of Disaster

RS22249 -- Income Tax Relief in Times of Disaster

Updated February 17, 2006

Summary

Income tax relief in times of disaster is varied, but typically includes several key provisions in the federal tax code. These provisions include a deduction for casualty losses, the postponement of filing deadlines, and the abatement of interest and/or fees.

Generally, individuals and businesses can claim an income tax deduction for casualty losses. When the casualty losses occur in a presidentially declared disaster area special tax provisions come into play. For example, taxpayers can shorten the amount of time it takes to receive an income tax refund by filing an amended tax return for the previous tax year to claim losses from the disaster. Another special tax rule allows for the deferral of capital gain from involuntary conversions of assets.

Taxpayers in a presidentially declared disaster area who receive grants from FEMA, state programs, charitable organizations, or employers to cover medical, transportation, or temporary housing expenses are able to exclude these grants from taxable income.

Most recently, in response to hurricanes in the Gulf region (Katrina, Wilma, and Rita), Congress enacted additional tax relief. H.R. 3768, the Katrina Emergency Tax Relief Act of 2005, became P.L. 109-73 on September 23, 2005, and H.R. 4440, the Gulf Opportunity Zone Act of 2005, became P.L. 109-135 on December 22, 2005. The new laws expand existing tax relief for victims of the hurricanes.

This report will be updated as warranted by legislative events.