Hurricane Katrina Tax Relief
During September 2005 Congress moved quickly to secure relief for the victims
of Hurricane Katrina. The House and the Senate each passed similar bills that
were quickly reconcilled and signed into law by President George W. Bush on
September 23, 2005.
The affects of the bill are all temporary, although some of the terms extend
to five years out. In all there is 16 major provisions of the law, but most
of them only affect people living in the Presidentially declared disaster area.
The following have a wider impact and could affect individuals in Northern
Additional Exemption for Housing Dislocated Persons
Individuals who have provided free housing to victims of Hurricane Katrina for
a period of 60 consecutive days will be entitled to an additional tax
exemption of $500 each, not to exceed $2000. This provision is not available
for anyone already claimed on the taxpayer's return. It also does not affect
any exemptions cliamed on the victim's return.
This provision is effective for 2005 and 2006.
Cash Donations by Corporations
The Act suspends the limitations on corporate tax deductions for cash
contributions to charitable organizations for relief efforts related to
Hurricane Katrina made between August 28 and
December 31, 2005.
Cash Donations by Individuals
The Act suspends the limitations on individual tax deductions for cash
contributions to charitable organizations made between August 28, 2005
and December 31, 2005.
Generally, individuals are limited to deducting 50% of their AGI to most
charities. (For some charities the limit is 30%. Also, for appreicated
property the limits can be reduced to 30% and 20%.)
Under the Act, cash contributions (which include contributions
made by check) made to a qualified charity from August 28
to December 31 may be deducted up to 100% of the taxpayer's AGI.
Qualified charities are those that meet the standard requirements plus
the contribution must be for relief efforts related to Hurricane Katrina.
Donations of Educational Books
The Act allows an increased tax deduction for charitable contributions of
book inventories made to public schools in the disaster area
between August 28 and December 31, 2005.
Under current law, taxpayers may claim an enhanced deduction equal to the
lesser of (1) basis plus one-half of the item's
appreciated value (e.g.,
basis plus one half of fair market value in excess of basis) or (2) two
times basis for donations of book inventory.
The Act allows taxpayers to claim an enhanced deduction for donations
of book inventory equal to the lesser of fair market value or twice basis.
Using a Personal Vehicle for Charitable Work
In response to the recent dramatic gas price increases, the IRS announced
that the optional standard mileage rate increased 8 cents to 48.5 cents a
mile for all business miles driven between September 1 and December 31, 2005.
The Act increases to 70% of the optional mileage rate for business usage,
the mileage rate for the tax deduction for charitable use of an automobile
for Hurricane Katrina relief between August 25, 2005 and December 31, 2006.
So the rates are:
|August 25 - August 31, 2005|| 29 cents per mile|
|September 1 - December 31, 2005|| 34 cents per mile|
The mileage rate individuals may use to compute a tax deduction for
personal vehicle expenses associated with charitable work is statutory
(set by Congress) and has not been increased since 1997.
In all other cases, the mileage rate for charitable activities
remains at 14 cents a mile.
Reimbursements to Volunteers for Auto Expenses
The Act excludes from gross income reimbursements to volunteers for
automobile expenses for providing Hurricane Katrina disaster relief
between August 25, 2005, and December 31, 2006.
Note on changes:
This page has been significantly revised twice in relationship
to the rules on charitable giving. Early analysis did not include any
limitations on what a "qualified charity" was. Then the analysis that we
had access to was removed and copies of the bill we obtained indicated that
there was a requirement that a "qualified charity" be
involved with direct relief work
to those impacted by the huricane. It is now clear that this requirement
only applies to corporations, not to individuals. We apologize for any
confusion this created.