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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 California.

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.

"Tax software is no substitute for tax knowledge."

Any views expressed herein are based on our best information. The content of this web site was written as general information without specific individual information and thus may not apply in all situations. This material was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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Janelle Ogg, EA
Richard Ogg, EA