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Katrina Emergency Tax Relief Act 2005

Jerry Nicholson, District Manager

The Katrina Emergency Tax Relief Act of 2005 helps those who need it most – low- and moderate-income taxpayers who may have otherwise lost important tax benefits as a result of the hurricane, according to H&R Block.

By enabling low- and moderate-income Katrina victims to use their 2004 income to calculate the earned income and child tax credits on their 2005 returns, the law ensures that those who lost income as a result of the disaster will not have these valuable credits reduced or eliminated. H&R Block lobbied Congressional tax leaders to include the provision.

“By protecting the earned income and child tax credits, the law protects low- and moderate-income Katrina victims from losing their most commonly claimed and most valuable tax benefits,” said Nicholson, District Manager of H&R Block.

The provision protecting earned income and child tax credits is one of several in the law that provide tax benefits to Katrina victims. Charitable contributions, housing assistance and certain volunteer activities that support hurricane relief efforts also receive favorable tax treatment.

Other new tax benefits for Katrina victims include:

• Limits on casualty losses have been eliminated for disaster victims, thereby increasing the amount of loss that can be claimed. For example, a taxpayer with a casualty loss of $5,000 and income of $20,000 may claim the full $5,000 loss instead of the $2,900 normally allowed.
• The law waives the 10 percent penalty for premature withdrawals from IRAs and other qualified retirement plans, including 401(k) plans, for individuals whose principal residence is in a federally declared disaster area. Also, taxpayers may elect to pay tax on the withdrawal over a three-year period.
• Individuals whose principal residence was damaged or destroyed by the hurricane will receive an extra year to replace the property, giving them a total of five years.
• The law also extends from two years to five years the window for business owners to replace damaged or destroyed property. These provisions enable taxpayers to postpone taxable gain on insurance proceeds.

H&R Block Mortgage Corp. offers a full range of retail mortgage services. Option One Mortgage Corp. provides mortgage services and offers wholesale mortgages through large financial institutions and a network of 24,000 independent mortgage brokers. RSM McGladrey Business Services Inc. and its subsidiaries serve mid-sized businesses and their owners with tax, accounting and business consulting services, as well as personal wealth management services. H&R Block Small Business Resources is a new business currently operating in 14 U. S. cities that serves the tax, financial and business needs of small business owners. H&R Block Small Business Resources is not a licensed CPA firm. For more information about the company, visit our Online Press Center.