H.R. 6640 – Fair Disaster Tax Relief Act of 2008

110th CONGRESS

2d Session

H. R. 6640

IN THE HOUSE OF REPRESENTATIVES

July 29, 2008

Mr. Kind (for himself, Mr. Lewis of Georgia, Mr. Tanner, Mr. Meek of Florida, Mr. Davis of Alabama, Ms. Moore of Wisconsin, Mr. Sensenbrenner, Mr. Melancon, Mr. Cazayoux, Mr. Jefferson, Mr. Carnahan, Mr. Paul, Mr. Michaud, and Mr. Bishop of New York) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide relief in the case of federally declared disasters.

Short title

This Act may be cited as the Fair Disaster Tax Relief Act of 2008.

Losses attributable to federally declared disasters

(a)

Waiver of adjusted gross income limitation

(1)

In general

Subsection (h) of section 165 of the Internal Revenue Code of 1986 is amended by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively, and by inserting after paragraph (2) the following new paragraph:

(3)

Special rule for losses in federally declared disasters

(A)

In general

If an individual has a net disaster loss for any taxable year, the amount determined under paragraph (2)(A)(ii) shall be the sum of—

(i)

such net disaster loss, and

(ii)

so much of the excess referred to in the matter preceding clause (i) of paragraph (2)(A) (reduced by the amount in clause (i) of this subparagraph) as exceeds 10 percent of the adjusted gross income of the individual.

(B)

Net disaster loss

For purposes of subparagraph (A), the term net disaster loss means the excess of—

(i)

the personal casualty losses—

(I)

attributable to a federally declared disaster, and

(II)

occurring in a disaster area, over

(ii)

personal casualty gains.

(C)

Federally declared disaster

For purposes of this paragraph—

(i)

Federally declared disaster

The term federally declared disaster means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

(ii)

Disaster area

The term disaster area means the area so determined to warrant such assistance.

(2)

Conforming amendments

(A)

Section 165(h)(4)(B) (as so redesignated) is amended by striking paragraph (2) and inserting paragraphs (2) and (3).

(B)

Section 165(i)(1) of such Code is amended by striking loss and all that follows through Act and inserting loss occurring in a disaster area (as defined by clause (ii) of subsection (h)(3)(C)) and attributable to a federally declared disaster (as defined by clause (i) of such subsection).

(C)

Section 165(i)(4) of such Code is amended by striking Presidentially declared disaster (as defined by section 1033(h)(3)) and inserting federally declared disaster (as defined by subsection (h)(3)(C)(i).

(D)

(i)

So much of subsection (h) of section 1033 of such Code as precedes subparagraph (A) of paragraph (1) thereof is amended to read as follows:

(h)

Special rules for property damaged by federally declared disasters

(1)

Principal residences

If the taxpayer’s principal residence or any of its contents is located in a disaster area and is compulsorily or involuntarily converted as a result of a federally declared disaster—

(ii)

Paragraph (2) of section 1033(h) of such Code is amended by striking investment and all that follows through “disaster” and inserting investment located in a disaster area and compulsorily or involuntarily converted as a result of a federally declared disaster.

(iii)

Paragraph (3) of section 1033(h) is amended to read as follows:

(3)

Federally declared disaster; disaster area

The terms ‘federally declared disaster’ and ‘disaster area’ shall have the respective meaning given such terms by section 165(h)(3)(C).

(iv)

Section 139(c)(2) of such Code is amended to read as follows:

(2)

federally declared disaster (as defined by section 165(h)(3)(C)(i)),

(v)

Subclause (II) of section 172(b)(1)(F)(ii) of such Code is amended by striking Presidentially declared disasters (as defined in section 1033(h)(3)) and inserting federally declared disasters (as defined by subsection (h)(3)(C)(i)).

(vi)

Subclause (III) of section 172(b)(1)(F)(ii) of such Code is amended by striking Presidentially declared disasters and inserting federally declared disasters.

(vii)

Subsection (a) of section 7508A of such Code is amended by striking Presidentially declared disaster (as defined in section 1033(h)(3)) and inserting federally declared disaster (as defined by section 165(h)(3)(C)(i)).

(b)

Increase in standard deduction by disaster casualty loss

(1)

In general

Paragraph (1) of section 63(c) of such Code (defining standard deduction) is amended by striking and at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting , and, and by adding at the end the following new subparagraph:

(D)

the disaster loss deduction.

(2)

Disaster loss deduction

Subsection (c) of section 63 of such Code is amended by adding at the end the following new paragraph:

(8)

Disaster loss deduction

For the purposes of paragraph (1), the term disaster loss deduction means the net disaster loss (as defined in section 165(h)(3)(B)).

(3)

Allowance in computing alternative minimum taxable income

Subparagraph (E) of section 56(b)(1) of such Code (relating to standard deduction and deduction for personal exemptions not allowed) is amended by adding at the end the following new sentence: The preceding sentence shall not apply to so much of the standard deduction as is determined under section 63(c)(1)(D)..

(c)

Increase in limitation on individual loss per casualty

Paragraph (1) of section 165(h) of such Code (relating to treatment of casualty gains and losses) is amended by striking $100 and inserting $500.

(d)

Effective dates

(1)

Except as provided by paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2007.

(2)

The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2008.

Expensing of Qualified Disaster Expenses

(a)

In general

Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to itemized deductions for individuals and corporations) is amended by inserting after section 198 the following new section:

198A.

Expensing of Qualified Disaster Expenses

(a)

In general

A taxpayer may elect to treat any qualified disaster expenses which are paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expense which is so treated shall be allowed as a deduction for the taxable year in which it is paid or incurred.

(b)

Qualified disaster expense

For purposes of this section, the term qualified disaster expense means any expenditure—

(1)

which is paid or incurred in connection with a trade or business or with business-related property,

(2)

which is—

(A)

for the abatement or control of hazardous substances that were released on account of a federally declared disaster,

(B)

for the removal of debris from, or the demolition of structures on, real property which is business-related property damaged or destroyed as a result of a federally declared disaster, or

(C)

for the repair of business-related property damaged as a result of a federally declared disaster, and

(3)

is otherwise chargeable to capital account.

(c)

Other definitions

For purposes of this section—

(1)

Business-related property

The term business-related property means property—

(A)

held by the taxpayer for use in a trade or business or for the production of income, or

(B)

described in section 1221(a)(1) in the hands of the taxpayer.

(2)

Federally declared disaster

The term federally declared disaster has the meaning given such term by section 165(h)(3)(C)(i).

(d)

Deduction recaptured as ordinary income on sale, etc

Solely for purposes of section 1245, in the case of property to which a qualified disaster expense would have been capitalized but for this section—

(1)

the deduction allowed by this section for such expense shall be treated as a deduction for depreciation, and

(2)

such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.

(e)

Coordination with other provisions

Sections 198, 280B, and 468 shall not apply to amounts which are treated as expenses under this section.

(f)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

(b)

Clerical amendment

The table of sections for part VI of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 198 the following new item:

Sec. 198A. Expensing of Qualified Disaster Expenses.

(c)

Effective date

The amendments made by this section shall apply to amounts paid or incurred after December 31, 2007.

Net operating losses attributable to federally declared disasters

(a)

In general

Paragraph (1) of section 172(b) of the Internal Revenue Code of 1986 (relating to years to which loss may be carried) is amended by adding at the end the following new subparagraph:

(J)

Certain losses attributable to federally declared disasters

In the case of a taxpayer who has a qualified disaster loss (as defined in subsection (j)), such loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss.

(b)

Qualified disaster loss

Section 172 of such Code (relating to net operating loss deduction) is amended by redesignating subsections (j) and (k) as subsections (k) and (l), respectively, and by inserting after subsection (i) the following new subsection:

(j)

Rules relating to qualified disaster losses

For purposes of this section—

(1)

In general

The term qualified disaster loss means the lesser of—

(A)

the sum of—

(i)

the losses allowable under section 165 for the taxable year—

(I)

attributable to a federally declared disaster (as defined in section 165(h)(3)(C)(i)), and

(II)

occurring in a disaster area (as defined in section 165(h)(3)(C)(ii)), and

(ii)

the deduction for the taxable year for qualified disaster expenses which is allowable under section 198A(a) or which would be so allowable if not otherwise treated as an expense, or

(B)

the net operating loss for such taxable year.

(2)

Coordination with subsection (b)(2)

For purposes of applying subsection (b)(2), a qualified disaster loss for any taxable year shall be treated in a manner similar to the manner in which a specified liability loss is treated.

(3)

Election

Any taxpayer entitled to a 5-year carryback under subsection (b)(1)(J) from any loss year may elect to have the carryback period with respect to such loss year determined without regard to subsection (b)(1)(J). Such election shall be made in such manner as may be prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year.

(c)

Loss deduction allowed in computing alternative minimum taxable income

Subsection (d) of section 56 of such Code (defining alternative tax net operating loss deduction) is amended by adding at the end the following new paragraph:

(3)

Net operating loss attributable to federally declared disasters

In the case of a taxpayer which has a qualified disaster loss (as defined by section 172(b)(1)(J)) for the taxable year, paragraph (1) shall be applied by increasing the amount determined under subparagraph (A)(ii)(I) thereof by the sum of the carrybacks and carryovers of such loss.

(d)

Conforming amendments

(1)

Clause (ii) of section 172(b)(1)(F) of such Code is amended by inserting or qualified disaster loss (as defined in subsection (j)) before the period at the end of the last sentence.

(2)

Paragraph (1) of section 172(i) of such Code is amended by adding at the end the following new flush sentence:

Such term shall not include any qualified disaster loss (as defined in subsection (j)).

(e)

Effective date

The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2007.

Waiver of certain mortgage revenue bond requirements following federally declared disasters

(a)

In general

Paragraph (11) of section 143(k) of the Internal Revenue Code of 1986 is amended to read as follows:

(11)

Special rules for federally declared disasters

(A)

Principal residence destroyed

If the principal residence (within the meaning of section 121) of a taxpayer is—

(i)

rendered unsafe for use as a residence by reason of a federally declared disaster, or

(ii)

demolished or relocated by reason of an order of the government of a State or political subdivision thereof on account of a federally declared disaster,

then for the 2-year period beginning on the date of the disaster declaration, subsection (d)(1) shall not apply with respect to such taxpayer and subsection (e) shall be applied by substituting 110 for 90 in paragraph (1) thereof.

(B)

Principle residence damaged

(i)

In general

If the principal residence (within the meaning of section 121) of a taxpayer resulting from a federally declared disaster was damaged, any owner-financing provided in connection with the repair or reconstruction of such residence shall be treated as a qualified rehabilitation loan.

(ii)

Limitation

The aggregate owner-financing to which clause (i) applies shall not exceed the lesser of—

(I)

the cost of such repair or reconstruction, or

(II)

$150,000.

(C)

Federally declared disaster

For purposes of this paragraph, the term federally declared disaster has the meaning given such term by section 165(h)(3)(C)(i).

(b)

Effective date

The amendment made by subsection (a) shall apply to disasters occurring after December 31, 2007.

Fair Disaster Tax Relief Act of 2008

Legislative Activity

Bill Text