Funding Hurricane Relief: Limitations Suspended for Charitable Contributions

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Brian K. Janowsky

The President signed into law the Disaster Tax Relief and Airport and Airway Extension Action of 2017 last week, which provides tax incentives for those making charitable contributions to assist in the relief efforts underway in areas affected by Hurricanes Harvey, Irma, and Maria.

This Act has suspended the limitations that normally apply when deducting charitable contributions. A taxpayer who itemizes their deductions can claim a deduction for contributions made to charity. Under typical conditions, the deduction is limited to either 50, 30, or 20 percent of the taxpayer’s adjusted gross income (AGI) depending on the status of the recipient organization, with a five-year carry forward for any amounts that cannot be deducted in the year of contribution. A corporate donor is typically also limited to 10 percent of its AGI.

The Act provides preferential treatment for “qualified contributions.” Qualified contributions are defined under the Act as contributions paid:

  1. during the period starting on August 23, 2017 and ending on December 31, 2017;
  2. in cash; and
  3. for relief efforts in the Hurricane Harvey, Irma, or Maria disaster area.

Qualified contributions do not include contributions made to supporting organizations (an organization that exists solely to support another public charity) or to donor-advised funds.

Although the percentage limitations are suspended, a taxpayer may not receive a deduction for qualified contributions that exceeds his or her AGI reduced by any other allowable charitable contributions that are subject to the normal limitation rules.

A taxpayer wishing to take advantage of the ability to make larger gifts for disaster relief must make an election on the taxpayer’s 2017 income tax return and obtain written acknowledgment from the charitable organization that the use of the funds is for relief efforts in the affected areas.

The Act also provides, among other items, relief for certain distributions taken by hurricane victims from retirement accounts and eases rules related to casualty losses.