New Act Includes Disaster Tax Relief for Victims of California Wildfires

On Friday, Feb. 9, 2018, Congress passed and the President signed into law the Bipartisan Budget Act of 2018 (the Act), putting an end to the short-lived government shutdown. In addition to keeping the government funded through March 23, the Act includes a number of tax law changes. Notably, the Act contains disaster tax relief to victims of California wildfires, retroactive extension through 2017 of “extender” provisions and various other tax provisions.

The disaster relief accorded to the victims of the California wildfires provides relief similar to what was granted to the victims of Hurricanes Harvey, Irma and Maria earlier in 2017. The relief benefits include:

  • Qualified retirement plan relief allowing for exemption from the 10-percent early retirement plan withdrawal penalty, the right to roll such funds back into a plan for three years from the date of the qualified distribution, and the ability to return funds to a retirement plan that were withdrawn for a home purchase abandoned due to the wildfire and special rules related to the provision of loans from qualified plans
  • A tax credit for 40 percent of wages (up to $6,000 per employee) by a disaster-affected employer for continuing to pay employees when the place of business in the wildfire area was closed due to wildfire related issues
  • Temporary suspension of the 50-percent (or, for 2018, 60-percent) limitation on charitable contributions if made for wildfire relief through the end of 2018
  • Elimination of the 10-percent minimum adjusted gross income requirement for deductible personal casualty losses arising from the wildfire
  • The ability for taxpayers in the affected areas to use either 2016 or 2017 amounts of earned income to compute the earned income tax credit

The Act extends the following individual provisions for one year (for 2017):

  • Exclusion for discharge of indebtedness on a principal residence
  • Treatment of mortgage insurance premiums as deductible qualified residence interest
  • Above-the-line deduction for qualified tuition and related expenses

On the business front, the provisions extended by the Act for 2017 include:

  • 3-year depreciation for race horses two years old or younger
  • 7-year recovery period for motorsports entertainment complexes
  • Expensing rules for certain film, television and live theatrical productions
  • Deductions allowable with respect to income attributable to domestic production activities in Puerto Rico
  • Empowerment zone tax incentives

The Budget Act also extended energy provisions for one year (2017) including:

  • Certain nonbusiness energy property
  • Qualified fuel cell motor vehicle credit
  • Alternative fuel vehicle refueling property credit
  • Credit for 2-wheeled plug-in electric vehicles
  • Second generation biofuel producer credit
  • Biodiesel fuel and renewable diesel incentives
  • Credit for construction of new energy efficient homes
  • Special depreciation allowance for second generation biofuel plant property
  • Energy efficient commercial buildings deduction

Other provisions include:

  • 30-percent Investment Tax Credit for qualified fuel cell, solar energy, fiber optic solar energy and qualified small wind energy available for property construction beginning prior to 2020 and phased out for construction beginning before 2022
  • 10-percent Investment Tax Credit for qualified microturbine, combined heat and power system and thermal energy property where the construction of property begins before 2022
  • Credit for residential energy property extended for property placed in service prior to 2022

We will continue to keep you informed of the developments.

Please contact your GHJ tax advisor (310.873.1600) if you have any questions or wish to discuss the changes in more details.