On September 23, 2005, President Bush signed the Katrina Emergency Tax Relief Act of 2005, passed by Congress on September 21, 2005. The $6.1 billion measure would provide tax relief for individuals and businesses affected by the hurricane and incentives to promote charitable donations for victims.
The legislation includes provisions that would provide:
1) Penalty-free withdrawals from IRAs and other qualified retirement plans,
2) Tax-free recontributions of withdrawals made for interrupted home purchases,
3) Expanded qualified plan loan limits,
4) Expansion of the work opportunity tax credit,
5) New employee retention credit,
6) Temporary suspension of individual and corporate limitations on charitable contributions and overall limitation on itemized deductions,
7) Increase in standard mileage rate for charitable use of vehicles and exclusion of mileage reimbursement to charitable volunteers,
8) Expanded deduction for contributions of food and book inventories,
9) Exclusions of certain hurricane related cancellations of indebtedness,
10) Suspension of limitations of deduction of casualty losses,
11) Additional exemptions for housing displaced individuals,
12) Election for individuals to calculate their earned income tax credit and refundable child tax credit for 2005 using 2004 earned income,
13) Temporary suspension of first-time homebuyer requirements to permit low-rate mortgages, and
14) Extension of the replacement period required for nonrecognition of gain.
Congress is already beginning to discuss additional legislation focused on helping businesses recover from the hurricane. It is also possible that, if Hurricane Rita does significant damage to the Texas and Louisiana coasts this weekend, additional legislation will be considered to expand some of these Katrina relief provisions to cover that potential disaster situation.