Among its COVID-19 relief provisions, the Consolidated Appropriations Act of 2021 (“CAA”) allows taxpayers affected by a qualifying disaster to take distributions of up to $100,000 from their qualified retirement plans. Under the provision, they can pay the tax over a three-year period and are exempted from the usual 10 percent penalty on early distributions.

• a presidentially declared disaster between December 28, 2019 and December 31, 2020; or
• a qualified disaster area per the Stafford Act that has been declared by the President between January 1,2020 and February 19, 2021; or
• the same as “major disaster” per the Stafford Act and within the timeframe of December 28, 2019 through December 31, 2020.

Qualified disasters are monitored and made public by FEMA, and listed on their disaster declarations page.

Under the CAA, disaster relief is available only in connection with recent natural disasters other than those solely related to COVID-19. The COVID-19 provisions of the CCA provide temporary relief from the partial plan termination rules under section 411(d)(3) of the Internal Revenue Code of 1986, as amended, for employee turnover due to the COVID-19 pandemic period.

In the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress modified its qualified disaster distribution rules by removing the 10 percent tax for early withdrawals for coronavirus-related distributions of up to $100,000. To qualify the distribution must be from an IRA or eligible defined contribution plan, including 401(k), 403(b), and 457(b) plans, and made between January 1 and December 31, 2020.

In addition, the distribution must be made to an individual:

• who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (Covid-19) by a test approved by the Centers for Disease Control and Prevention, or
• whose spouse or dependent is diagnosed with such virus or disease by such a test, or
• who experiences adverse financial consequences as a result the coronavirus.

Adverse financial consequences can include consequences resulting from an individual, individual’s spouse, or household member (defined as someone who shares the individual’s principal residence):

• being quarantined,
• being furloughed or laid off or having work hours reduced due to such virus or disease,
• being unable to work due to lack of child care due to such virus or disease,
• whose owned or operated business was closed or had operating hours reduced due to such virus or disease,
• incurring a reduction in pay or self-employment income,
• having a job offer rescinded or start date for a job delayed, or
• other factors as determined by the Secretary of the Treasury.

If you have taken advantage of the CARES Act or CAA provisions for retirement plan distributions and have questions on how this may impact your taxes please reach out to your HBK Tax Advisor or HBKS Wealth Advisor.

Late in May 2019, severe thunderstorms impacted various parts of the state of Ohio. As a result, President Trump declared a Federal Disaster area for 11 counties in Ohio, including Mahoning County. The full list of affected counties is: Auglaize, Darke, Greene, Hocking, Mahoning, Mercer, Miami, Montgomery, Muskingum, Perry and Pickaway. For further details visit FEMA.gov.

Under the Federal Disaster area declaration, individuals within Mahoning County impacted by flooding on May 28th are eligible to apply for financial assistance under the FEMA Individual Assistance program.

Individuals impacted are encouraged to register for Federal Assistance online at DisasterAssistance.gov, or visit the temporary Disaster Recovery Center in the Boardman Township Administration Building which will remain open until further notice.

All FEMA assistance monies awarded to individuals are tax-free.

In addition, individuals, businesses, and non-profit organizations within Mahoning County are eligible to apply for low-interest loans from the U.S. Small Business Administration to assist in repairing or replacing real estate, personal property, inventories, equipment, etc. which was damaged or destroyed as a result of the flooding. For additional information on how to apply for an SBA loan, please visit disasterloan.sba.gov.

Tax Implications for Individuals

Under the Tax Cuts and Jobs Act of 2017, individuals are eligible to deduct personal casualty losses so long as the loss occurred within a Federal Disaster Area. According to the IRS, a casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood or tornado. Being that Mahoning County has been included in the Federal Disaster Area declaration, there may be an opportunity for some taxpayers to deduct a casualty loss on their personal return.

Casualty losses are only eligible for those taxpayers who qualify for itemized deductions; this means Married Filing Jointly (MFJ) taxpayers in excess of $24,400 in itemized deductions, while single and MFS would have to exceed $12,200 in deductions to itemize. Such casualty losses also must be in excess of 10% of your Adjusted Gross Income (AGI).

The regulations call for personal casualty losses to be the lesser of the adjusted basis of your property, or the decrease in the FMV of the property as a result of the casualty. Furthermore, any loss must be reduced by any insurance proceeds received and also any FEMA assistance received IF the assistance was used for the replacement of lost or destroyed property.

Example:
You own a house with a basis of $90,000 right before the flooding. The FMV of the property is $87,000 right before the flooding and the Fair Market Value (FMV) of the property immediately after the casualty is $70,000. Your decline in the FMV of $17,000 is less than your adjusted basis of $90,000. In addition, you receive insurance proceeds of $5,000. Your deduction before 10% of AGI is $12,000.

For assistance in determining a loss amount, it is best to consult a CPA who can assist in navigating the different methods for preparing the computation(s). For more information, contact Michael Metzinger at 330-758-8613 or MMetzinger@hbkcpa.com