Disaster Relief Bill Includes Increased LIHTC Allocation

Senate Finance Committee ranking member Ron Wyden (D-Ore.), along with Senators Jeff Merkley (D-Ore.), Dianne Feinstein (D-Calif.), Patty Murray (D-Wash.), and Kamala Harris (D-Calif.), recently introduced a bill in the Senate to offer tax relief to individuals, businesses, and states affected by catastrophic wildfires, such as the ones devastating California, Oregon, and Washington, along with other presidentially declared disasters, such as Hurricane Sally, which has flooded parts of Gulf states like Florida, Alabama, and Louisiana.

The 2020 Disasters Tax Relief Act includes an exception to the 10 percent penalty for early withdrawals from retirement plans for qualified disaster distributions and an employee retention tax credit. It also would enable taxpayers to claim disaster casualty losses as part of their standard deduction. In addition, the bill would also lift the state credit ceiling for the Low Income Housing Tax Credit for 2021 to help fund additional projects within 2020 disaster areas. The increase would be equal to the credits allocated to projects in disaster areas, up to 50 percent of the state’s total 2020 credit allocation.

The last time Congress responded legislatively with developmental tax incentives in response to a natural disaster was the GO Zone Act in 2005. The act was in response to Hurricanes Katrina, Rita, and Wilma. For the affected areas, the legislation increased the LIHTC allocation authority. The GO Zone legislation increased LIHTCs to an amount equal to $18 per capita for the presidentially declared disaster areas for each year from 2006 to 2008, granting Louisiana an extra $1.7 billion, Mississippi an extra $1.06 billion, and Alabama an extra $470 million in LIHTCs. Texas and Florida also received an additional $35 million in total tax credits.