Compliance - Recapture Relief for Casualty Losses as a Result of Presidentially Declared Disaster
Definition of Casualty Loss as a Result of Presidentially Declared Disaster: Damage, destruction, or loss of property resulting from an event that is declared by the President as a disaster requiring federal assistance.
Under the above Revenue Procedure, Owners & Housing Credit agencies are required to do the following in the event of a Presidentially Declared Disaster:
- After the President has issued a major disaster declaration, the Federal Emergency Management Agency (FEMA) will publish a notice in the Federal Register designating cities, counties, and local jurisdictions covered by the declaration as eligible for Individual and/or Public Assistance. Owners should consult the notice published by FEMA to find out whether their property falls within one of the designated areas.
- The Owner must notify The Department that a casualty loss has occurred as a result of the disaster by completing and mailing or faxing to The Department the Notice of Disaster & Casualty Loss form below. The notice must be submitted whether or not the Owner intends to obtain any of the relief allowed under IRS regulations. Any casualty loss information must also be entered on the Annual Owner’s Compliance Report (AOCR) at the end of any year in which a unit or building was off-line for repair.
- The Housing Credit Agency will determine a reasonable restoration period in which the property must be repaired, which under IRS regulations cannot extend longer than 2 years from the end of the calendar year in which the President issued a major declaration for the area where the building is located.
- The Owner must restore the building affected by the disaster within the period set by the State Agency. As long as the building is restored within the time period allotted, the Owner shall not suffer a reduction in qualified basis that would cause it to be subject to recapture or loss of credit.
- Owners can continue to claim credit during the allowed restoration period for buildings that are not in the first year of the credit period. To determine the credit amount, Owners should use the building’s qualified basis as the end of the taxable year that preceded the President’s major disaster declaration.
- At the end of the 2 year period, the Owner must notify The Department that the property has been restored by completing and mailing The Department the Notice of Disaster & Property Restoration form below.
- The Housing Credit Agency must determine whether the Owner restored the building’s qualified basis by the end of the restoration period.
- If the Housing Credit Agency determines that the building was not restored by the end of the restoration period, the Agency must report on Form(s) 8823 any failure to restore qualified basis and the Owner will lose all credit claimed during the restoration period as well as suffer recapture for any prior years of claimed credit under the provisions of Section 42(j)(1).
Buildings in the first year of the credit period: If buildings in the first year of the credit period are severely damaged or destroyed as a result of major disaster, the State Housing Credit Agency can treat the allocation as returned credit to the agency or can delay the beginning of the first year of the credit period until the property is restored (not to exceed 24 months from the end of the calendar year in which the major disaster was declared). In this instance, no qualified basis is established until the building is restored and no credit can be claimed.
Counties affected by Hurricanes Dolly and Ike Declarations
Hurricane IKE (as of 9/13/2008):
Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller, and Washington Counties.
Hurricane Dolly (as of 7/25/2008):
Aransas, Bexar, Brooks, Calhoun, Cameron, Hidalgo, Jim Wells, Kenedy, Kleberg, Nueces, Refugio, San Patricio, Starr, Victoria, and Willacy Counties for Public Assistance Category B (emergency protective measures), including direct Federal assistance.
For more information, contact Justin Merrill at (512) 284-4667 or email email@example.com.