In September Congress passed the Katrina Emergency Tax Relief Act of 2005 by a unanimous vote of 422 - 0. The legislation provides tax relief for individuals and families, along with incentives for charitable donations. Here is a summary of the main provisions:
Relief for individuals
- Persons displaced from their principal residence by Hurricane Katrina have the option of using their 2004 income to calculate the child credit and the earned income credit on their 2005 tax returns.
- Persons affected by the hurricane are not taxed on personal debt reduction or cancellation related to the hurricane, such as the cancellation of a mortgage, provided before 2007.
- Persons who provide rent-free housing to dislocated persons for at least 60 days are given a special tax deduction of $500 for each dislocated person housed in the individual's principal residence (up to a maximum of $2,000). The deduction can be claimed in either 2005 or 2006, but cannot be claimed in both years with respect to the same person.