TECHNICAL EXPLANATION 

OF H.R. 7006, THE 

“DISASTER TAX RELIEF ACT OF 2008” 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

 

September 24, 2008 

JCX-73-08
i 

CONTENTS 

Page

INTRODUCTION ...........................................................................................................................1

A. Losses Attributable to Federally Declared Disasters (sec. 2 of the bill and secs. 63 

and 165 of the Code) ............................................................................................................2

B. Expensing of Qualified Disaster Expenses (sec. 3 of the bill and new sec. 198A 

of the Code)..........................................................................................................................5

C. Net Operating Losses Attributable to Federally Declared Disasters (sec. 4 of the bill 

and sec. 172 of the Code) .....................................................................................................9

D. Special Rules for Mortgage Revenue Bonds in Federally Declared Disaster Areas 

(sec. 5 of the bill and sec. 143 of the Code) .......................................................................11

E. Increase in Standard Mileage Rate for Charitable Use of Vehicles (sec. 6 of the bill 

and sec. 170(i) of the Code) ...............................................................................................14

F. Additional Low-Income Housing Credit Allocations for Disaster Areas (sec. 7 of the 

bill and sec. 42 (h) of the Code) .........................................................................................16

G. Private Activity Disaster Bonds (sec. 8 of the bill and sec. 144 of the Code) ...................18

H. Suspension of Limitations on Charitable Contributions for Disaster Relief 

(sec. 9 of the bill and sec. 170 of the Code) .......................................................................22
1 

INTRODUCTION 

This document,1

 prepared by the staff of the Joint Committee on Taxation, provides a 

technical explanation of H.R. 7006, the “Disaster Tax Relief Act of 2008.” 

 1

 This document may be cited as follows: Joint Committee on Taxation, Technical Explanation 

of the Revenue Provisions of H.R. 7006, the “Disaster Tax Relief Act of 2008” (JCX-73-08), 

September 24, 2008. This document can also be found on our website at www.jct.gov. 
2 

A. Losses Attributable to Federally Declared Disasters 

(sec. 2 of the bill and secs. 63 and 165 of the Code) 

Present Law

Casualty Losses

Under present law, a taxpayer may generally claim a deduction for any loss sustained 

during the taxable year and not compensated by insurance or otherwise.2 For individual 

taxpayers, deductible losses must be incurred in a trade or business or other profit-seeking 

activity or consist of property losses arising from fire, storm, shipwreck, or other casualty, or 

from theft. Personal casualty or theft losses for the taxable year are allowable only if they 

exceed a $100 limitation per casualty or theft.3 In addition, aggregate net casualty and theft 

losses are deductible only to the extent they exceed 10 percent of an individual taxpayer’s 

adjusted gross income.4 If the disaster occurs in a Presidentially declared disaster area, the 

taxpayer may elect to take into account the casualty loss in the taxable year immediately 

preceding the taxable year in which the disaster occurs.5

Standard Deduction

An individual taxpayer’s taxable income is computed by reducing adjusted gross income 

either by a standard deduction or, if the taxpayer elects, by the taxpayer’s itemized deductions. 

Unless an individual elects, no itemized deductions are allowed for the taxable year. The 

deduction for casualty losses is an itemized deduction. 

Explanation of Provision

Waiver of Adjusted Gross Income Limitation for Personal Casualty Losses

The provision waives the 10 percent of adjusted gross income limitation for a “net 

disaster loss.” The term “net disaster loss” means the excess of personal casualty losses 

attributable to a “Federally declared disaster” occurring after December 31, 2007, and before 

January 1, 2012, occurring in a “disaster area,” over personal casualty gains. The term 

“Federally declared disaster” means any disaster subsequently determined by the President of the 

United States to warrant assistance by the Federal Government under the Robert T. Stafford 

Disaster Relief and Emergency Assistance Act. The term “disaster area” means the area so 

determined to warrant assistance. 

 2

 Sec. 165. 

3

 Sec. 165(h)(1). 

4

 Sec. 165(h)(2). 

5

 Sec. 165(i). 
3 

Net disaster losses are deductible without regard to whether aggregate net casualty losses 

exceed 10 percent of a taxpayer’s adjusted gross income. For purposes of applying the 10-

percent limitation to other personal casualty or theft losses, losses deductible under this provision 

are disregarded. Thus, the provision has the effect of treating net disaster losses attributable to 

Federally declared disasters as a deduction separate from all other non-disaster casualty and theft 

losses. 

The following examples show the application of the provision. 

Example 1.–An individual taxpayer with $100,000 of adjusted gross income has the 

following personal casualty items during the taxable year: $5,000 personal casualty gain, 

$30,000 allowable personal casualty loss attributable to a Federally declared disaster, and a 

$7,000 allowable personal casualty loss.6

 The deductible net disaster loss is $25,000 ($30,000 

disaster casualty loss less the $5,000 personal casualty gain). The deductible non-disaster 

casualty loss is $0 ($7,000 non-disaster casualty loss less $10,000 (10 percent of adjusted gross 

income)) limitation. The taxpayer’s deductible net personal casualty loss for the taxable year is 

$25,000 (the sum of the net disaster loss and the excess of the other casualty losses over the 10-

percent limitation). 

Example 2.–An individual taxpayer with $100,000 of adjusted gross income has the 

following personal casualty items during the taxable year: $5,000 personal casualty gain, 

$30,000 allowable personal casualty loss attributable to a Federally declared disaster, and a 

$12,000 allowable personal casualty loss.7 The deductible net disaster loss is $25,000 ($30,000 

disaster casualty loss less the $5,000 personal casualty gain). The deductible non-disaster 

casualty loss is $2,000 ($12,000 non-disaster casualty loss less $10,000 (10 percent of adjusted 

gross income)) limitation. The taxpayer’s deductible net personal casualty loss for the taxable 

year is $27,000 (the sum of the net disaster loss and the excess of the other casualty losses over 

the 10-percent limitation). 

Increase of Standard Deduction

The provision increases an individual taxpayer’s standard deduction by the “disaster loss 

deduction.” The “disaster loss deduction” is defined as the net disaster loss. 

Increase of Limitation Per Casualty 

The provision increases the $100 limitation per casualty to $500 for taxable years 

beginning after December 31, 2008, and before January 1, 2012. 

 6

 The allowable casualty losses are after application of the limitation per casualty (the limitation 

per casualty under section 165(h)(1). 

7

 Id. 
4 

Effective Dates

The provision generally applies to taxable years beginning after December 31, 2007. 

The provision applies to the taxpayer’s last taxable year beginning before January 1, 

2008, solely for purposes of determining the amount allowable as a deduction with respect to any 

net disaster loss for such year by reason of an election under section 165(i). 

The portion of the provision increasing the limitation per casualty to $500 applies to 

taxable years beginning after December 31, 2008, and before January 1, 2012. 
5 

B. Expensing of Qualified Disaster Expenses 

(sec. 3 of the bill and new sec. 198A of the Code) 

Present Law

In general

Present law allows a deduction for ordinary and necessary expenses paid or incurred in 

carrying on any trade or business.8 Section 263(a)(1) limits the scope of section 162 by 

prohibiting a current deduction for certain capital expenditures. Treasury regulations define 

“capital expenditures” as amounts paid or incurred to add to the value, or substantially prolong 

the useful life, of property owned by the taxpayer, or to adapt property to a new or different use.9

 

Amounts paid or incurred for incidental repairs and maintenance of property that neither 

materially add to the value of the property nor appreciably prolong its life are not considered to 

be capital expenditures and may be deducted currently.10 The determination of whether an 

expense is deductible or capitalizable is based on the facts and circumstances of each case. 

Environmental remediation costs

Taxpayers may elect to treat certain environmental remediation expenditures paid or 

incurred before January 1, 2008, that would otherwise be chargeable to capital account as 

deductible in the year paid or incurred.11 The deduction applies for both regular and alternative 

minimum tax purposes. The expenditure must be incurred in connection with the abatement or 

control of hazardous substances at a qualified contaminated site. In general, any expenditure for 

the acquisition of depreciable property used in connection with the abatement or control of 

hazardous substances at a qualified contaminated site does not constitute a qualified 

environmental remediation expenditure. However, depreciation deductions allowable for such 

property, which would otherwise be allocated to the site under the principles set forth in 

Commissioner v. Idaho Power Co.12 and section 263A, are treated as qualified environmental 

remediation expenditures. 

A “qualified contaminated site” (a so-called “brownfield”) generally is any property that 

is held for use in a trade or business, for the production of income, or as inventory and is 

certified by the appropriate State environmental agency to be an area at or on which there has 

been a release (or threat of release) or disposal of a hazardous substance. Both urban and rural 

 8

 Sec. 162. 

9

 Treas. Reg. sec. 1.263(a)-1(b). 

10 Treas. Reg. sec. 1.162-4 and 1.263(a)-1(b). 

11 Sec. 198. 

12 418 U.S. 1 (1974). 
6 

property may qualify. However, sites that are identified on the national priorities list under the 

Comprehensive Environmental Response, Compensation, and Liability Act of 1980 

(“CERCLA”)13 cannot qualify as targeted areas. Hazardous substances generally are defined by 

reference to sections 101(14) and 102 of CERCLA, subject to additional limitations applicable to 

asbestos and similar substances within buildings, certain naturally occurring substances such as 

radon, and certain other substances released into drinking water supplies due to deterioration 

through ordinary use, as well as petroleum products defined in section 4612(a)(3) of the Code. 

In the case of property to which a qualified environmental remediation expenditure 

otherwise would have been capitalized, any deduction allowed under section 198 is treated as a 

depreciation deduction and the property is treated as section 1245 property. Thus, deductions for 

qualified environmental remediation expenditures are subject to recapture as ordinary income 

upon a sale or other disposition of the property. In addition, sections 280B (demolition of 

structures) and 468 (special rules for mining and solid waste reclamation and closing costs) do 

not apply to amounts that are treated as expenses under this provision. 

Section 1400N(g) permits the expensing of environmental remediation expenditures paid 

or incurred on or after August 28, 2005, and before January 1, 2008, to abate contamination at 

qualified contaminated sites located in the Gulf Opportunity Zone. 

Debris removal and demolition of structures

Under present law, the cost of demolishing a structure is generally capitalized into the 

taxpayer’s basis in the land on which the structure is located.14 Land is not subject to an 

allowance for depreciation or amortization. 

The treatment of the cost of debris removal depends on the nature of the costs incurred. 

For example, the cost of debris removal after a storm may in some cases constitute an ordinary 

and necessary business expense which is deductible in the year paid or incurred. In other cases, 

debris removal costs may be in the nature of replacement of part of the property that was 

damaged. In such cases, the costs are capitalized and added to the taxpayer’s basis in the 

property. For example, Revenue Ruling 71-16115 permits the use of clean-up costs as a measure 

of casualty loss but requires that such costs be added to the post-casualty basis of the property. 

Section 1400N(f) provides a special rule for certain demolition and clean-up costs. 

Under the provision, a taxpayer is permitted a deduction for 50 percent of any qualified Gulf 

Opportunity Zone clean-up cost paid or incurred on or after August 28, 2005, and before January 

1, 2008. The remaining 50 percent is capitalized and treated under the general rules. A qualified 

Gulf Opportunity Zone clean-up cost is an amount paid or incurred for the removal of debris 

from, or the demolition of structures on, real property located in the Gulf Opportunity Zone to 

 13 Pub. L. No. 96-510 (1980). 

14 Sec. 280B. 

15 1971-1 C.B. 76. 
7 

the extent that the amount would otherwise be capitalized. In order to qualify, the property must 

be held for use in a trade or business, for the production of income, or as inventory. This special 

rule also applies to the Kansas disaster area, as added by the Heartland, Habitat, Harvest, and 

Horticulture Act of 2008.16

Repair of business property

As described above, the cost of incidental repairs that neither materially add to the value 

of property nor appreciably prolong its life, but keep it in an ordinarily efficient operating 

condition, may be deducted currently as a business expense. In the case of repair expenditures 

incurred subsequent to a casualty event, the IRS ruled in 1999 that the costs of restoring 

uninsured property damage caused by severe flooding was that the determination of whether the 

costs are deductible as repairs or capital expenditures “turns on the taxpayer’s particular set of 

facts.”17 In other words, the treatment of the costs to restore the property after a casualty is 

determined based on the general treatment of such costs, regardless of the fact that such costs are 

incurred as a result of a casualty event. In August 2006, Treasury issued proposed regulations 

with a different view, providing that amounts paid or incurred to restore property are required to 

be capitalized to the extent the taxpayer deducts a casualty loss under section 165 with respect to 

the same property.18 This proposes mandatory capitalization of costs incurred by a taxpayer to 

repair property after suffering a casualty loss. In an internal legal memorandum issued after the 

proposed Treasury regulations were issued, the IRS stated that the proposed regulations, which 

contained a prospective effective date when finalized, were “essentially reflective of current 

law.”19 In March 2008, Treasury reissued the proposed regulations with the same treatment of 

restoration expenditures of property destroyed in a casualty. 

Explanation of Provision

Under the provision, a taxpayer may elect to treat any qualified disaster expense that is 

paid or incurred by the taxpayer as a deduction for the taxable year in which paid or incurred. 

For purposes of the provision, a qualified disaster expense is any otherwise capitalizable 

expenditure paid or incurred in connection with a trade or business or with business-related 

property that is: (1) for the abatement or control of hazardous substances that were released on 

account of a Federally declared disaster;20 (2) for the removal of debris from, or the demolition 

of structures on, real property damaged or destroyed as a result of a Federally declared disaster; 

or (3) for the repair of business-related property damaged as a result of a Federally declared 

disaster. No inference is intended as to the proper present law treatment of expenditures to repair 

 16 Pub. L. No. 110-234, sec. 15345(a)(3) (2008). 

17 CCA 199903030. 

18 Prop. Reg. sec. 1.263(a)-3(f)(3)(iv). 2006-2 C.B. 532. 

19 AM 2006-006, footnote 2. 

20 See section 2 of this bill for the definition of Federally declared disaster. 
8 

business-related property damaged in a casualty event. The purpose of this provision is to 

provide that, in any case in which such costs are otherwise required to be capitalized, the costs 

may be deducted in the taxable year paid or incurred to the extent incurred as a result of a 

Federally declared disaster. 

For purposes of this provision, “business-related property” is property held by the 

taxpayer for use in a trade or business, for the production of income, or as inventory, and a 

Federally declared disaster is any disaster occurring after December 31, 2007, and before 

January 1, 2012, that is subsequently determined by the President of the United States to warrant 

assistance by the Federal Government under the Robert T. Stafford Disaster Relief and 

Emergency Assistance Act. 

For purposes of recapture as ordinary income, any deduction allowed under this provision 

is treated as a deduction for depreciation and section 1245 property for purposes or depreciation 

recapture. 

Effective Date

The provision is effective for amounts paid or incurred after December 31, 2007. 
9 

C. Net Operating Losses Attributable to Federally Declared Disasters 

(sec. 4 of the bill and sec. 172 of the Code) 

Present Law

Under present law, a net operating loss (“NOL”) is, generally, the amount by which a 

taxpayer’s business deductions exceed its gross income. In general, an NOL may be carried 

back two years and carried over 20 years to offset taxable income in such years.21 NOLs offset 

taxable income in the order of the taxable years to which the NOL may be carried.22 

Different rules apply with respect to NOLs arising in certain circumstances. A three-year 

carryback applies with respect to NOLs (1) arising from casualty or theft losses of individuals, or 

(2) attributable to Presidentially declared disasters for taxpayers engaged in a farming business 

or a small business. A five-year carryback applies to NOLs (1) arising from a farming loss 

(regardless of whether the loss was incurred in a Presidentially declared disaster area), or (2) 

certain amounts related to the Gulf Opportunity Zone and Kansas disaster area. Special rules 

also apply to real estate investment trusts (no carryback), specified liability losses (10-year 

carryback), and excess interest losses (no carryback to any year preceding a corporate equity 

reduction transaction). Additionally, a special rule applies to certain electric utility companies. 

Explanation of Provision

The provision provides a special five-year carryback period for NOLs to the extent of a 

qualified disaster loss. For purposes of the provision, a qualified disaster loss is the lesser of: (1) 

the sum of (a) section 165 losses for the taxable year attributable to a Federally declared 

disaster23 occurring after December 31, 2007, and before January 1, 2012, and occurring in a 

disaster area,24 and (b) the deduction for the taxable year for qualified disaster expenses 

allowable under section 198A(a)25 or which would be allowable as a deduction under that section 

if not treated as an expense in another section of the Code; or (2) the NOL for the taxable year. 

The amount of the NOL to which the five-year carryback period applies is limited to the 

amount of the corporation's overall NOL for the taxable year. Any remaining portion of the 

taxpayer’s NOL is subject to the general two-year carryback period. Ordering rules similar to 

those for specified liability losses apply to losses carried back under the provision. 

 21 Sec. 172(b)(1)(A). 

22 Sec. 172(b)(2). 

23 See section 2 of this bill for the definition of Federally declared disaster. 

24 See section 2 of this bill for the definition of disaster area. 

25 See section 3 of this bill. 
10 

Any taxpayer entitled to the five-year carryback under this provision may elect to have 

the carryback period determined without regard to this provision. In addition, the general rule 

which limits a taxpayer’s NOL deduction to 90 percent of AMTI does not apply to any NOL to 

which the five-year carryback period applies under the provision. Instead, a taxpayer may apply 

such NOL carrybacks to offset up to 100 percent of AMTI. 

Effective Date

The provision is effective for net operating losses for taxable years beginning after 

December 31, 2007. 
11 

D. Special Rules for Mortgage Revenue Bonds in Federally 

Declared Disaster Areas 

(sec. 5 of the bill and sec. 143 of the Code) 

Present Law

In general

Under present law, gross income does not include interest on State or local bonds (sec. 

103). State and local bonds are classified generally as either governmental bonds or private 

activity bonds. Governmental bonds are bonds which are primarily used to finance 

governmental functions or which are repaid with governmental funds. Private activity bonds are 

bonds with respect to which the State or local government serves as a conduit providing 

financing to nongovernmental persons (e.g., private businesses or individuals). The exclusion 

from income for State and local bonds does not apply to private activity bonds, unless the bonds 

are issued for certain permitted purposes (“qualified private activity bonds”) (secs. 103(b)(1) and 

141). 

Qualified mortgage bonds

Generally

The definition of a qualified private activity bond includes a qualified mortgage bond 

(sec. 143). Qualified mortgage bonds are issued to make mortgage loans to qualified mortgagors 

for the purchase, improvement, or rehabilitation of owner-occupied residences. Rehabilitation 

loans are eligible for such financing if: (1) the mortgagor receiving the financing is the first 

resident after the completion of the rehabilitation; (2) at least 20 years have elapsed between the 

first use of the residence and the start of the physical work of the rehabilitation; (3) certain 

percentages of internal and external walls are retained after the rehabilitation; and (4) 

rehabilitation expenditures equal at least 25 percent of the taxpayer's adjusted basis in the 

residence after such rehabilitation (sec. 141 (k)(5)). 

The Code imposes several limitations on qualified mortgage bonds, including purchase 

price limitations for the home financed with bond proceeds and income limitations for 

homebuyers. In general the purchase price limitation is met if the acquisition cost of each 

residence financed does not exceed 90 percent of the average area purchase applicable to the 

residence (i.e., the average single-family residence purchase price purchased during the one-year 

period in the statistical area in which the residence is located) (sec. 141(e)). Also, the income 

limitation generally is met if all the owner-financing provided under the issue is provided to 

individuals who have family income of 115 percent of the applicable median family income (sec. 

141(f)). 

First-time homebuyers

In addition to the purchase price and income limitations, qualified mortgage bonds 

generally cannot be used to finance a mortgage for a homebuyer who had an ownership interest 

in a principal residence in the three years preceding the execution of the mortgage (the “first-
12 

time homebuyer” requirement) (sec. 141 (d)). The first-time homebuyer requirement does not 

apply to targeted area residences (described below). 

Special rules for targeted area residences

A targeted area residence is one located in either (1) a census tract in which at least 70 

percent of the families have an income which is 80 percent or less of the state-wide median 

income or (2) an area of chronic economic distress (sec. 141(j)). 

In addition to the waiver of the first-time homebuyer rule, targeted area residences have 

special purchase price limitations and income limitations. For targeted area residences, the 

purchase price limitation is applied by substituting 110 percent for 90 percent. (i.e., the purchase 

price limitation is met if the acquisition cost of each residence financed does not exceed 110 

percent of the average area purchase applicable to the residence). For targeted area residences, 

the income limitation generally is met if at least two-thirds of all the owner-financing provided 

under the issue is provided to individuals who have family income of 140 percent of the 

applicable median family income. The other third is not subject to an income limitation. 

Special rules for Federally disaster areas

A temporary provision waives the first-time homebuyer requirement for residences 

located in Federally declared disaster areas (sec. 143(k)(11)). Also, under the provision, 

residences located in Federally declared disaster areas are treated as targeted area residences for 

purposes of the income and purchase price limitations. The special rules for residences located 

in Federally declared disaster areas applies to bonds issued after May 1, 2008 and before January 

1, 2010. 

Explanation of Provision

The provision replaces the temporary present-law provision for residences located in 

Federally declared disaster areas with: (1) a waiver of the first-time homebuyer requirement; and 

(2) the purchase price limitation otherwise applicable to targeted area residences (i.e., the 

purchase price limitation is met if the acquisition cost of each residence financed does not exceed 

110 percent of the average area purchase applicable to the residence). The provision applies for 

the two-year period beginning on the date of the disaster, when the principal residence of a 

taxpayer is: (1) rendered unsafe for use by reason of a Federally declared disaster, or (2) 

demolished or relocated by reason of an order of the government of a State of political 

subdivision thereof on account of a Federally declared disaster. 

Also, the provision expands the definition of rehabilitation loans to include the cost of 

repair or reconstruction of a taxpayer's principal residence for damage from a Federally declared 

disaster regardless of whether the present-law rehabilitation requirements are satisfied. Such 

rehabilitation loans are limited to the lesser of $150,000 or the cost of repair or reconstruction. 

For purposes of the provision, the term Federally declared disaster has the same 

definition as in section 2 of this bill except that it does not apply to any disaster occurring before 

January 1, 2008, or after December 31, 2011. 
13 

Effective Date

The provision is effective for bonds issued after the date of enactment. 
14 

E. Increase in Standard Mileage Rate for Charitable Use of Vehicles 

(sec. 6 of the bill and sec. 170(i) of the Code) 

Present Law

In general, an itemized deduction is permitted for charitable contributions, subject to 

certain limitations that depend on the type of taxpayer, the property contributed, and the donee 

organization. Unreimbursed out-of-pocket expenditures made incident to providing donated 

services to a qualified charitable organization − such as out-of-pocket transportation expenses 

necessarily incurred in performing donated services − may qualify as a charitable contribution 

(Treasury Regulation sec. 1.170A-1(g)). No charitable contribution deduction is allowed for 

traveling expenses (including expenses for meals and lodging) while away from home, whether 

paid directly or by reimbursement, unless there is no significant element of personal pleasure, 

recreation, or vacation in such travel (sec. 170(j)). 

In determining the amount treated as a charitable contribution where a taxpayer operates 

a vehicle in providing donated services to a charity, the taxpayer either may deduct actual out-ofpocket expenditures or, in the case of a passenger automobile, may use the charitable standard 

mileage rate. The charitable standard mileage rate is set by statute at 14 cents per mile (sec. 

170(i)). The taxpayer may also deduct (under either computation method), any parking fees and 

tolls incurred in rendering the services, but may not deduct any amount (regardless of the 

computation method used) for general repair or maintenance expenses, depreciation, insurance, 

registration fees, etc. Regardless of the computation method used, the taxpayer must keep 

reliable written records of expenses incurred. For example, where a taxpayer uses the charitable 

standard mileage rate to determine a deduction, the IRS has stated that the taxpayer generally 

must maintain records of miles driven, time, place (or use), and purpose of the mileage. If the 

charitable standard mileage rate is not used to determine the deduction, the taxpayer generally 

must maintain reliable written records of actual expenses incurred. 

In lieu of actual operating expenses, an optional standard mileage rate may be used in 

computing the deductible costs of business use of an automobile. The business standard mileage 

rate is determined by the IRS and updated periodically. For expenses incurred on or after July 1, 

2008, the business standard mileage rate specified by the IRS is 58.5 cents per mile (IRS 

Announcement 2008-63 (July 14, 2008)). Also, in lieu of actual operating expenses, an optional 

standard mileage rate may be used in computing deductible transportation expenses for medical 

purposes (section 213) or for moving (section 217). The medical and moving standard mileage 

rates are determined by the IRS and updated periodically. For expenses incurred on or after July 

1, 2008, the rate for both such purposes is 27 cents per mile (IRS Announcement 2008-63 (July 

14, 2008)). 

The standard mileage rates for charitable, medical, and moving purposes are lower than 

the standard business rate because the charitable, medical, and moving rates generally cover only 

the out-of-pocket operating expenses (including gasoline and oil) directly related to the use of the 

automobile in performing the donated services that a taxpayer may deduct as a charitable 

contribution or in traveling for medical or moving purposes. Such rates do not include costs that 

are not deductible for charitable, medical, or moving purposes, such as general maintenance 
15 

expenses, depreciation, insurance, and registration fees. Such costs are, however, included in 

computing the business standard mileage rate. 

Explanation of Provision

Under the provision, for use of a passenger automobile after the date of enactment and 

before January 1, 2012, the standard mileage rate shall be the rate determined by the Secretary, 

which rate shall not be less than the standard mileage rate used for deducting travel expenses 

related to medical care under section 213 (currently 27 cents per mile). As under present law, as 

an alternative to determining the amount of the deduction using the standard mileage rate, a 

taxpayer may determine the amount of the deduction using actual out-of-pocket expenditures. 

Effective Date

The provision is effective for taxable years ending after the date of enactment. 
16 

F. Additional Low-Income Housing Credit Allocations for Disaster Areas 

(sec. 7 of the bill and sec. 42 (h) of the Code) 

Present Law

In general

The low-income housing credit may be claimed over a 10-year period by owners of 

certain residential rental property for the cost of rental housing occupied by tenants having 

incomes below specified levels (sec. 42). The amount of the credit for any taxable year in the 

credit period is the applicable percentage of the qualified basis of each qualified low-income 

building. The qualified basis of any qualified low-income building for any taxable year equals 

the applicable fraction of the eligible basis of the building. 

Volume limits

A low-income housing credit is allowable only if the owner of a qualified building 

receives a housing credit allocation from the State or local housing credit agency. Generally, the 

aggregate credit authority provided annually to each State for calendar years 2008 and 2009 is 

$2.20 per resident, with a minimum annual cap for certain small population States. In 2010, the 

volume limits will return to lower prescribed levels. These amounts are indexed for inflation. 

Projects that also receive financing with proceeds of tax-exempt bonds issued subject to the 

private activity bond volume limit do not require an allocation of the low-income housing credit. 

Certain distressed areas

Special allocations of the low income credit are not provided for distressed areas on a 

regular basis but rather must be separately enacted on a case-by-case basis (e.g., Gulf 

Opportunity Zones). 

Explanation of Provision

The provision provides a National pool of additional low-income credit allocations for 

Federally declared disaster areas. The total amount of these additional allocations is capped at 

$190 million. All allocations under the provision must be made by the Secretary of the Treasury 

(the “Secretary”) after consultation with the Director of the Federal Emergency Management 

Agency (e.g., providing information to help verify that areas satisfy the requirements necessary 

to be a housing loss disaster area). The allocations must be made ratably over the four-year 

period 2008-2011 unless the Secretary determines that a different allocation is warranted by the 

severity or frequency of Federally declared disasters in the period. A State must apply for these 

allocations to be eligible. 

An allocation under this provision is available only to States which include a disaster 

area. In making these allocations the Secretary is to give priority to housing loss disaster areas 

but may also provide allocations in respect to other buildings in the disaster area but outside of 

the housing loss disaster areas. If a priority allocation is made then such priority allocation must 

be used in the housing loss disaster area pursuant to the terms of the priority allocation. For 

these purposes, a housing loss disaster area is a county or municipality: (1) where the lesser of 
17 

1,000 dwelling units or ten percent of the total dwelling units in such county or municipality 

have been rendered uninhabitable by reason of damage or destruction caused by a Federally 

declared disaster area; and (2) located in a Federally declared disaster area.26 

Any allocation made by the Secretary which is subsequently terminated by the Secretary 

(e.g., because of lack of use) shall not be treated like other allocation amounts under the presentlaw housing credit dollar rules but rather shall be eligible for reallocation by the Secretary 

pursuant to the otherwise applicable rules of the provision. 

The additional allocations allowed under the provision may only be made with respect to 

disasters occurring after December 31, 2007 and before January 1, 2012. No allocations under 

this provision may be made after December 31, 2012. 

Effective Date

The provision applies to credit allocations made after the date of enactment. 

 26 See section 2 of this bill for this definition of Federally declared disaster. 
18 

G. Private Activity Disaster Bonds 

(sec. 8 of the bill and sec. 144 of the Code) 

Present Law

In general

Under present law, gross income does not include interest on State or local bonds. State 

and local bonds are classified generally as either governmental bonds or private activity bonds. 

Governmental bonds are bonds which are primarily used to finance governmental functions or 

which are repaid with governmental funds. Private activity bonds are bonds with respect to 

which the State or local government serves as a conduit providing financing to nongovernmental 

persons (e.g., private businesses or individuals). The exclusion from income for State and local 

bonds does not apply to private activity bonds, unless the bonds are issued for certain permitted 

purposes (“qualified private activity bonds”). 

There are several types of tax-exempt qualified private activity bonds. For example, 

States or local governments may issue tax-exempt “exempt-facility bonds” to finance property 

for certain private businesses. Business facilities eligible for this financing include 

transportation (airports, ports, local mass commuting, and high speed intercity rail facilities); 

privately owned and/or privately operated public works facilities (sewage, solid waste disposal, 

local district heating or cooling, hazardous waste disposal facilities, and public educational 

facilities); privately owned and/or operated low-income rental housing; and certain private 

facilities for the local furnishing of electricity or gas. A further provision allows tax-exempt 

financing for “environmental enhancements of hydro-electric generating facilities.” 

Tax-exempt financing also is authorized for capital expenditures for small manufacturing 

facilities and land and equipment for first-time farmers (“qualified small-issue bonds”), local 

redevelopment activities (“qualified redevelopment bonds”), and eligible empowerment zone and 

enterprise community businesses. Tax-exempt private activity bonds also may be issued to 

finance limited non-business purposes: certain student loans and mortgage loans for owneroccupied housing (“qualified mortgage bonds” and “qualified veterans’ mortgage bonds”). 

Generally, tax-exempt private activity bonds are subject to restrictions that do not apply 

to other bonds issued by State or local governments. For example, most tax-exempt private 

activity bonds are subject to annual volume limits on the aggregate face amount of such bonds 

that may be issued (“State volume cap”). However, as discussed below, bonds for certain 

distressed areas have volume limits established separately from the State volume cap. 

Tax-exempt financing for certain distressed areas

Present law provides special rules for private activity bonds issued within certain 

geographic areas to provide incentives for businesses to locate and rebuild in those areas. For 

example, the Code provides special rules for the New York Liberty Zone, the Gulf Opportunity 

Zone, and empowerment zones. 
19 

New York Liberty Zone Bonds

Present law permits an aggregate of $8 billion in exempt facility bonds for the purpose of 

financing the construction and rehabilitation of nonresidential real property and residential rental 

real property in a designated “Liberty Zone” (the “Zone”) of New York City (“Liberty Zone 

bonds”). The Zone consists of all business addresses located on or south of Canal Street, East 

Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with 

East Broadway) in the Borough of Manhattan. 

Property eligible for financing with these bonds includes buildings and their structural 

components, fixed tenant improvements, and public utility property (e.g., gas, water, electric, and 

telecommunication lines). Fixtures and equipment that could be removed from the designated 

zone for use elsewhere are not eligible for financing with these bonds. Issuance of these bonds is 

limited to projects approved by the Mayor of New York City or the Governor of New York 

State, each of whom may designate up to $4 billion of the aggregate bond authority. 

Liberty Zone Bonds must be issued before January 1, 2010, and are not subject to the 

State volume cap. 

Gulf Opportunity Zone Bonds

Present law permits the issuance of qualified private activity bonds to finance the 

construction and rehabilitation of residential and nonresidential property located in the Gulf 

Opportunity Zone (“Gulf Opportunity Zone Bonds”). Gulf Opportunity Zone Bonds must be 

issued before January 1, 2011. 

Gulf Opportunity Zone Bonds may be issued by the State of Alabama, Louisiana, or 

Mississippi, or any political subdivision thereof. Gulf Opportunity Zone Bonds are not subject to 

the State volume cap. Rather, the maximum aggregate face amount of Gulf Opportunity Zone 

Bonds that may be issued in any State is limited to $2,500 multiplied by the population of the 

respective State within the Gulf Opportunity Zone. Depending on the purpose for which such 

bonds are issued, Gulf Opportunity Zone Bonds are treated as either exempt facility bonds or 

qualified mortgage bonds. 

Gulf Opportunity Zone Bonds are treated as exempt facility bonds if 95 percent or more 

of the net proceeds of such bonds are to be used for qualified project costs located in the Gulf 

Opportunity Zone. Qualified project costs include the cost of acquisition, construction, 

reconstruction, and renovation of nonresidential real property, qualified residential rental projects 

(as defined in section 142(d) with certain modifications), and public utility property. 

Gulf Opportunity Zone Bonds are treated as qualified mortgage bonds if the bonds of 

such issue meet the general requirements of a qualified mortgage issue and the residences 

financed with such bonds are located in the Gulf Opportunity Zone. For these residences the 

first-time homebuyer rule is waived and purchase and income rules for targeted area residences 

apply. In addition, 100 percent of the mortgages must be made to mortgagors whose family 

income is 140 percent or less of the applicable median family income. 
20 

Tax-exempt enterprise zone facility bonds

Enterprise zone facility bonds are issued to finance “enterprise zone facilities” located in 

“enterprise communities” or “empowerment zones” if the principal users of such facilities are 

“qualified enterprise zone businesses.” Ninety-five percent or more of the net proceeds of the 

bonds must be used to provide an enterprise zone facility. An enterprise zone facility is defined 

as any qualified zone property the principal user of which is an “enterprise zone business,” and 

any land that is functionally related and subordinate to such property. Enterprise zone 

businesses are defined as certain partnerships, corporations or proprietorships conducting a 

qualified business in, and employing residents of, an empowerment zone. 

Explanation of Provision

The provision creates a new category of tax-exempt private activity bonds, a “qualified 

disaster bond.” A qualified disaster bond is any bond issued as part of an issue if (1) 95 percent 

or more of the net proceeds of the issue are to be used for the replacement, repair, reconstruction 

or renovation of depreciable property that was damaged or destroyed as a result of a Federally 

declared disaster, and (2) such bond is designated by a State as a qualified disaster bond for 

purposes of the provision.27

In order to designate a bond as a qualified disaster bond, the State that includes the 

disaster area must apply for and receive an allocation of the national bond limitation from the 

Secretary. A State cannot designate bonds as qualified disaster bonds in excess of the bond 

limitation allocated to the State by the Secretary. 

Qualified disaster bonds are not subject to the State volume caps. Instead, there is a 

national bond limitation of $13 billion, to be allocated with respect to disasters occurring during 

the period January 1, 2008 through December 31, 2011. The Secretary is to make allocations 

ratably over this period, unless the Secretary determines, on the basis of the severity or frequency 

of disasters, that a different allocation is appropriate. The allocations are to be made after 

consultation with the Director of the Federal Emergency Management Agency (e.g., providing 

information to help verify that areas satisfy the requirements necessary to be a disaster area). 

The Secretary is not permitted to make allocations after December 31, 2012. 

In making allocations of the national bond limitation, the Secretary is to give priority to 

business loss disaster areas. A “business loss disaster area” means any county or municipality 

(1) with respect to which the Governor of the State in which such county or municipality is 

located demonstrates that the business property located in such county or municipality has 

sustained damages by reason of a Federally declared disaster of $50 million, or five percent of 

the value of all such business property (as determined immediately before such disaster on the 

basis of property tax records or other method as the Secretary determines appropriate), 

whichever is less, and (2) which is located in a disaster area. 

 27 See section 2 of this bill for the definition of the terms Federally declared disaster, and disaster 

area. 
21 

The proceeds of qualified disaster bonds may only be used with respect to property 

located in a disaster area. In the case of an allocation based on priority given to business loss 

disaster areas, such allocation may only be used to issue bonds with respect to property located 

in the business loss disaster area given priority. The proceeds of qualified disaster bonds may 

not be used for any property described in section 1400N(p)(3).28 

The interest on qualified disaster bonds is not a preference item for purposes of the 

alternative minimum tax. 

Effective Date

The provision applies to obligations issued after the date of enactment. 

 28 Specifically, the proceeds of qualified disaster bonds cannot be used for any property used in 

connection with a golf course, country club, massage parlor, hot tub facility, suntan facility, any store the 

principal business of which is the sale of alcoholic beverages for off-premises consumption, or any 

gambling or animal racing property. 
22 

H. Suspension of Limitations on Charitable Contributions for Disaster Relief 

(sec. 9 of the bill and sec. 170 of the Code) 

Present Law

In general

In general, an income tax deduction is permitted for charitable contributions, subject to 

certain limitations that depend on the type of taxpayer, the property contributed, and the donee 

organization (sec. 170). 

Charitable contributions of cash are deductible in the amount contributed. In general, 

contributions of capital gain property to a qualified charity are deductible at fair market value 

with certain exceptions. Capital gain property means any capital asset or property used in the 

taxpayer’s trade or business the sale of which at its fair market value, at the time of contribution, 

would have resulted in gain that would have been long-term capital gain. Contributions of other 

appreciated property generally are deductible at the donor’s basis in the property. Contributions 

of depreciated property generally are deductible at the fair market value of the property. 

Percentage limitations

Contributions by individuals

For individuals, in any taxable year, the amount deductible as a charitable contribution is 

limited to a percentage of the taxpayer’s contribution base. The applicable percentage of the 

contribution base varies depending on the type of donee organization and property contributed. 

The contribution base is defined as the taxpayer’s adjusted gross income computed without 

regard to any net operating loss carryback. 

Contributions by an individual taxpayer of property (other than appreciated capital gain 

property) to a charitable organization described in section 170(b)(1)(A) (e.g., public charities, 

private foundations other than private non-operating foundations, and certain governmental 

units) may not exceed 50 percent of the taxpayer’s contribution base. Contributions of this type 

of property to nonoperating private foundations and certain other organizations generally may be 

deducted up to 30 percent of the taxpayer’s contribution base. 

Contributions of appreciated capital gain property to charitable organizations described in 

section 170(b)(1)(A) generally are deductible up to 30 percent of the taxpayer’s contribution 

base. An individual may elect, however, to bring all these contributions of appreciated capital 

gain property for a taxable year within the 50-percent limitation category by reducing the amount 

of the contribution deduction by the amount of the appreciation in the capital gain property. 

Contributions of appreciated capital gain property to charitable organizations described in 

section 170(b)(1)(B) (e.g., private nonoperating foundations) are deductible up to 20 percent of 

the taxpayer’s contribution base. 
23 

Contributions by corporations

For corporations, in any taxable year, charitable contributions are not deductible to the 

extent the aggregate contributions exceed 10 percent of the corporation’s taxable income 

computed without regard to net operating loss or capital loss carrybacks. 

For purposes of determining whether a corporation’s aggregate charitable contributions in 

a taxable year exceed the applicable percentage limitation, contributions of capital gain property 

are taken into account after other charitable contributions. 

Carryforward of excess contributions

Charitable contributions that exceed the applicable percentage limitation may be carried 

forward for up to five years (sec. 170(d)). The amount that may be carried forward from a 

taxable year (“contribution year”) to a succeeding taxable year may not exceed the applicable 

percentage of the contribution base for the succeeding taxable year less the sum of contributions 

made in the succeeding taxable year plus contributions made in taxable years prior to the 

contribution year and treated as paid in the succeeding taxable year under this provision. 

Overall limitation on itemized deductions (“Pease” limitation)

Under present law, the total amount of otherwise allowable itemized deductions (other 

than medical expenses, investment interest, and casualty, theft, or wagering losses) is reduced by 

three percent of the amount of the taxpayer’s adjusted gross income in excess of a certain 

threshold. The otherwise allowable itemized deductions may not be reduced by more than 80 

percent. For 2008, the adjusted gross income threshold is $159,950 ($79,975 for a married 

taxpayer filing a joint return). These dollar amounts are adjusted for inflation. 

The otherwise applicable overall limitation on itemized deductions is reduced by twothirds in taxable years beginning in 2008 and 2009. The overall limitation is repealed for taxable 

years beginning after December 31, 2009, and reinstated for taxable years beginning after 

December 31, 2010. 

Explanation of Provision

Suspension of percentage limitations

Under the provision, in the case of an individual, the deduction for qualified disaster 

contributions is allowed up to the amount by which the taxpayer’s contribution base exceeds the 

deduction for other charitable contributions. Contributions in excess of this amount are carried 

over to succeeding taxable years as contributions described in 170(b)(1)(A), subject to the 

limitations of section 170(d)(1)(A)(i) and (ii). 

In the case of a corporation, the deduction for qualified disaster contributions is allowed 

up to the amount by which the corporation’s taxable income (as computed under section 

170(b)(2)) exceeds the deduction for other charitable contributions. Contributions in excess of 

this amount are carried over to succeeding taxable years, subject to the limitations of section 

170(d)(2). 
24 

In applying subsections (b) and (d) of section 170 to determine the deduction for other 

contributions, qualified disaster contributions are not taken into account (except to the extent 

qualified disaster contributions are carried over to succeeding taxable years under the rules 

described above). 

Qualified disaster contributions are cash contributions paid during the period beginning 

on the date of enactment and ending on December 31, 2009, to a charitable organization 

described in section 170(b)(1)(A) (generally, public charities) other than supporting 

organizations described in section 509(a)(3), for relief efforts related to a Federally declared 

disaster (as defined in section 165(h)(3)(C)(i)). Contributions of noncash property, such as 

securities, are not qualified disaster contributions. Under the provision, qualified disaster 

contributions must be to an organization described in section 170(b)(1)(A); thus, contributions 

to, for example, a charitable remainder trust generally are not qualified contributions, unless the 

charitable remainder interest is paid in cash to an eligible charity during the applicable time 

period. A taxpayer must elect to have the contributions treated as qualified disaster 

contributions. 

Qualified disaster contributions do not include a contribution if the contribution is for 

establishment of a new, or maintenance in an existing, donor advised fund (as defined in section 

4966(d)(2)). 

Below are examples illustrating the operation of the provision. (The examples assume 

the taxpayer makes an election to have the provision apply.) 

Example 1.−Assume individual A’s contribution base for 2009 is $100,000; aggregate 

qualified disaster contributions are $70,000; and other charitable contributions to organizations 

described in section 170(b)(1)(A) are $60,000. Under the provision, A is allowed a deduction of 

$100,000 for 2009 ($50,000 determined without regard to qualified disaster contributions plus 

$50,000 for the qualified disaster contributions (the lesser of (i) the $70,000 amount of the 

qualified disaster contribution or (ii) the $50,000 excess of the $100,000 contribution base over 

the $50,000 amount otherwise deductible)). $30,000 is treated as a contribution described in 

section 170(b)(1)(A) paid in each of the five succeeding taxable years (subject to the limitations 

of section 170(d)(1)(A)(i) and (ii)). $30,000 is the sum of the $10,000 excess referred to in 

section 170(d)(1)(A) (the excess of $60,000 over $50,000) and the $20,000 excess qualified 

disaster contributions (the excess of $70,000 over $50,000). 

Example 2.–For calendar year 2009, B, an individual, has a contribution base of 

$100,000. On January 10, 2009, B makes a $7,000 cash contribution to an organization 

described in section 170(b)(1)(A) and a $65,000 cash charitable contribution to an organization 

not so described. On October 10, 2009, B makes a $70,000 qualified disaster contribution. In 

2008, B made charitable contributions to organizations described in section 170(b)(1)(A) that 

exceeded 50 percent of the contribution base by $5,000. 

First, subsections (b) and (d) of section 170 are applied by disregarding the qualified 

disaster contribution. For 2009, a $12,000 deduction is allowed under section 170(b)(1)(A) − the 

$7,000 current year contribution and the $5,000 carryover from 2008. For 2009, a $30,000 

deduction for the contribution to the organization not described in section 170(b)(1)(A) also is 
25 

allowed. This amount is the lesser of (i) $38,000 ($50,000 (50 percent of B’s contribution base) 

less the $12,000 allowed under section 170(b)(1)(A)) or (ii) $30,000 (30 percent of B’s 

contribution base). The remaining contribution amount of $35,000 is carried over as a 

contribution to an organization which is not described in section 170(b)(1)(A). Thus, without 

regard to the qualified contribution, B is allowed a total contribution deduction of $42,000 in 

2009 ($12,000 plus $30,000). 

In addition, B may deduct $58,000 of the qualified contribution in 2009 (the lesser of (i) 

the $70,000 amount of the qualified disaster contribution or (ii) the $58,000 excess of B’s 

$100,000 contribution base over the $42,000 amount otherwise deductible). $12,000 is treated 

as a contribution described in section 170(b)(1)(A) paid in each of the five succeeding taxable 

years (subject to the limitations of section 170(d)(1)(A)(i) and (ii)). 

In summary, B’s deduction for 2009 is $100,000; $12,000 may be carried over as a 

contribution to an organization described in section 170(b)(1)(A) (subject to the limitations of 

section 170(d)(1)(A)(i) and (ii)); and $35,000 may be carried over as a contribution to an 

organization not so described (subject to similar limitations). 

Limitation on overall itemized deductions

Under the provision, the charitable contribution deduction up to the amount of qualified 

contributions (as defined above) paid during the year is not treated as an itemized deduction for 

purposes of the overall limitation on itemized deductions. 

Effective Date

The provision is effective for taxable years ending after the date of enactment.