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State tax returns free 6. State tax returns free   Retail Tax on Heavy Trucks, Trailers, and Tractors Table of Contents Highway vehicle. State tax returns free Vehicles not considered highway vehicles. State tax returns free Idling reduction device. State tax returns free Separate purchase. State tax returns free Leases. State tax returns free Exported vehicle. State tax returns free Tax on resale of tax-paid trailers and semitrailers. State tax returns free Use treated as sale. State tax returns free Sale. State tax returns free Long-term lease. State tax returns free Short-term lease. State tax returns free Related person. State tax returns free Exclusions from tax base. State tax returns free Sales not at arm's length. State tax returns free Installment sales. State tax returns free Repairs and modifications. State tax returns free Further manufacture. State tax returns free Rail trailers and rail vans. State tax returns free Parts and accessories. State tax returns free Trash containers. State tax returns free House trailers. State tax returns free Camper coaches or bodies for self-propelled mobile homes. State tax returns free Farm feed, seed, and fertilizer equipment. State tax returns free Ambulances and hearses. State tax returns free Truck-tractors. State tax returns free Concrete mixers. State tax returns free Registration requirement. State tax returns free Further manufacture. State tax returns free A tax of 12% of the sales price is imposed on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles. State tax returns free Truck chassis and bodies. State tax returns free Truck trailer and semitrailer chassis and bodies. State tax returns free Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. State tax returns free A truck is a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it is equipped to tow a vehicle, such as a trailer or semitrailer. State tax returns free A tractor is a highway vehicle designed to tow a vehicle, such as a trailer or semitrailer. State tax returns free A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. State tax returns free A sale of a truck, truck trailer, or semitrailer is considered a sale of a chassis and a body. State tax returns free The seller is liable for the tax. State tax returns free Chassis or body. State tax returns free   A chassis or body is taxable only if you sell it for use as a component part of a highway vehicle that is a truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. State tax returns free Highway vehicle. State tax returns free   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. State tax returns free Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. State tax returns free A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. State tax returns free A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). State tax returns free A special kind of cargo, goods, supplies, or materials. State tax returns free Some off-highway task unrelated to highway transportation, except as discussed next. State tax returns free Vehicles not considered highway vehicles. State tax returns free   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the retail tax. State tax returns free Specially designed mobile machinery for nontransportation functions. State tax returns free A self-propelled vehicle is not a highway vehicle if all the following apply. State tax returns free The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. State tax returns free The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. State tax returns free The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. State tax returns free Vehicles specially designed for off-highway transportation. State tax returns free A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicles's capability to transport a load over a public highway is substantially limited or impaired. State tax returns free To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. State tax returns free It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. State tax returns free Nontransportation trailers and semitrailers. State tax returns free A trailer or semitrailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. State tax returns free For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. State tax returns free Gross vehicle weight. State tax returns free   The tax does not apply to truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight (defined below) of 33,000 pounds or less. State tax returns free It also does not apply to truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer that has a gross vehicle weight of 26,000 pounds or less. State tax returns free Tractors that have a gross vehicle weight of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% retail tax. State tax returns free   The following four classifications of truck body types meet the suitable for use standard and will be excluded from the retail excise tax. State tax returns free Platform truck bodies 21 feet or less in length. State tax returns free Dry freight and refrigerated truck van bodies 24 feet or less in length. State tax returns free Dump truck bodies with load capacities of 8 cubic yards or less. State tax returns free Refuse packer truck bodies with load capacities of 20 cubic yards or less. State tax returns free For more information on these classifications, see Revenue Procedure 2005-19, which is on page 832 of I. State tax returns free R. State tax returns free B. State tax returns free 2005-14 at www. State tax returns free irs. State tax returns free gov/pub/irs-irbs/irb05-14. State tax returns free pdf. State tax returns free   The gross vehicle weight means the maximum total weight of a loaded vehicle. State tax returns free Generally, this maximum total weight is the gross vehicle weight rating provided by the manufacturer or determined by the seller of the completed article. State tax returns free The seller's gross vehicle weight rating is determined solely on the basis of the strength of the chassis frame and the axle capacity and placement. State tax returns free The seller may not take into account any readily attachable components (such as tires or rim assemblies) in determining the gross vehicle weight. State tax returns free See Regulations section 145. State tax returns free 4051-1(e)(3) for more information. State tax returns free Parts or accessories. State tax returns free   The tax applies to parts or accessories sold on or in connection with, or with the sale of, a taxable article. State tax returns free For example, if at the time of the sale by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with the sale of the vehicle. State tax returns free The tax applies in this case whether or not the retailer bills the parts or accessories separately. State tax returns free   If the retailer sells a taxable chassis, body, or tractor without parts or accessories considered essential for the operation or appearance of the taxable article, the sale of the parts or accessories by the retailer to the purchaser is considered made in connection with the sale of the taxable article even though they are shipped separately, at the same time, or on a different date. State tax returns free The tax applies unless there is evidence to the contrary. State tax returns free For example, if a retailer sells to any person a chassis and the bumpers for the chassis, or sells a taxable tractor and the fifth wheel and attachments, the tax applies to the parts or accessories regardless of the method of billing or the time at which the shipments were made. State tax returns free The tax does not apply to parts and accessories that are spares or replacements. State tax returns free   The tax imposed on parts and accessories sold on or in connection with the taxable articles listed earlier and the tax imposed on the separate purchase of parts and accessories (discussed next) for the taxable articles listed earlier do not apply to an idling reduction device or insulation that has an R value of at least R35 per inch. State tax returns free Idling reduction device. State tax returns free   An idling reduction device is any device or system of devices that provide the tractor with services, such as heat, air conditioning, and electricity, without the use of the main drive engine while the tractor is temporarily parked or stationary. State tax returns free The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary. State tax returns free The EPA discusses idling reduction technologies on its website at www. State tax returns free epa. State tax returns free gov/smartway/technology/idling. State tax returns free htm. State tax returns free Separate purchase. State tax returns free   The tax generally applies to the price of a part or accessory and its installation if the following conditions are met. State tax returns free The owner, lessee, or operator of any vehicle that contains a taxable article installs any part or accessory on the vehicle. State tax returns free The installation occurs within 6 months after the vehicle is first placed in service. State tax returns free   The owners of the trade or business installing the parts or accessories are secondarily liable for the tax. State tax returns free   A vehicle is placed in service on the date the owner takes actual possession of the vehicle. State tax returns free This date is established by a signed delivery ticket or other comparable document indicating delivery to and acceptance by the owner. State tax returns free   The tax does not apply if the installed part or accessory is a replacement part or accessory. State tax returns free The tax also does not apply if the total price of the parts and accessories, including installation charges, during the 6-month period is $1,000 or less. State tax returns free However, if the total price is more than $1,000, the tax applies to the cost of all parts and accessories (and installation charges) during that period. State tax returns free Example. State tax returns free You bought a taxable vehicle and placed it in service on April 8. State tax returns free On May 3, you bought and installed parts and accessories at a cost of $850. State tax returns free On July 15, you bought and installed parts and accessories for $300. State tax returns free Tax of $138 (12% of $1,150) applies on July 15. State tax returns free Also, tax will apply to any costs of additional parts and accessories installed on the vehicle before October 8. State tax returns free First retail sale defined. State tax returns free   The sale of an article is treated as the first retail sale, and the seller will be liable for the tax imposed on the sale unless one of the following exceptions applies. State tax returns free There has been a prior taxable sale, lease, or use of the article (however, see Tax on resale of tax-paid trailers and semitrailers, later). State tax returns free The sale qualifies as a tax-free sale under section 4221 (see Sales exempt from tax, later). State tax returns free The seller in good faith accepts from the purchaser a statement signed under penalties of perjury and executed in good faith that the purchaser intends to resell the article or lease it on a long-term basis. State tax returns free There is no registration requirement. State tax returns free Leases. State tax returns free   A long-term lease (a lease with a term of 1 year or more, taking into account options to renew) before a first retail sale is treated as a taxable sale. State tax returns free The tax is imposed on the lessor at the time of the lease. State tax returns free   A short-term lease (a lease with a term of less than 1 year, taking into account options to renew) before a first retail sale is treated as a taxable use. State tax returns free The tax is imposed on the lessor at the time of the lease. State tax returns free Exported vehicle. State tax returns free   A vehicle exported before its first retail sale, used in a foreign country, and then returned to the United States is subject to the retail tax on its first domestic use or retail sale after importation. State tax returns free Tax on resale of tax-paid trailers and semitrailers. State tax returns free   The tax applies to a trailer or semitrailer resold within 6 months after having been sold in a taxable sale. State tax returns free The seller liable for the tax on the resale can claim a credit equal to the tax paid on the prior taxable sale. State tax returns free The credit cannot exceed the tax on the resale. State tax returns free See Regulations section 145. State tax returns free 4052-1(a)(4) for information on the conditions to allowance for the credit. State tax returns free Use treated as sale. State tax returns free   If any person uses a taxable article before the first retail sale of the article, that person is liable for the tax as if the article had been sold at retail by that person. State tax returns free Figure the tax on the price at which similar articles are sold in the ordinary course of trade by retailers. State tax returns free The tax attaches when the use begins. State tax returns free   If the seller of an article regularly sells the articles at retail in arm's-length transactions, figure the tax on its use on the lowest established retail price for the articles in effect at the time of the taxable use. State tax returns free   If the seller of an article does not regularly sell the articles at retail in arm's-length transactions, a constructive price on which the tax is figured will be determined by the IRS after considering the selling practices and price structures of sellers of similar articles. State tax returns free   If a seller of an article incurs liability for tax on the use of the article and later sells or leases the article in a transaction that otherwise would be taxable, liability for tax is not incurred on the later sale or lease. State tax returns free Presumptive retail sales price. State tax returns free   There are rules to ensure that the tax base of transactions considered to be taxable sales includes either an actual or presumed markup percentage. State tax returns free If the person liable for tax is the vehicle's manufacturer, producer, or importer, the following discussions show how you figure the presumptive retail sales price depending on the type of transaction and the persons involved in the transaction. State tax returns free Table 6-1 outlines the appropriate tax base calculation for various transactions. State tax returns free   The presumed markup percentage to be used for trucks and truck-tractors is 4%. State tax returns free But for truck trailers and semitrailers and remanufactured trucks and tractors, the presumed markup percentage is zero. State tax returns free Sale. State tax returns free   For a taxable sale by a manufacturer, producer, importer, or related person, you generally figure the tax on a tax base of the sales price plus an amount equal to the presumed markup percentage times that sales price. State tax returns free Long-term lease. State tax returns free   In the case of a long-term lease by a manufacturer, producer, importer, or related person, figure the tax on a tax base of the constructive sales price plus an amount equal to the presumed markup percentage times the constructive sales price. State tax returns free Short-term lease. State tax returns free   When a manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a constructive sales price at which those or similar articles generally are sold in the ordinary course of trade by retailers. State tax returns free   But if the lessor in this situation regularly sells articles at retail in arm's-length transactions, figure the tax on the lowest established retail price in effect at the time of the taxable use. State tax returns free   If a person other than the manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a tax base of the price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor and a presumed markup percentage. State tax returns free Related person. State tax returns free   A related person is any member of the same controlled group as the manufacturer, producer, or importer. State tax returns free Do not treat as a related person a person that sells the articles through a permanent retail establishment in the normal course of being a retailer if that person has records to prove the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. State tax returns free Table 6-1. State tax returns free Tax Base IF the transaction is a. State tax returns free . State tax returns free . State tax returns free THEN figuring the base by using the. State tax returns free . State tax returns free . State tax returns free Sale by the manufacturer, producer, importer, or related person Sales price plus (presumed markup percentage × sales price) Sale by the dealer Total consideration paid for the item including any charges incident to placing it in a condition ready for use Long-term lease by the manufacturer, producer, importer, or related person Constructive sales price plus (presumed markup percentage × constructive sales price) Short-term lease by the manufacturer, producer, importer, or related person Constructive sales price at which such or similar articles are sold Short-term lease by a lessor other than the manufacturer, producer, importer, or related person Price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor plus a presumed markup percentage Short-term lease where the articles are regularly sold at arm's length Lowest established retail price in effect at the time of the taxable use General rule for sales by dealers to the consumer. State tax returns free   For a taxable sale, other than a long-term lease, by a person other than a manufacturer, producer, importer, or related person, your tax base is the retail sales price as discussed next under Determination of tax base. State tax returns free   When you sell an article to the consumer, generally you do not add a presumed markup to the tax base. State tax returns free However, you do add a markup if all the following apply. State tax returns free You do not perform any significant activities relating to the processing of the sale of a taxable article. State tax returns free The main reason for processing the sale through you is to avoid or evade the presumed markup. State tax returns free You do not have records proving that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. State tax returns free In these situations, your tax base is the sales price plus an amount equal to the presumed markup percentage times that selling price. State tax returns free Determination of tax base. State tax returns free   These rules apply to both normal retail sales price and presumptive retail sales price computations. State tax returns free To arrive at the tax base, the price is the total consideration paid (including trade-in allowance) for the item and includes any charge incident to placing the article in a condition ready for use. State tax returns free However, see Presumptive retail sales price, earlier. State tax returns free Exclusions from tax base. State tax returns free   Exclude from the tax base the retail excise tax imposed on the sale. State tax returns free Exclude any state or local retail sales tax if stated as a separate charge from the price whether the sales tax is imposed on the seller or purchaser. State tax returns free Also exclude the value of any used component of the article furnished by the first user of the article. State tax returns free   Exclude charges for transportation, delivery, insurance, and installation (other than installation charges for parts and accessories, discussed earlier) and other expenses incurred in connection with the delivery of an article to a purchaser. State tax returns free These expenses are those incurred in delivery from the retail dealer to the customer. State tax returns free In the case of delivery directly from the manufacturer to the dealer's customer, include the transportation and delivery charges to the extent the charges do not exceed what it would have cost to ship the article to the dealer. State tax returns free   Exclude amounts charged for machinery or equipment that does not contribute to the highway transportation function of the vehicle, provided those charges are supported by adequate records. State tax returns free For example, for an industrial vacuum loader vehicle, exclude amounts charged for the vacuum pump and hose, filter system, material separator, silencer or muffler, control cabinet, and ladder. State tax returns free Similarly, for a sewer cleaning vehicle, exclude amounts charged for the high pressure water pump, hose components, and the vacuum pipe. State tax returns free Sales not at arm's length. State tax returns free   For any taxable article sold (not at arm's length) at less than the fair market price, figure the excise tax on the price for which similar articles are sold at retail in the ordinary course of trade. State tax returns free   A sale is not at arm's length if either of the following apply. State tax returns free One of the parties is controlled (in law or in fact) by the other or there is common control, whether or not the control is actually exercised to influence the sales price. State tax returns free The sale is made under special arrangements between a seller and a purchaser. State tax returns free Installment sales. State tax returns free   If the first retail sale is an installment sale, or other form of sale in which the sales price is paid in installments, tax liability arises at the time of the sale. State tax returns free The tax is figured on the entire sales price. State tax returns free No part of the tax is deferred because the sales price is paid in installments. State tax returns free Repairs and modifications. State tax returns free   The tax does not apply to the sale or use of an article that has been repaired or modified unless the cost of the repairs and modifications is more than 75% of the retail price of a comparable new article. State tax returns free This includes modifications that change the transportation function of an article or restore a wrecked article to a functional condition. State tax returns free However, this exception generally does not apply to an article that was not subject to the tax when it was new. State tax returns free Further manufacture. State tax returns free   The tax does not apply to the use by a person of a taxable article as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by that person. State tax returns free Do not treat a person as engaged in the manufacture of any article merely because that person combines the article with a: Coupling device (including any fifth wheel); Wrecker crane; Loading and unloading equipment (including any crane, hoist, winch, or power liftgate); Aerial ladder or tower; Ice and snow control equipment; Earth moving, excavation, and construction equipment; Spreader; Sleeper cab; Cab shield; or Wood or metal floor. State tax returns free Combining an article with an item in this list does not give rise to taxability. State tax returns free However, see Parts or accessories discussed earlier. State tax returns free Articles exempt from tax. State tax returns free   The tax on heavy trucks, trailers, and tractors does not apply to sales of the articles described in the following discussions. State tax returns free Rail trailers and rail vans. State tax returns free   This is any chassis or body of a trailer or semitrailer designed for use both as a highway vehicle and a railroad car (including any parts and accessories designed primarily for use on and in connection with it). State tax returns free Do not treat a piggyback trailer or semitrailer as designed for use as a railroad car. State tax returns free Parts and accessories. State tax returns free   This is any part or accessory sold separately from the truck or trailer, except as described earlier under Parts or accessories and Separate purchase. State tax returns free Trash containers. State tax returns free   This is any box, container, receptacle, bin, or similar article that meets all the following conditions. State tax returns free It is designed to be used as a trash container. State tax returns free It is not designed to carry freight other than trash. State tax returns free It is not designed to be permanently mounted on or affixed to a truck chassis or body. State tax returns free House trailers. State tax returns free   This is any house trailer (regardless of size) suitable for use in connection with either passenger automobiles or trucks. State tax returns free Camper coaches or bodies for self-propelled mobile homes. State tax returns free   This is any article designed to be mounted or placed on trucks, truck chassis, or automobile chassis and to be used primarily as living quarters or camping accommodations. State tax returns free Further, the tax does not apply to chassis specifically designed and constructed to accommodate and transport self-propelled mobile home bodies. State tax returns free Farm feed, seed, and fertilizer equipment. State tax returns free   This is any body primarily designed to process or prepare, haul, spread, load, or unload feed, seed, or fertilizer to or on farms. State tax returns free This exemption applies only to the farm equipment body (and parts and accessories) and not to the chassis upon which the farm equipment is mounted. State tax returns free Ambulances and hearses. State tax returns free   This is any ambulance, hearse, or combination ambulance-hearse. State tax returns free Truck-tractors. State tax returns free   This is any truck-tractor specifically designed for use in shifting semitrailers in and around freight yards and freight terminals. State tax returns free Concrete mixers. State tax returns free   This is any article designed to be placed or mounted on a truck, truck trailer, or semitrailer chassis to be used to process or prepare concrete. State tax returns free This exemption does not apply to the chassis on which the article is mounted. State tax returns free Sales exempt from tax. State tax returns free   The following sales are ordinarily exempt from tax. State tax returns free Sales to a state or local government for its exclusive use. State tax returns free Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function. State tax returns free Sales to a nonprofit educational organization for its exclusive use. State tax returns free Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. State tax returns free Sales for use by the purchaser for further manufacture of other taxable articles (see below). State tax returns free Sales for export or for resale by the purchaser to a second purchaser for export. State tax returns free Sales to the United Nations for official use. State tax returns free Registration requirement. State tax returns free   In general, the seller and buyer must be registered for a sale to be tax free. State tax returns free See the Form 637 instructions for more information. State tax returns free Certain registration exceptions apply in the case of sales to state and local governments, sales to foreign purchasers for export, and sales for resale or long term leasing. State tax returns free Further manufacture. State tax returns free   If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and made the first retail sale of them. State tax returns free Credits or refunds. State tax returns free   A credit or refund (without interest) of the retail tax on the taxable articles described earlier may be allowable if the tax has been paid with respect to an article and, before any other use, such article is used by any person as a component part of another taxable article manufactured or produced. State tax returns free The person using the article as a component part is eligible for the credit or refund. State tax returns free   A credit or refund is allowable if, before any other use, an article is, by any person: Exported, Used or sold for use as supplies for vessels, Sold to a state or local government for its exclusive use, Sold to a nonprofit educational organization for its exclusive use, or Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. State tax returns free A credit or refund is also allowable if there is a price readjustment by reason of the return or repossession of an article or by reason of a bona fide discount, rebate, or allowance. State tax returns free   See also Conditions to allowance in chapter 5. State tax returns free Tire credit. State tax returns free   A credit is allowed against the retail tax on the taxable articles described earlier if taxable tires are sold on or in connection with the sale of the article. State tax returns free The credit is equal to the manufacturers excise tax imposed on the taxable tires (discussed earlier). State tax returns free This is the section 4051(d) taxable tire credit and is claimed on Schedule C (Form 720) for the same quarter for which the tax on the heavy vehicle is reported. State tax returns free Prev  Up  Next   Home   More Online Publications
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Tax Law Changes Related to Midwestern Disaster Areas

FS-2008-27, December 2008

WASHINGTON — The Heartland Disaster Tax Relief Act of 2008 provides certain tax breaks to help victims of the severe storms, flooding and tornadoes that occurred in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Missouri, Minnesota, Nebraska and Wisconsin that the federal government declared a disaster during the period beginning May 20, 2008, and ending July 31, 2008.

The recently enacted legislation alters the tax code to help individuals who suffered losses as a result of the Midwestern Disasters and to make it easier for individuals and businesses to engage in charity to benefit those affected by the severe storms, flooding and tornadoes.

The counties in these states that encompass the “Midwestern Disaster Areas” are identified in Tables 1 and 2 at the end of this fact sheet. Taxpayers located in the counties listed in Table 1 are eligible for all portions of the relief made available to the Midwestern Disaster Areas by the recently enacted legislation. Those taxpayers located in the counties listed in Table 2 are eligible only for certain special tax provisions. For a more complete listing of the tax relief provisions that the Heartland Disaster Tax Relief Act of 2008 provides to taxpayers located in the counties listed in Tables 1 and 2, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.

Individuals Affected by the Midwestern Disasters

In general, for individuals affected by the Midwestern Disasters, the Heartland Disaster Tax Relief Act of 2008 provides tax-favored early distributions and loans from retirement accounts, eliminates the limitations on claiming losses and permits certain earned income tax credit (EITC) and refundable child tax credit recipients to choose either tax year 2008 or 2007 to determine their earned income and use the more beneficial result.

The recently enacted legislation also allows affected individuals to exclude from income certain cancellations of debt and extends, from two years to five years, the replacement period for converted properties. Portions of the Heartland Disaster Tax Relief Act of 2008 are highlighted below.

Removal of Loss Limitations: For taxpayers who suffered casualty or theft losses to property owned for personal use that are attributable to the Midwestern Disasters, recently enacted legislation removes certain loss limitations. Ordinarily, to figure a deduction for a casualty or theft loss of personal-use property from a particular disaster, taxpayers who itemize must reduce the loss by $100 and also reduce their total casualty and theft losses by 10 percent of their adjusted gross income. Only the excess over these $100 and 10 percent limits is deductible for those taxpayers who itemize their deductions. The recently enacted legislation, however, removes these limits for the Midwestern Disasters on losses of personal-use property, so that the entire amount of unreimbursed losses is deductible if a taxpayer itemizes.

To qualify, a loss must arise in a Midwestern Disaster Area and be attributable to the severe storms, flooding or tornadoes for which the Disaster Declarations identified in Tables 1 and 2 were issued. Note: The new increased standard deduction for net disaster losses does not apply to losses in Midwestern disaster areas.

Cancellation of Debt: Individuals whose main home was located in a Midwestern Disaster Area on the date that a disaster was declared for the county in which they live, will not include in income any non-business debt, such as a mortgage, that is canceled on or after the applicable disaster date and before Jan. 1, 2010, provided that the debt is not secured by property located outside the Midwestern Disaster Areas. If the individual’s main home was located in a Midwestern Disaster Area as shown in Table 2, the individual must also have had an economic loss because of the severe storms, floods or tornadoes. Examples of economic losses include, but are not limited to:

  • Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind or other cause;
  • Loss related to displacement from one’s home; or
  • Loss of livelihood due to temporary or permanent layoffs.

Usually, the cancellation of debt is treated as income by the person for whom the debt is forgiven.

Earned Income Tax Credit and Refundable Child Tax Credit: The recently enacted legislation allows eligible individuals to choose to calculate their earned income tax credit (EITC) or refundable child tax credit using their prior year’s earned income. An eligible individual is one whose earned income in 2008 is less than their earned income in 2007 and their main home on the applicable disaster date was in a Midwestern Disaster Area as shown in Table 1 or their main home on the applicable disaster date was in a Midwestern Disaster Area as shown in Table 2 and they were displaced from that home because of the severe storms, tornadoes or flooding. Taxpayers eligible to make the choice should figure their EITC and refundable child tax credit using their earned income for each year before making the choice to see which gives them the higher credits.

Education Credits: The recently enacted legislation provides educational assistance to students enrolled and paying tuition at eligible educational institutions located in Midwestern Disaster Areas counties identified in Table 1 for any tax year beginning in 2008 or 2009. Basically, the new legislation expands the Hope and Lifetime Learning educational credits in the following way:

  • The Hope Credit is expanded to 100 percent of the first $2,400 in eligible expenses plus 50 percent of the next $2,400 – doubling the maximum Hope Credit from $1,800 to $3,600 for each eligible student.
  • The Lifetime Learning Credit is expanded from 20 percent to 40 percent of the first $10,000 in eligible expenses.

Exemption for Taxpayers Housing Individuals Displaced by the Disasters: Taxpayers who provided housing in their main homes to individuals displaced by the severe storms, tornadoes or flooding that occurred in the Midwestern Disaster Areas may be able to claim an additional exemption amount of $500 for each such displaced individual. The additional exemption amount is allowable once per taxpayer for a specific Midwestern Disaster displaced individual in 2008 or 2009, but not in both years. The maximum additional exemption amount that can be claimed for all displaced individuals is $2,000, or $1,000 if married filing separately. Any exemption amount claimed in 2008 will reduce the $2,000 maximum for 2009.

To qualify as a displaced individual, the individual must have had his or her main home in a Midwestern Disaster Area on the applicable disaster date, and he or she must have been displaced from that home. If the displaced individual’s main home was located in a Midwestern Disaster Area as shown in Table 2, that home must have been damaged by the severe storms, tornadoes or flooding or the individual must have been evacuated from the home because of the severe storms, tornadoes or flooding. In addition, the displaced individual must have been provided housing in the taxpayer’s main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed. The displaced individual cannot be the taxpayer’s spouse or dependent. 

This benefit applies to the counties listed in Tables 1 and 2. More detailed information on claiming the additional exemption can be found in Publication 4492-B.

Recapture of Federal Mortgage Subsidy: Generally, taxpayers who financed their homes under a federally-subsidized program may have to repay all or part of the benefit they received from that program when they sell or otherwise dispose of their home. This repayment is known, technically, as recapture.  Taxpayers do not, however, have to recapture any benefit if their mortgage loan was a qualified home improvement loan of not more than $15,000. The recently enacted legislation provides for this amount to be increased to $150,000, if the loan was provided prior to 2011 and was used to alter, repair, or improve an existing owner-occupied residence in a Midwestern Disaster Area as shown in Table 1. 

Retirement Funds

To help victims of the severe storms, flooding and tornadoes in the Midwestern Disaster Areas, the recently enacted legislation provides certain tax-favored treatment for early distributions, plan loans and re-contributions. These benefits apply to the counties listed in Tables 1 and 2.

Qualified Disaster Recovery Assistance Distributions: A qualified disaster recovery distribution is any distribution from an eligible retirement plan that meets the following requirements:  (1) the distribution was made on or after an applicable disaster date listed in Tables 1 or 2 and before Jan. 1, 2010; (2) the distribution was made to a taxpayer whose main home was located in a Midwestern Disaster Area on the applicable disaster date; and (3) the taxpayer sustained an economic loss because of the severe storms, tornadoes or flooding that affected the Midwestern Disaster Areas. If these requirements are met, the taxpayer can generally designate any distribution from an eligible retirement plan as a qualified disaster recovery assistance distribution, regardless of whether the distribution was made on account of the severe storms, tornadoes or flooding.  The total amount of tax-favored distributions an individual can receive from all plans, annuities or IRAs is $100,000.

Taxation of Qualified Disaster Recovery Assistance Distributions: Qualified disaster recovery assistance distributions are included in income in equal amounts over three years. The taxpayer can, however, elect to include the entire distribution income in the year it was received. An eligible individual who receives qualified disaster recovery assistance distributions does not have to pay the 10% additional tax on early distributions (or the additional 25% tax for certain distributions from SIMPLE IRAs). Under the new law, qualified disaster recovery assistance distributions are not subject to the mandatory 20% withholding. Any distributions received in excess of the $100,000 qualified disaster recovery assistance distribution limit may be subject to the additional tax on early distributions. 

Repayment of Qualified Disaster Recovery Assistance Distributions: Taxpayers may choose to repay any portion of a qualified disaster recovery distribution that is eligible for tax-free rollover treatment into an eligible retirement plan within three years from the date of the distribution. The distribution will be treated as though it were paid in a direct rollover (note that for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover). To report a re-contribution, the eligible individual must also file a Form 8930, Qualified Disaster Recovery Assistance Retirement Plan Distributions and Repayments. Refer to Publication 4492-B for additional information on repaying qualified disaster recovery assistance distributions and for a list of the qualified disaster recovery assistance distributions that cannot be repaid.

Repayment of Qualified Distributions for the Purchase or Construction of a Main Home: An individual who received a qualified distribution to purchase or construct a main home in a Midwestern disaster area can repay part or all of that distribution to an eligible retirement plan on or after the applicable disaster date, but no later than March 3, 2009. To be a qualified distribution, the distribution must meet all of the following requirements:  (1) the distribution is a hardship distribution from a 401(k) plan or a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA; (2) the distribution was received within six months prior to the day after the applicable disaster date; and (3) the distribution was used to purchase or construct a main home in a Midwestern Disaster Area that was not purchased or constructed because of the severe storms, tornadoes or flooding. 
Amounts that are repaid before March 4, 2009, are treated as a qualified rollover and are not included in income (note that for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover). If the qualified distribution is not repaid by March 4, 2009, the distribution may be taxable for 2007 or 2008, as well as subject to the additional 10% tax on early distributions (or the additional 25% tax for certain SIMPLE IRAs). Any repayments must be reported on Form 8930, Qualified Disaster Recovery Assistance Retirement Plan Distributions and Repayments.  

Retirement Plan Loans: Under the new law, the allowable retirement plan loan amount for eligible individuals is increased from $50,000 to $100,000. To figure the dollar limit, an eligible individual would start with (a) $100,000 and subtract the highest outstanding balance of loans from these plans during the prior year and compare that figure to (b) the eligible individual’s vested benefit under the plan. Whichever figure is less is the limit that the eligible individual can borrow from the employer’s plans without a tax consequence.

For an eligible individual, payments on retirement plan loans outstanding on or after the applicable disaster date may be suspended for one year by the plan administrator. To qualify for suspension, the due date for any loan payment must occur during the period beginning on the applicable disaster date and ending on Dec. 31, 2009. 

Charity Encouraged by New Law

To encourage charity, the recently enacted legislation suspends the limits on certain charitable contributions, creates an exemption for those housing Midwestern Disaster displaced individuals, increases the standard mileage rate for charitable use of vehicles and excludes from gross income mileage reimbursements to charitable volunteers.

Suspension of Charitable Limits for Certain Charitable Contributions: In the case of an individual, the recently enacted legislation allows a deduction for qualified contributions up to the amount by which the taxpayer’s contribution base – adjusted gross income – exceeds the deduction for other charitable contributions. Contributions in excess of this amount are generally carried over to succeeding taxable years. The recently enacted legislation allows corporations to elect to deduct qualified cash contributions without regard to the 10% of taxable income limit.

Qualified contributions are defined as cash contributions to a charitable organization described in section 170(b)(1)(A) (other than a supporting organization described in section 509(a)(3)), for relief efforts in one or more Midwestern Disaster Areas made after May 1, 2008, and before Jan. 1, 2009. Contributions of non-cash property, such as securities, are not qualified contributions.

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. This benefit applies only to the counties listed in Table 1.

Increase in the Standard Mileage Rate for Charitable Use of Vehicles: The recently enacted legislation provides special standard mileage rates for taxpayers who used their vehicles to provide charitable services related solely to the severe storms, tornadoes and flooding that occurred in the Midwestern Disaster Areas during the period May 2, 2008, through Dec. 31, 2008.  The special rate is 36 cents per mile for the period May 2, 2008, through June 30, 2008. For the period July 1, 2008, through Dec. 31, 2008, the special rate is 41 cents per mile.

Taxpayers may also exclude from income any amounts received as mileage reimbursement for the use of a private passenger automobile for the benefit of a qualified charitable organization in responding to the severe storms, tornadoes and flooding that occurred in the Midwestern Disaster Areas during the period May 2, 2008, through Dec. 31, 2008. Taxpayers cannot claim a deduction or credit for any amounts excluded and must keep records of miles driven, time, place (or use) and purpose of the mileage. The amount that can be excluded from income cannot exceed 50.5 cents per mile for the period May 2, 2008, through June 30, 2008; and 58.5 cents per mile for the period July 1, 2008, through Dec. 31, 2008. This benefit applies only to the counties listed in Table 1.

Table 1
Taxpayers located in these counties are eligible for all portions of relief identified in this document.

Applicable Disaster Date*

State 

Affected Counties - Midwestern Disaster Areas 

 5/2/2008  Arkansas Arkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline and Van Buren.
 6/1/2008  Illinois Adams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Jersey, Lake, Lawrence, Mercer, Rock Island, Whiteside, and Winnebago.
 6/6/2008  Indiana Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Madison, Marion, Monroe, Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Vermillion, Vigo, Washington and Wayne.
 5/25/2008  Iowa Adair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jackson, Jasper, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Tama, Union, Van Buren, Wapello, Warren, Washington, Webster, Winnebago, Winneshiek, Worth and Wright.
 5/10/2008  Missouri Barry, Jasper and Newton.
 6/1/2008  Missouri Adair, Andrew, Callaway, Cass, Chariton, Clark, Gentry, Greene, Harrison, Holt, Johnson, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Monroe, Nodaway, Pike, Putnam, Ralls, St. Charles, Stone, Taney, Vernon and Webster.
 5/22/2008  Nebraska Buffalo, Butler, Colfax, Custer, Dawson, Douglas, Gage, Hamilton, Holt, Jefferson, Kearney, Lancaster, Platte, Richardson, Sarpy and Saunders.
 6/5/2008  Wisconsin Adams, Calumet, Crawford, Columbia, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Manitowoc, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha and Winnebago.

 

Table 2
Taxpayers located in the counties listed below are eligible for all of the special tax provisions identified in this fact sheet except the education credits, charitable giving incentives (suspension of charitable limits and increase in standard mileage rates) and the recapture of federal mortgage subsidy.**

Applicable Disaster Date*

State

Affected Counties - Midwestern Disaster Areas

 6/1/2008  Illinois Greene, Madison, Monroe, Pike, Randolph, St. Clair and Scott.
 6/6/2008  Indiana Benton, Boone, Fountain, Franklin, Jay, Montgomery, Ohio, Switzerland, Union and Wabash.
 5/25/2008  Iowa Carroll, Cherokee, Lyon, Palo Alto, Pocahontas, Taylor and Wayne.
 5/22/2008  Kansas Barber, Barton, Bourbon, Brown, Butler, Chautauqua, Cherokee, Clark, Clay, Comanche, Cowley, Crawford, Decatur, Dickinson, Edwards, Elk, Ellis, Ellsworth, Franklin, Gove, Graham, Harper, Haskell, Hodgeman, Jackson, Jewell, Kingman, Kiowa, Lane, Linn, Logan, Mitchell, Montgomery, Ness, Norton, Osborne, Pawnee, Phillips, Pratt, Reno, Republic, Riley, Rooks, Rush, Saline, Seward, Sheridan, Smith, Stafford, Sumner, Thomas, Trego, Wallace and Wilson.
 6/6/2008  Michigan Allegan, Barry, Eaton, Ingham, Lake, Manistee, Mason, Missaukee, Osceola, Ottawa, Saginaw and Wexford.
 6/7/2008  Minnesota Cook, Fillmore, Freeborn, Houston, Mower and Nobles.
 6/1/2008  Missouri Atchison, Audrain, Bates, Buchanan, Cape Girardeau, Carroll, Christian, Daviess, Grundy, Howard, Jefferson, Knox, Mercer, Miller, Mississippi, Morgan, New Madrid, Pemiscot, Perry, Pettis, Platte, Polk, Randolph, Ray, Saline, Schuyler, Scotland, Scott, Shelby, St. Genevieve, St. Louis, Sullivan, the Independent City of St. Louis and Worth.
 4/23/2008  Nebraska Gage, Johnson, Morrill, Nemaha and Pawnee.
 5/22/2008  Nebraska Adams, Blaine, Boone, Boyd, Brown, Burt, Cass, Chase, Cherry, Cuming, Dundy, Fillmore, Frontier, Furnas, Garfield, Gosper, Greeley, Hall, Hayes, Howard, Johnson, Keya Paha, Lincoln, Logan, Loup, Merrick, McPherson, Morrill, Nance, Nemaha, Otoe, Phelps, Polk, Red Willow, Rock, Saline, Seward, Sherman, Stanton, Thayer, Thomas, Thurston, Valley, Webster, Wheeler and York.
 6/27/2008  Nebraska Dodge, Douglas, Sarpy and Saunders.
 6/5/2008  Wisconsin Lafayette.


* In some cases the date will be later due to the continuation of the severe storms, tornadoes or flooding that began on the above date. The Federal Emergency Management Agency has more details.

** See Pub. 4492-B for a more complete listing of the tax provisions that are available to taxpayers located in the affected counties in the Midwestern Disaster Areas listed in Tables 1 and 2.

Page Last Reviewed or Updated: 18-Aug-2012

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