Tax Incentives for Economic Development: What tax incentives were created in response to 9/11?
Congress enacted two pieces of legislation to assist families and regions most affected by the terrorist attacks of September 11, 2001. The Job Creation and Worker Assistance Act of 2002 provides tax incentives to a section of lower Manhattan designated the New York Liberty Zone (NYLZ). The Victims of Terrorism Tax Relief Act of 2001 offers tax relief to survivors and decedents of terrorist attacks, including victims of 9/11, the 1995 Oklahoma City bombing, and the post-9/11 anthrax attacks.
- The Job Creation and Worker Assistance Act of 2002 aimed to encourage development in the NYLZ at an estimated cost of $484 million in 2002 and $5.0 billion from 2002 to 2012.
- The bill expanded the Work Opportunity Tax Credit to include employees of small businesses either currently located in the NYLZ or forced to relocate from the NYLZ to elsewhere in New York City by the attack. Firms could claim the credit–40 percent of the first $6,000 of qualified wages per employee–for all workers employed during 2002 and 2003, regardless of whether they were on the firm’s payroll on 9/11.
- Firms may claim an additional first-year depreciation deduction equal to 30 percent of adjusted basis for tangible personal property in the NYLZ. Eligible property must be purchased after September 11, 2001, and placed in service by the end of 2006 (or by the end of 2009 for nonresidential real property and residential rental property). The bill also increased the limit on section 179 expensing by $35,000 for qualifying NYLZ property placed in service between September 11, 2001, and December 31, 2006.
- The act authorized New York State and City each to issue $4 billion in tax-exempt private activity bonds to finance private construction and rehabilitation of residential rental and nonresidential real property in the NYLZ.
- Ordinarily, insurance proceeds from property that is destroyed, stolen, or condemned are taxable unless they are reinvested within two years. The bill extends the replacement period to five years for NYLZ property destroyed as a result of the attacks if the replacement property is in New York City.
- Under current law, members of the military who are killed in action in combat zones are provided with tax relief. The Victims of Terrorism Tax Relief Act of 2001 extends these benefits to victims of the 9/11 attacks, the 1995 Oklahoma City bombing, and the post-9/11 anthrax attacks at an estimated cost of $190 million in 2002 and $360 million from 2002 to 2011.
- The federal income tax liability of an individual who dies as a result of one of the specified attacks is forgiven for all years from the attack to the death. The minimum tax relief benefit is $10,000, regardless of tax liability, and any forgiven tax liability already paid is refunded. This provision, the largest in the bill, is estimated to cost $171 million from 2002 to 2011.
- Forgiven debt is ordinarily considered to be taxable income; the bill excludes from taxable income debts that were forgiven because of the death of an attack victim, as well as certain death benefits paid by employers and disaster relief payments made to survivors.
- The bill also reduces the federal estate tax for individuals who were killed by the terrorist attacks. Tax liability for these individuals is determined by an alternate rate schedule.
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Joint Committee on Taxation, "Estimated Budget Effects of the 'Victims of Terrorism Tax Relief Act of 2001,' as Passed by the House of Representatives and the Senate on December 20, 2001" (JCX-94-01, December 21, 2001).
Joint Committee on Taxation, "Estimated Revenue Effects of the 'Job Creation and Worker Assistance Act of 2002'" (JCX-13-02, March 6, 2002).
Internal Revenue Service, "Tax Relief for Victims of Terrorist Attacks" (Publication 3920, February 2002).
Joint Committee on Taxation, "Technical Explanation of the 'Job Creation and Worker Assistance Act of 2002'" (JCX-12-02, March 6, 2002).
Joint Committee on Taxation, "Technical Explanation of the 'Victims of Terrorism Tax Relief Act of 2001,' as Passed by the House and the Senate on December 20, 2001" (JCX-93-01, December 21, 2001).
Authors: Paul Duncan, Carol Rosenberg, and Kim Rueben
Last Updated: April 28, 2009