Tax break could assist storm-affected

• By TED GRIGGS
• Advocate business writer
• Published: Dec 4, 2008 - Page: 1A - UPDATED: 12:05 a.m.

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Congress’ decision to increase the size of the federal tax break for storm damage to homes and automobiles will likely provide relief for Louisiana homeowners whose insurance policies left them on the hook for thousands of dollars in repairs.

The new regulations, passed in October as part of the bailout of the financial industry, allow taxpayers to deduct hurricane damages, known as casualty losses, that exceeded $100 in 2008, said William C. Potter, tax director for Postlethwaite & Netterville. That’s a big change from the old rules, which allowed only deductions that amounted to more than 10 percent of a taxpayer’s adjusted gross income, plus $100.

“I had to pay $5,000 to have trees removed from my yard, and my (homeowner’s) insurance didn’t pay anything because none of them hit my house,” Potter said. “Well, now I can deduct $4,900 on my tax return.”

Both individuals and businesses are eligible for the immediate deduction for demolition, clean up, repairs and environmental remediation expenses under the Fair Disaster Tax Relief Act, co-authored by U.S. Rep. Charlie Melancon, D-Napoleonville.

The act also:

• Waives the 10 percent adjusted gross income requirement and sets the deduction floor at $100 for 2008. This means a family whose $10,000 car was destroyed in a hurricane could claim a loss of $9,900. In 2009, the deduction floor begins at $500.
• Allows taxpayers to apply the casualty loss to returns from up to five previous years. The expanded carry back provision — two years before now — is designed to increase the size of a taxpayer’s refund.
• Allows states to issue tax exempt-bonds to finance low-interest loans of as much as $150,000 to taxpayers whose homes have been damaged by a disaster.
  

It’s unclear exactly how many Louisiana residents are eligible for the deduction, but the number appears well above 100,000. State Farm had more than 55,000 homeowners and auto claims for Gustav, and Louisiana Citizens Property Insurance Corp. more than 50,000 homeowners claims.

The IRS is working on the new rules and regulations for the deduction, but Robin Winchell, spokeswoman for Melancon, said the process could take months.

In the meantime, Potter said he is advising clients to follow the existing guidelines for casualty losses, a process that is far from simple.

In order to calculate the deduction, the taxpayer must take the property’s value before the damage and subtract the property’s value afterward, Potter said. The difference between the two minus any insurance money the taxpayer receives is the casualty loss.

In some cases, taxpayers’ casualty losses will amount to their out-of-pocket expenses for debris removal or repairs, he said. But in casualty losses involving homes or their contents, the process can be arduous.

For instance, Postlethwaite & Netterville, not to mention the IRS, recommends a homeowner get an appraisal of the house’s value before the storm and afterward.

The appraisal can set a homeowner back as much as 1 percent of the home’s value, Potter said. The appraisal cost for a $200,000 house might be $2,000.

But it’s important to have that kind of backup, Potter said, because the burden is on the taxpayer to prove their losses.

That can be difficult when a hurricane has destroyed receipts and property, Potter said. The same goes for getting an appraisal for the contents of a home destroyed in a storm.