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Scott Niolet reports on Katrina IRS<niolets@bellsouth.net>

Posted Jan 19, 2006

Tax Law Changes Related to Hurricanes Katrina, Rita and Wilma

FS-2006-12, January 2006

The Gulf Opportunity Zone Act of 2005, in general, expands the provisions of the Katrina Emergency Tax Relief Act of 2005 to those affected by Hurricanes Rita and Wilma as well as Katrina. These two new laws provide certain tax breaks to help victims of the storms. The new laws alter the tax code to help individuals who suffered losses as a result of the hurricanes and to make it easier for individuals and companies to engage in charity to benefit those affected by the hurricanes.

The Internal Revenue Service will provide a full explanation of the new laws in Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma, which will be available on IRS.gov by February 2006.

The terms Gulf Opportunity Zone (GO Zone), Rita GO Zone, Wilma GO Zone, Hurricane Katrina Disaster Area, Hurricane Rita Disaster Area and Hurricane Wilma Disaster Area are defined at the end of this fact sheet. In total, five states – Alabama, Florida, Louisiana, Mississippi, and Texas are affected.

INDIVIDUALS AFFECTED BY HURRICANES KATRINA, RITA AND WILMA

In general, for individuals affected by Hurricanes Katrina, Rita and Wilma, recent legislation 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 2005 or 2004 to determine their earned income and use the more beneficial result.

The Katrina Emergency Tax Relief Act of 2005 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.

The Gulf Opportunity Zone Act provides educational assistance by expanding the Hope and Lifetime Learning credits for students enrolled and paying tuition at eligible educational institutions in the GO Zone for tax years beginning in 2005 or 2006. Basically, it expands the educational credits in the following way:

The Hope Credit is expanded from a maximum of $1,000 per student to 100 percent of the first $2,000 in eligible expenses plus 50 percent of the next $2,000 – for a maximum of $3,000.

The Lifetime Learning Credit is expanded from 20 percent to 40 percent.

Removal of Loss Limitations

For taxpayers who suffered casualty or theft losses to property owned for personal use which are attributable to Hurricanes Katrina, Rita and Wilma, a recent change to the tax law removes certain loss limitations.

Ordinarily, to figure a deduction for a casualty or theft loss of personal-use property from a particular disaster, taxpayers 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. Recent legislation, however, removes these limits for Hurricanes Katrina, Rita and Wilma on losses of personal-use property, so that the entire amount of unreimbursed losses is deductible.

To qualify, a loss must arise in the Hurricane Katrina disaster area after August 24, 2005 and must be attributable to Hurricane Katrina, or arise in the Hurricane Rita disaster area after September 22, 2005 and must be attributable to Hurricane Rita, or arise in the Hurricane Wilma disaster area after Oct. 22, 2005 and must be attributable to Hurricane Wilma.

Cancellation of Debt

Individuals living in the Hurricane Katrina Disaster Area on August 25, 2005, will not include in income a non-business debt that is cancelled, provided that the debt is not secured by property outside the Hurricane Katrina Disaster Area. 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

Eligible individuals may choose to calculate their earned income tax credit (EITC) or refundable child tax credit using their earned income from the prior tax year. An eligible individual is the following:

One whose main home on August 25, 2005, was in the GO Zone or who was displaced from the home they lived in on August 25 in the Hurricane Katrina Disaster Area; or

One whose taxable year included Sept. 23 and whose main home on Sept. 23 was in the Rita GO Zone or who was displaced from the home they lived in on Sept. 23 in the Hurricane Rita disaster area; or

One whose taxable year included Oct. 23 and whose main home on Oct. 23 was in the Wilma GO Zone or who was displaced from their home in the Hurricane Wilma disaster area.

They may choose to use their prior year’s earned income in calculating the EITC and the refundable child tax credit if their 2004 earned income was higher than their 2005 earned income. 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.

Katrina, Wilma, and Rita victims can quickly access their 2004 earned income for these calculations using Your 2004 Earned Income Option. As a security feature, taxpayers must enter the Social Security Number and date of birth for the primary taxpayer listed on their 2004 federal return before retrieving this confidential information.

Retirement Funds

To help victims of Hurricane Katrina, Rita and Wilma, the new law provides certain tax-favored treatment for early distributions, plan loans and recontributions.

Early Distributions from Retirement Plans

To qualify for tax-favored treatment, the distribution must be made on or after Aug. 25, 2005, and before Jan. 1, 2007, from an eligible retirement plan such as a qualified plan or an IRA, to an eligible individual – one whose main home was in the Hurricane Katrina disaster area on Aug. 28, 2005, and who sustained an economic loss from Hurricane Katrina; or for a distribution made on or after Sept. 23 and before Jan. 1, 2007, to an eligible individual whose main home was located in the Hurricane Rita disaster area on Sept 23, 2005 and who sustained an economic loss from Hurricane Rita;

or for a distribution made on or after Oct.23, 2005 and before Jan. 1, 2007, to an eligible individual whose main home was located in the Hurricane Wilma disaster area on Oct. 23, 2005 and who sustained an economic loss from Hurricane Wilma.

The total amount of tax-favored distributions an individual can receive from all plans, annuities or IRAs is $100,000.

An individual who receives these qualified retirement distributions does not have to pay the 10-percent additional tax on early distributions. The distributions generally are included in income, ratably over a three-year period. However, if the individual recontributes a qualified distribution that is eligible for tax-free rollover treatment into an eligible retirement plan within three years, the distribution will be treated as though it were paid in a direct rollover.

For example, if an individual receives a qualified Hurricane Katrina distribution in 2005, that amount is includible in income, generally ratably over the year of the distribution and the following two years, but is not subject to the 10-percent additional tax on early distributions. If, in 2007, the amount of the qualified Hurricane Katrina distribution is recontributed to an eligible retirement plan, the individual may file an amended return (or returns) to claim a refund of the tax attributable to the amount of the distribution previously included in income.

Under the new law, qualified distributions are not subject to the mandatory 20-percent withholding.

Retirement Plan Loans

For an eligible individual, defined above, with an outstanding loan on or after Aug. 25, Sept. 23 or Oct. 23, as applicable, from a qualified employer plan, if the due date for any repayment on the loan occurs during the period beginning on Aug. 25, Sept 23, or Oct. 23, 2005, and ending on December 31, 2006, the due date shall be delayed for one year. Any payments after the suspension period will be appropriately adjusted to reflect the delay and any interest accruing during the delay.

Under the new law, the allowable loan amount for eligible individuals is increased from $50,000 to $100,000. To figure the dollar limit, an 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 individual’s vested benefit under the plan. Whichever figure is less is the limit that the individual can borrow from the employer’s plans without a tax consequence.

Recontributions to Retirement Plans

In the case of Hurricane Katrina, a qualified individual who, after Feb. 28, 2005, and before Aug 29, 2005; took a distribution, such as a hardship distribution from a 401(k) plan or 403(b) annuity or a qualified first-time homebuyer distribution from an IRA, to purchase or construct a home in the Hurricane Katrina disaster area, but it was not purchased or constructed as a result of Hurricane Katrina, could recontribute the funds to an eligible retirement plan. Any amount recontributed is treated as having been paid in a direct rollover. To qualify for this treatment, the individual must recontribute the funds during the period beginning on Aug. 25, 2005 and ending on Feb. 28, 2006.

In the case of Hurricane Rita, a qualified individual who after Feb. 28, 2005 and before Sept. 24, 2005, took a distribution, such as a hardship distribution from a 401(k) plan or 403(b) annuity or a qualified first-time homebuyer distribution from an IRA, to purchase or construct a home in the Hurricane Rita disaster area, but it was not purchased or constructed as a result of Hurricane Rita, could recontribute the funds to an eligible retirement plan. Any amount recontributed is treated as having been paid in a direct rollover. To qualify for this treatment, the individual must recontribute the funds during the period beginning on Sept 23, 2005 and ending on Feb. 28, 2006.

In the case of Hurricane Wilma, a qualified individual, who after Feb. 28, 2005 and before Oct 24, 2005, took a distribution, such as a hardship distribution from a 401(k) plan or 403(b) annuity or a qualified first-time homebuyer distribution from an IRA, to purchase or construct a home in the Hurricane Wilma disaster area, but it was not purchased or constructed as a result of Hurricane Wilma, could recontribute the funds to an eligible retirement plan. Any amount recontributed is treated as having been paid in a direct rollover. To qualify for this treatment, the individual must recontribute the funds during the period beginning on Oct. 23, 2005 and ending on Feb. 28, 2006.

For example, on Aug. 28, 2005, a taxpayer received a qualified first-time homebuyer distribution from an IRA. The taxpayer is scheduled to close on the sale of a home that happens to be located in the Hurricane Katrina disaster area, and the home is destroyed by the storm. The taxpayer has until Feb. 28, 2006 to recontribute the funds to an eligible retirement plan.

The IRS issued on Nov. 30, 2005, Notice 2005-92, which provides guidance on the tax-favored treatment of distributions and plan loans as they apply to victims of Hurricane Katrina. The agency is drafting Form 8915, which taxpayers will use to report distributions, determine the amount included in income, and report any recontributions made during the taxable year.

CHARITY ENCOURAGED BY NEW LAW

To encourage charity, the new law suspends the limits on certain charitable contributions, creates an exemption for those housing Hurricane Katrina 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

Under the provision, in the case of an individual, the deduction for qualified contributions is allowed 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.

In the case of a corporation, qualified contributions must be for relief efforts related to Hurricane Katrina, Rita or Wilma.

Qualified contributions are cash contributions made during the period beginning on

August 28, 2005, and ending on December 31, 2005, to a charitable organization described in section 170(b)(1)(A) (other than a supporting organization described in section 509(a)(3)).

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.

Exemption for Those Housing Hurricane Katrina Displaced Individuals

The new law provides an additional exemption of $500 in taxable years 2005 and 2006 for each Hurricane Katrina displaced individual claimed by the taxpayer. The total additional exemption claimed for all years cannot exceed: $2,000 for married taxpayers filing jointly, $1,000 for married taxpayers filing separately, and $2,000 for all other taxpayers.

The exemption with respect to a specific Hurricane Katrina displaced individual may only be claimed one time by the same taxpayer for all taxable years. Additionally, if more than one taxpayer lives in the main home, only one of the taxpayers may claim the additional exemption. If more than one taxpayer from the main home claims an exemption for the same Hurricane Katrina displaced individual, the taxpayer with the highest adjusted gross income will be entitled to the exemption. In order to be eligible to claim the exemption, a taxpayer must have a legal interest in the main home where the displaced individual is housed.

A Hurricane Katrina displaced individual is a person (1) whose main home on

Aug. 28, 2005 was in the Hurricane Katrina disaster area, (2) who is displaced from the home, and (3) who is provided housing free of charge in the taxpayer’s main home for a period of 60 consecutive days which ends in the taxable year in which the exemption is claimed. Additionally, in the case of a person whose home on Aug. 28, 2005 was located in the Hurricane Katrina disaster area but outside of the GO Zone, the person’s home must have been damaged by Hurricane Katrina or the person must have been evacuated by reason of Hurricane Katrina in order to qualify as a displaced individual. A Hurricane Katrina displaced individual may not be the spouse or any dependent of the taxpayer claiming the exemption.

In order to claim the additional exemption, the taxpayer must provide the taxpayer identification number of the displaced individual. The exemption is not allowed if the taxpayer receives any rent or other amount from any source in connection with the providing of housing for a displaced individual.

The additional exemption is not subject to the income-based phaseouts applicable to personal exemptions, and is allowed as a deduction in computing alternative minimum taxable income.

Increase in the Standard Mileage Rate for Charitable Use of Vehicles

The new law allows a taxpayer who uses a vehicle in providing donated services to a charity solely to provide relief related to Hurricane Katrina to use a new mileage deduction. The rate is 70 percent of the standard mileage rate for business rounded up to the next cent. It also allows a taxpayer to exclude from income an amount computed at the business standard mileage rate received from a charity as reimbursement for the cost of operating an automobile for the provision of relief related to Hurricane Katrina.

For the period Aug. 25 to Aug. 31, 2005, the rate for miles driven for charities providing Hurricane Katrina relief is 29 cents, for deduction purposes, and 40.5 cents, for reimbursement purposes.

For the months of September through December 2005, the special Katrina-related rates are 34 cents for deductions and 48.5 cents for reimbursements.

For 2006, these Katrina-related charitable rates are 32 cents per mile for deduction purposes and 44.5 cents per mile for reimbursement purposes.

Definitions:

Gulf Opportunity Zone (GO Zone) includes: Alabama, the following counties: Baldwin, Chocktaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington Counties; Louisiana, the following parishes: Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Pointe Coupee, Plaquemines, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Mary, St. Martin, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge and West Feliciana, and Mississippi, the following counties: Adams, Amite, Attala, Claiborne, Choctaw, Clarke, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Holmes, Humphreys, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston and Yazoo.

Hurricane Katrina Disaster Area: Alabama, Florida, Louisiana and Mississippi.

Rita GO Zone: Louisiana, parishes of Acadia, Allen, Ascension, Cameron, Calcasieu, Beauregard, Evangeline, Iberia, Jefferson, Jefferson Davies, Lafayette, Lafourche, Livingston, Plaquemines, Sabine, St. Landry, St. Martin, St. Mary, St. Tammany, Terrebonne, Vermilion, Vernon and West Baton Rouge; and Texas counties of Angelina, Brazoria, Chambers, Fort Bend, Galveston, Hardin, Harris, Jasper, Jefferson, Liberty, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Shelby, Trinity, Tyler and Walker.

Hurricane Rita Disaster Area: Texas and Louisiana.

Wilma GO Zone: Florida, the following counties: Brevard, Broward, Collier, Glades, Hendry, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Palm Beach and St. Lucie.

Hurricane Wilma Disaster Area: Florida

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Posted Jan 10, 2006

The replacement period for deferring gain on damaged, destroyed, or stolen property is extended from two years to FIVE YEARS for property located in the Hurricane Katrina disaster area that was compulsorily or involuntarily converted on or after August 25, 2005 by reason of the storm. Substantially all of the use of the replacement property must be in the Hurricane Katrina disaster area. This applies to insurance proceeds in excess of basis received for property damaged during or because of Hurricane Katrina. Taxpayers may also request an additional extension of time from the Internal Revenue Service should additional time be needed to acquire replacement property.

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Posted on Fri, Jan. 06, 2006

Barbour details plan for bailout

By GEOFF PENDER capitolbureau@aol.com

BILOXI - Gov. Haley Barbour, in a meeting with the Sun Herald on Thursday, recapped the details that have been worked out so far on the $4 billion bailout of an estimated 35,000 Coast homeowners.

The program is for those who lived outside the federal flood zone, didn't have flood insurance, and lost their homes to Katrina's water. The plan would provide grants, which don't have to be paid back, for the value of the home up to a maximum of the insured value or $150,000, whichever is less.

People cannot yet apply for the money. The state is awaiting federal approval of its plans. Barbour hopes to have this approval by the end of January and begin taking applications by early February. Details will follow.

Barbour noted the bailout, with federal funds, is "unprecedented" in U.S. history in both scope and design. But he said it is justified, because the eligible homeowners "relied to their detriment" on the federal government, which told them they didn't need federal flood insurance.

"In America, you're supposed to be able to do what the government says and not get the shaft," he said.

Of the details that have been worked out, Barbour said:

• Homeowners must meet the following criteria:

1. Home must be outside the flood zone established by the federal government.

2. Home must have been owner-occupied (not rental or investment property).

3. Home must have had homeowner insurance or similar coverage at the time of Katrina's landfall.

• In return for the assistance, a homeowner must:

1. Rebuild to new requirements set by the FEMA flood advisory maps (e.g. higher elevation) to lessen future risk.

2. Rebuild to the International Building Code or higher standard.

3. Must purchase and maintain insurance on rebuilt property. This will apply to subsequent owners of the property as well.

Other highlights and stipulations:

• The grants will not cover lost contents.

• The requirement for how much damage a home had to have has not been set, but it might follow the federal guideline of 51 percent or more damage to qualify. "The purpose is to help those who were really, really, really hurt, not those who need Sheetrock," Barbour said.

• The grants will not require homeowners to rebuild where their destroyed house was. They could sell their lot and use the money to rebuild elsewhere.

• If a lender holds the mortgage to the home, the mortgage holder would have the right to the money, as it would with an insurance payment.

• Any insurance or FEMA payments for home damage would be deducted from the grant amount. Any future insurance payments or lawsuit settlements or awards for the damage would have to be reimbursed by the homeowner.

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Sun Herald (Biloxi, MS)

December 24, 2005

Property owners to get tax breaks

Some may have to petition for a reduction

ANITA LEE, calee@sunherald.com

Many property owners will be eligible for a property tax break in 2005.

Tax bills are being mailed out. Harrison and Jackson counties will offer a one-third reduction in assessed value on damaged or destroyed buildings, minus what is recovered from insurance. In Hancock County, property owners will get a one-third reduction on buildings without insurance factored in.

Hancock County Tax Collector and Assessor Jimmie Ladner said residents should not be penalized for having insurance.

"People over here have lost so much already," Ladner said. "I think our board did the right thing and I stand behind them on that call. I think they did what was in the best interest of the people of Hancock County."

In each county, boards of supervisors approved the tax reductions.

In Jackson and Harrison counties, residents will need to petition for a reduction. In Hancock County, it will be automatic in severely damaged areas identified through aerial photography and GIS mapping. Those who lost homes outside areas with widespread damage can contact the county to receive the reduction.

Tax bills go out this time of year and taxes are due to be paid no later than Feb. 1.

However, county boards have until Aug. 28, 2006, to approve property assessment reductions.

People should pay their taxes and if there is a reduction due them, the money will be refunded, said Harrison County Tax Assessor Tal Flurry, who urged residents to contact his office if Hurricane Katrina reduced the value of their property.

In 2006, property tax assessments will be further reduced for homeowners whose buildings were destroyed. Flurry said assessment teams will base values on property conditions as they exist Jan. 1. A person who lost his buildings would pay taxes based only on the land value. Insurance reimbursements will not be a factor in 2006.

Boards in South Mississippi already are bracing for drastically reduced tax revenue for 2006.

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Posted Nov 11

Possible Property Tax Relief

Property owners who have damage to their property as a result of Hurricane Katrina may be able to reduce their 2005 property taxes that are due to be paid prior to February 1, 2006. A Mississippi law, 27-35-143(9) of the Mississippi Code, provides, in part, that the county Board of Supervisors may change, cancel or reduce an assessment when a storm has caused the property to cease to exist or when the property has depreciated in value as a result of the storm. The law also provides for the Board of Supervisors to take into consideration any insurance proceeds that will be received by the property owner as a result of damage to the property.

Persons seeking relief under this law should file an application with the Tax Assessor of his/her county as soon as insurance information is available. The law requires the application to be approved before August 28, 2006. Accompanying the application should be an affidavit indicating the amount of the loss that will be reimbursed by insurance proceeds. Such insurance proceeds are only those received to compensate for the damage to the real property (land and buildings), not monies received for damage to, or losses on personal property (furniture or other items not permanently attached to land or buildings).

Posted Nov 4

Copies or transcripts of filed and processed tax returns can help you begin to reconstruct tax records destroyed by Hurricane Katrina.

The IRS will waive the usual fees and expedite requests for copies of tax returns for people who need them to apply for benefits or to file amended returns claiming disaster-related losses.

To request a copy of your tax returns:

Complete Form 4506, Request for Copy of Tax Return (PDF 66KB, 2 pages)

Complete the form online and print it.

Write the words “Hurricane Katrina” in RED at the top of the form.

Mail the Form 4506 to the IRS address listed on the form for your area.

Copies of Forms 1040, 1040A, and 1040EZ are generally available for 7 years from the filing date. Other returns may be available for a longer period of time.

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To request transcripts of your tax returns:

Complete Form 4506-T, Request for Transcript of Tax Return (PDF 62KB, 2 pages)

Complete the form online and print it.

Write the words “Hurricane Katrina” in red at the top of the form.

Mail the Form 4506-T to the IRS address listed on the form for your area.

Use Form 4506-T to order a transcript or other return information, which includes a:

Return Transcripts include most of the line items of a tax return as filed with the IRS. Transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120A, Form 1120H, Form 1120L, and Form 1120S.

Account Transcripts contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns.

Record of Account is a combination of line item information and later adjustments to the account. Available for the current year and three prior tax years.

Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcripts : The IRS can provide a transcript that includes data from these information returns. State or local information is not included with the Form W-2 information. The IRS may be able to provide this transcript information for up to 10 years. Information for the current year is generally not available until the year after it is filed with the IRS. For example, W-2 information for 2003, filed in 2004, will not be available from the IRS until 2005.

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Posted Oct 30

The IRS has declared that people who house Hurricane Katrina victims for 60 days or more can get an income tax break. They can deduct $500 for each person they house, excluding their spouses

or dependents, for up to a maximum of a $2,000 deduction, as long as they do not charge rent. This deduction will be figured on the new Form 8914 with the 2005 Form 1040. This form will calculate the write-off amount and then include it with the personal exemptions on the Form 1040.

Scott Niolet

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Posted Oct 20

The SBA officially announced today (October 20, 2005) that it has EXTENDED the filing deadline for home and business loans from the original due date of October 28, 2005 to JANUARY 11, 2006. Individuals and businesses can contact the agency at 1-800-659-2955.

Also, there are several additional programs and benefits being currently being proposed by FEMA, the SBA, the USDA, MEMA, and the IRS. As always, I will only report on those programs and benefits that have been APPROVED by our governing agencies to help all of us separate fact from fiction during this time of recovery.

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New Tax Law Eases Loss Limitations for Katrina Victims

WASHINGTON — The Internal Revenue Service today is advising taxpayers who suffered casualty or theft losses as a result of Hurricane Katrina about a recent change to the tax law. A new provision lifts certain loss limitations for Hurricane Katrina victims.

Ordinarily, to figure a deduction for a personal casualty or theft loss, you must reduce the loss by $100 and also reduce the total of your casualty and theft losses by 10 percent of your adjusted gross income. Only the excess over these $100 and 10 percent limits is deductible. The new law removes these limits for Hurricane Katrina losses, so that the entire amount is deductible.

To qualify, a loss must be attributable to Hurricane Katrina and it must have occurred after August 24, 2005, in the Presidentially-declared disaster area. The $100 and 10-percent limits still apply to losses that were not caused by Hurricane Katrina.

Like all casualty and theft losses, Hurricane Katrina losses must be claimed as an itemized deduction. If you take the standard deduction you cannot claim them. You cannot claim a deduction for any part of a loss for which you receive or expect to receive insurance or other reimbursement.

Casualty and theft losses are generally deductible only in the year the casualty occurred or the theft was discovered. However, because a Hurricane Katrina loss is a disaster loss, you have the option to deduct it on your tax return for the previous year, 2004. The $100 and 10-percent limits will not apply to that loss in redetermining your 2004 tax. If you have already filed your 2004 return, the loss may be claimed by filing an amended return, Form 1040X, for 2004.

Claiming the loss on an original or amended return for 2004 will provide you an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on your tax situation for 2005. If you wish to claim the loss for 2004, you generally have until the due date for filing your 2005 return to do so.

You determine your loss for personal use property by first figuring the decrease in its fair market value as a result of the casualty or theft. To do this, you must determine the fair market value of your property both immediately before and immediately after the casualty or theft (counting the value of stolen property as zero). An appraisal is the best way to make this determination, but under certain conditions you can use the cost of cleaning up and repairing the property as a measure of the decrease in value. Compare the decrease in fair market value with your adjusted basis in the property. The adjusted basis is typically the cost of the property and any improvements. From the smaller of these two amounts, subtract any insurance or other reimbursement you receive or expect to receive. Generally, you figure your loss separately for each item, but treat real estate used for personal purposes, such as your home, as one item (including the land, buildings, trees and other improvements).

Taxpayers filing or amending their 2004 tax return and whose only casualty or theft losses to personal use property claimed on that return were caused by Hurricane Katrina should write in red ink “Hurricane Katrina” at the top of Form 1040X. They must also attach the 2004 Form 4684, writing “Hurricane Katrina” on the dotted line next to line 11 and entering “0” on lines 11 and 17.

Taxpayers filing or amending their 2004 tax return and who also have casualty or theft losses to personal use property not related to Hurricane Katrina should disregard the caution directing taxpayers to use only one Form 4684, located above line 13, and complete lines 13 through 18 for two Forms 4684. The Form 1040X and the first Form 4684 should be prepared as explained above for Hurricane Katrina losses only. The second Form 4684 should be prepared in the normal manner for all gains and non-Hurricane Katrina losses. If both Forms 4684 have a loss on line 18, they should carry the combined losses from that line to Schedule A (Form 1040), line 19. If there is a gain on line 15 of the second Form 4684, disregard the instruction to enter it on Schedule D, and instead enter on Schedule A (Form 1040), line 19, the excess of the loss from the first Form 4684 over the gain on line 15 of the second Form 4684.

For 2005, Form 4684 is being revised to reflect the new law for Hurricane Katrina losses.

In addition, if your casualty or theft loss causes your deductions to be more than your income for the year you claim the loss, you may have a net operating loss, or NOL. An NOL can be used to lower your tax in an earlier year, allowing you to get a refund for tax you already paid, or it can be used to lower your tax in a future year. You do not have to be in business to have an NOL from a casualty or theft loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts

For more information on deducting disaster losses, see Publication 547, Casualties, Disasters, and Thefts, available on this Web site. Keep in mind that Publication 547 has not been updated to reflect the new law. More information on disaster areas can be found at the Federal Emergency Management Agency (FEMA) Web site (www.fema.gov/news/disasters.fema).

Taxpayers who have been affected by Hurricane Katrina and have questions can call the special IRS disaster hotline at 1-866-562-5227.

IR-2005-112, Sept. 28, 2005

WASHINGTON — Taxpayers affected by Hurricane Katrina now have until Feb. 28, 2006 to file tax returns and pay any taxes due following legislation approved by Congress and signed by the President, the Internal Revenue Service announced today.

The Katrina Emergency Tax Relief Act of 2005 (H.R. 3768), signed on Sept. 23, postpones deadlines for affected taxpayers to file tax returns, pay taxes and perform other time-sensitive acts until Feb. 28, 2006. Taxpayers affected by the hurricane may be eligible for tax relief, regardless of where they live.

For taxpayers located in the areas hardest-hit by Katrina –– those counties or parishes designated by the Federal Emergency Management Agency (FEMA) as “individual assistance areas” –– the tax relief will be automatic, and taxpayers won’t need to do anything to get the extensions and other relief available.

In areas where FEMA has determined damage is more isolated –– designated as “public assistance areas” –– or for other taxpayers outside the hardest-hit areas whose books, records or tax professionals are located in the affected areas, people will need to identify themselves to the IRS as hurricane victims.

Taxpayers who need to identify themselves as hurricane victims should write “Hurricane Katrina” in red ink at the top of their tax forms or any other documents filed with the IRS. Taxpayers who need to alert the IRS or have other hurricane-related questions can also call the special IRS disaster hotline at 1-866-562-5227.

The IRS will abate interest and late filing, late payment or failure to deposit penalties that would otherwise apply. This relief includes the Sept. 15 and Jan. 15 due dates for estimated taxes for individuals and the Sept. 15 and Dec. 15 due dates for estimated taxes for corporations; the Sept. 15 due date for calendar-year corporate returns with automatic extensions; the Oct. 17 deadline for individuals who received a second extension for filing their individual income tax returns; the Oct. 31 and Jan. 31 deadlines for filing quarterly federal employment and excise tax returns; and employment and excise deposits due on or before Feb. 28, 2006. In addition, any disaster-area taxpayer who receives a penalty notice from the IRS should call the number on the notice to receive penalty abatement.

Taxpayers will receive automatic relief in 47 Mississippi counties designated for individual assistance: Adams, Amite, Attala, Claiborne, Choctow, Clarke, Copiah, Covington, Franklin, Forrest, George, Greene, Hancock, Harrison, Hinds, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston and Yazoo.

Taxpayers will receive tax relief if they identify themselves as being impacted by Hurricane Katrina and they live any of in these 35 Mississippi counties designated for public assistance: Alcorn, Benton, Bolivar, Calhoun, Carroll, Chickasaw, Clay, Coahoma, DeSoto, Grenada, Holmes, Humphreys, Issaquena, Itawamba, Lafayette, Leflore, Lee, Marshall, Monroe, Montgomery, Panola, Pontotoc, Prentiss, Quitman, Sharkey, Sunflower, Tallahatchie, Tate, Tippah, Tishomingo, Tunica, Union, Washington, Webster and Yalobusha.

Scott Niolet

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Katrina Victims Will Have Until Jan. 3 to File and Pay Taxes, IRS Says IR-2005-96. Victims of Hurricane Katrina will have until Jan. 3, 2006 to file any returns, pay any taxes or make any deposits due, the Internal Revenue Service announced today (September 8, 2005). This extends and expands relief granted previously by the IRS and is available in all the counties and parishes listed in IRS news release IR-2005-91. It applies to any return, tax payment or tax deposit with an original or extended due date that fell on or after Aug. 29, 2005. The IRS will abate interest and any late filing, late payment or failure to deposit penalties that would otherwise apply. This relief includes the Sept. 15 due date for estimated taxes and for calendar-year corporate returns with automatic extensions; the Oct. 17 deadline for individuals who received a second extension for filing their individual income tax returns; and the Oct. 31 deadline for filing quarterly federal employment and excise tax returns. To the maximum extent possible, the IRS will automatically grant this relief to any individual or business located in the disaster area. Any disaster area taxpayer who receives a penalty notice from the IRS should call the toll-free number on the notice to receive penalty abatement. In addition, the IRS will work with any taxpayer who resides elsewhere but whose books, records or tax professional are located in the relief area. In the aftermath of this natural disaster, the IRS assures individuals, businesses and tax professionals that it is working aggressively to monitor the situation and resolve other potential tax administration issues as they are identified. More information regarding disaster relief, including IR-2005-91, is available on the IRS Web site, IRS.gov.

People with questions can also call the IRS toll-free disaster hotline at 1-866-562-5227.

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Keith Voigts on Loss Claims and Tax Benefits

Most of us are working with our insurance adjustors, clean-up crews, carpenters, FEMA, and the like. Everyone should also be aware that income tax time will come, and we all have potential for large casualty loss write-offs for tax purposes. I am writing this to alert storm victims of what needs to be done NOW so that casualty loss deductions will have credibility with the IRS.

This is not to be used as a bible for taxes. Each taxpayer should consult a competent CPA or attorney. This is just a primer to get you going in the right direction.

The casualty losses from Katrina will probably center around real estate and contents. As for your real estate, the house and landscaping and everything else around the house (items that would be sold as part of the property) constitute your real estate. So you don’t get a write-off because the big oak tree fell over. It is part of your real estate property.

Basically, your casualty loss for real estate is the value of your property immediately before the storm, compared to the value immediately after the storm, adjusted for insurance proceeds. The IRS wants to see qualified appraisal data for both time periods. So if you have an appraisal for a refinance, for example, that might work for the before value. But the after value should be backed up by an appraisal. So if your property was worth $300,000 before the storm and $50,000 after the storm, your loss would be $250,000. Reduce that by the insurance proceeds for the structure, and that is your loss. The maximum loss you can take is the adjusted basis of your property (work with your tax person on adjusted basis). Also, there are exclusions, such as 10% of your adjusted gross income. The important thing here is the appraisal requirement. However, you should keep in mind that the loss in value because another storm like Katrina might hit again cannot be used in this calculation. Go figure what that might be!

(I tend to believe that the threat of a storm has always been with us and was used to value the property before the storm as well and therefore should not be much of a factor).

As for contents, the measurement is a little different. You should use your adjusted basis of each item of your contents. That usually is the cost. If you have received property as a gift, there is no basis. Also, you cannot increase your basis for market value increases in the property, such as paintings, fine wine, etc. You also must determine the fair market value of the contents immediately after the storm. The fair market value is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. A good, detailed inventory of all your lost items, with accurate (not perfect, just reasonable) estimates of the original cost and current value can yield a very large tax deduction.

Since we are in a Presidentially declared disaster area, we are allowed to amend our 2004 tax returns with the disaster loss and obtain a quick refund. Or we can file with the loss for 2005. In either event, any excess loss (loss greater than your income) can be carried over to the future.

You can obtain a lot of detail, if you wish, from IRS Publication 547 for Casualty Losses and Publication 536 for loss carryovers. Once again, check with your tax person or the IRS help people. This discussion is just a very general overview and should not be used as your only source of information.

Because of the large dollars that may be at stake, it would be well worth it to check out your own casualty loss situation.

Keith Voigts

Note: Just a quick addendum to Keith's message...

The 10% Adjusted Gross Income Reduction and $100.00 deductible that would normally apply to a casualty loss deduction on Schedule A of your from 1040 is probably going to be waived for persons located in the federally-declared disaster areas of Hurricane Katrina. I will also keep everyone informed of additional tax benefits as they are approved by the federal and state governments.

Scott Niolet

110 Country Club Drive

Pass Christian.

Dan's Insurance Claim activity

For those who may have used Treutel Insurance agency of Bay St Louis, he has partnered with another company to work with at: 866.430.5681.

Flood -- He placed my Flood with Audubon and the best line for an Adjuster is to call Richard Lafosse at 888.315.7297 to get a Case #.

I am waiting for a call from the Treutel associates for a HomeOwners Adjuster.

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Insurers to be sued

Suits seek to force payments

By ANITA LEE

SUN HERALD --- Sep 16, 2005

Mississippi's attorney general and the state's top trial lawyer are both pursuing lawsuits against insurance companies to force them to pay Coast homeowner claims from Hurricane Katrina.

Attorney General Jim Hood is challenging Mississippi's top property insurance carriers in state court, claiming homeowners' policies that exclude water damage from hurricanes violate the state's Consumer Protection Act and deprive consumers of any real coverage choices.

Hood names in the lawsuit Mississippi Farm Bureau Insurance, State Farm Fire and Casualty Co., Allstate Property and Casualty Insurance Co., United Services Automobile Association (USAA) and Nationwide Mutual Insurance Co.

Hood is asking a judge to restrain the insurance companies from denying coverage based on the water damage exemption. He said agents often failed to explain the exemption to policy buyers, who assumed they were covered for all damage caused by a hurricane.

Katrina swamped Coast homes with tidal surges of up to 30 feet, obliterating mansions, cottages and condominiums.

"Is it right to write in the fine print a provision that takes away the reason for the contract in the first place?" Hood asked. "You can't put this stuff in fine print and bankrupt half the Coast and say, 'Oh well, they should have known.'

Nationwide issued a statement saying the flood exclusion is well-established and, if voided, would have a "significant negative impact" on policyholders across the country. Allstate agreed, adding that demanding payment for flooding when premiums were not collected to cover such an occurrence would violate the Constitution and basic concepts of fairness.

"We do not believe that litigation is the answer to helping victims of Hurricane Katrina who suffered losses caused by flooding," said Allstate spokesman Michael Trevino. The company is encouraging Hood and other political leaders to develop financial assistance programs to assist with recovery.

Nationwide, Allstate and other insurers say they are reviewing claims on a case-by-case basis to compensate policyholders for covered losses.

Hood said if his suit fails, he believes the courts will be flooded with individual lawsuits for rulings on wind vs. water damage. He has filed a complaint in Hinds County Chancery Court, asking a judge to restrain the insurance companies from denying coverage.

He also wants the judge to stop insurance companies from asking customers to sign forms acknowledging they've had a "flood loss" in order to receive insurance advances for living expenses.

Hood hopes hearings on his lawsuit will begin next week.

Meanwhile, Richard "Dickie" Scruggs, brother-in-law of U.S. Sen. Trent Lott, R-Miss., and the architect of Big Tobacco litigation, said Thursday that he will sue insurance companies refusing to cover homeowners' losses.

Scruggs, now based in Oxford, has set up shop at the Scruggs Center, a mansion he renovated in downtown Moss Point.

Pascagoula Police Lt. Paul Leonard and his wife, Julie, are among Scruggs' clients. Nationwide Mutual Fire Insurance Co. has denied the Leonardes' insurance claim in writing. The letter adds, "It appears that your loss was caused by water or water-borne material."

Scruggs said, "This is typical of the letters and stories I've been hearing daily over here."

Public policy in Mississippi requires insurers to pay when any part of the damage is a covered loss. In this case, homeowner policies that cover damage caused by wind can't be denied when the damage involved wind-driven water, Scruggs said.

He said a homeowner has so far prevailed under this policy in a case on appeal to the Florida Supreme Court.

The insurance industry maintains Hood's legal action is doomed to fail.

Property insurance companies don't charge a premium for flood insurance and don't have the reserves to pay for flood damage, said Loretta Worters, vice president of the Insurance Information Institute, an industry trade association.

"Unfortunately," Worters said, "many residents chose not to purchase flood insurance."

The flood exemption has been part of homeowner policies since the National Flood Insurance Program's inception in 1968, she said.

"If there's going to be a change," Worters said, "you can't do it midstream."

Attorney General issues advisory

Attorney General Jim Hood on Saturday, Sep 10, warned residents not to sign a waiver of liability for flood insurance in exchange for $3,000 in living expenses from people who say they represent insurance agencies. Hood said people who said they were adjusters were asking residents to sign the waivers in exchange for living expenses, which insurance companies supply regardless.

Notice to anyone with State Farm --- Carla Mynott

They are giving 2500.00 checks to all policy holders with the stipulation that it will be deducted from final payment of claim. They will not expect it to be paid back if you do not have coverage due to flood. They are also working on housing allowances for up to a year if you cannot live in your house, even due to flood. I received this information from my attorney this afternoon and my husband pick up the check within one hour. She says any State Farm agent, anywhere can issue the checks.

Our attorneys' name is Elise Epperson of Bay St. Louis. Her phone number is 228-466-9597 and she has instructed me to tell everyone that she is willing to give pro bono advise on the storm and insurance issues to anyone that calls.

Good luck to all

Carla Mynott 115 Poinsettia Loop

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