I've spent the past two days trying to learn more about taxes and Road Home grants, and the results are not pretty, and the IRS's policy certainly isn't fair.
In 2005 I took a casualty loss of $95,000 for our Katrina damaged home. This was calculated as follows: Cost of property $157,000, minus insurance reimbursements of $62,000=$95,000. We recorded the house as totaled because it would and has cost more than $157,000 to fix it. That year the adjusted gross income for Therese and I was $72,135. We paid nothing in taxes. If we didn't take the casualty loss, we would have paid about $5,000 in taxes for 2005. If only we would have paid those taxes!
In January of 2007 we received $120,000 in a Road Home grant. Many sources claim that we need to list $95,000 as "other income" on our 2007 tax return (Form 1040 line 21). However, according to this IRS document, that is not true. We only need to claim $72,135 because we weren't taxed on that in 2005.
Without the Road Home grant, Turbotax calculates that we'd receive a rebate of just over $3,000. When we add the $72,135 to income, we now owe the IRS $20,795 in taxes. This is because instead of our regular income of about $80,000, we now have to add $72,135 to this, putting us in a much higher tax bracket. I called the IRS hotline several times, and eventually found their casualty loss expert, but at this point I knew much more about this topic than the expert on the phone, so that didn't help. Right now we're praying that the Louisiana delegates in Congress can get a bill passed making this system more equitable. What would be fair would to reinstate the option to amend our 2005 taxes and take out the casualty loss. I'd be happy to pay interest on the original $5,000 I saved in 2005 taxes. Anyway, this has to be boring as heck for all of you not affected by the Road Home mess. What's the weather like in the Congo by the way?
That Sux, pretty much. I'm almost glad I didn't get anything for Raod Home.
ReplyDeleteBTW are you sure you can't claim some more casualty loss based on you adjusted cost of repair?
Including contents really helped us out. Our contents were grossly under insured.
Mominem's idea about more casualty loss sounds promising. Let me look into that.
ReplyDeleteHi, i read your article. I'm in pretty much the same situation. I've been doing a lot of reading and research as well and I was wondering if you came up with anything else???
ReplyDeleteThe IRS has said that there is really nothing I can do. I can't amend the 2005 return, I can't take a casualty loss in 2007 for something that happened in 2005. I heard back from Senator Landrieu's and Senator Vitter's office saying they are working on it and they know it isn't fair. They also recommend that I attend one of the tax information sessions at the Superdome coming up a week from this Saturday. I have a feeling that those sessions will be a waste of time for someone like me who already has explored the issue at length. RIght now I'm praying for a miracle from congress. Also, thank God my kids are not in college, as they wouldn't be able for any assistance because it looks like they have rich parents, which they sure as heck don't. We can't contribute to an IRA this year also because it seems we make too much money.
ReplyDeleteHello Michael, I received your reply. I'm not sure I will be able to attend the meeting so keep me posted if you find out anything worth knowing. Also, I'm a fairly new accountant... if i happen to come across anything through other sources I will contact you as well.
ReplyDelete