Note: See this related more recent post from March 19th, 2008, entitled More Road Home Tax Headaches
Four weeks away from tax day, I'm still confused about what to do with Road Home money on my tax return. In 2005 I claimed a $90,000 casualty loss and didn't have to pay federal taxes that year. My taxes that year without the casualty loss would have been about $5,000. In January of 2007 I received $150,000 from the Road Home. Now as best as I can tell I'm required to claim an extra $90,000 in income this year, which will put me in a higher tax bracket, and cost me about $20,000. I read that I'm supposed to claim this Road Home money as income using Schedule 525.
This is very unfair, but if I've learned anything during and after Katrina, it's that government often isn't concerned with fair. Here's what would be more fair: Let me revise my 2005 taxes and not take the casualty loss. I'll pay the government the $5,000 I saved and add interest. Or go back in time and have Allstate pay to fix my house instead of Road Home, then I wouldn't owe the government any of that money. Or being that I've had to pay my mortgage on top of paying for rent while they fix my house for 2 1/2 years, have the government apologize for their sucky levees and forget the 2005 taxes altogether.
Mary Landrieu has consistently tried to get congress to pass legislation that would make Road Home money tax free. I of course am hopeful she succeeds.