IRS has bad news on Road Home

[funkybutt]

Source: Times Picayune, New Orleans

Grants are taxable for some recipients

Now that the Road Home has paid out more than 50,000 grants, many of those recovering homeowners are encountering a new cruel reality: They may have to send up to 35 percent of the federal grant right back to Washington in the form of income taxes.

If they claimed a casualty loss for their damaged property as a deduction on their 2005 tax return, they must add the grant to their taxable income in the year it's received.

-snip-

"Now, I get calls from people who've just gotten their Road Home money, and they want to know what the tax implications are," Suhor said. "If I claimed a loss for them in 2005, I say you ought to think about putting some of the money away for taxes before using it for rebuilding. ... They've been waiting on this money to rebuild, and now this."



Read more: http://blog.nola.com/times-picayune/2007/09/irs_has_bad_news_on_road_home.html

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:grr:

[Erva]

1. Unbelievable

O.K. believable, but ..... this is really depressing

[McCamy Taylor]

2. Tax the poor and afflicted to pay for the rich.

That is the Bush-Cheney plan.

[MNDemNY]

3. If they claimed a loss already, then why should they be surprised?

[sandnsea]

5. why do you care

:shrug:

Somebody paid insurance their whole life, and when they need it, it doesn't pay. Then they get a grant to try to fix up what they have left, and the govt takes a third of it back?? How can you support that?

[MNDemNY]

7. Fine, free McMansions for all of 'em.

[annabanana]

9. (are you lost?). . . . n/t

[MNDemNY]

22. Last time I checked, no.

[sandnsea]

10. Better than free McMansions for the corporate "contractors"

how come people like you never seem to notice you're being ripped off by business at all. I swear you'd spend 90 cents on the dollar to prevent someone from getting a meal, even if it would only cost 15 cents to just feed the person. :crazy:

[stillcool]

11. McMansions?

We lost our house a year and a half ago due to flooding. Thank God, we rented and didn't own. The day after we had been evacuated the EPA would not allow us to go back in the house because of contamination. Everything we owned fit inside a motel room. We were lucky that we could just walk away...and continue to at least earn a living. Those who owned their homes had a much harder time...emotionally, financially, and physically. I can not imagine why you would feel such animosity towards people that have lost so much...unless you are one of the fortunate ones that can't imagine not having the resources to bail out.

[MNDemNY]

18. Renters insurance is cheap. If you had the income to offset with a loss claim, then you are ..

then you are not so "unfortunate".

[sandnsea]

29. Insurance isn't paying, where ya' been?

Have you been paying attention at all?

[MNDemNY]

31. If you live in a flood plain, buy flood insurance. Or..

take the risk on yourself, if you wish.

[sandnsea]

32. I have literally no use for you

Ignore. Sadly, it's going to take a really horrible health or natural disaster to wake you up. bye.

[MNDemNY]

34. Oh, your one of those.

[funkybutt]

47. Flood insurance/Homeowners

Flood insurance paid out claims unlike homeowners insurance. However, many people who had flood insurance, mostly older people, were grossly underinsured. Since flood insurance is a federal program, agents don't have any incentive to remind homeowners that they should adjust their coverage as the home appreciates. In many cases, an older person was only covered for flood at the amount they purchased their home, 20 - 30 YEARS AGO.

If your home was damaged by wind, chances are your homeowners is not paying you fairly for the damage. I know, we paid for a new roof ON OUR OWN and are now suing to be reimbursed. We were responsible. We paid our premiums, now the insurance companies are not coming through. To fill the gap, we hope for Road Home money, which will be taxed.

We filed a loss, because we HAD A LOSS...and still do. This makes about as much sense as taxing insurance claims.

[MNDemNY]

50. If you get the "road home" money, would that not lessen your loss

that you have already claimed against income? Should that not be the case?

[funkybutt]

60. You don't understand

Considering the amount of money we make, the loss that we claimed gave us a "nice" return, but nothing close to what it would take to make up for our actual loss. Now someone making 3-4 times what we make, could actually have gotten enough back to put a dent in the loss. The amount that will be taxed from a RH grant would FAR exceed what we actually got in returns from the IRS.

This policy hurts low to moderate incomes. I understand what you're saying but it's more complicated. I would never have filed a loss had I known what I know now. The RH Program didn't exist then so tax preparers advised you to try to make some of it up there. I'd be happy if they'd let me rescind my loss from 05 in lieu of not taxing my grant (If I even get one after 2 years).

[stillcool]

42. We have, and had renters insurance...

it does not cover 'floods'. Neither does home-owners insurance. But...then you would probably know that if you just weren't so 'fortunate'...lucky you.

[funkybutt]

48. EXACTLY - Renters doesn't cover flooding

Which many people learned the hard way. Look like this poster wasn't aware of that either.

[stillcool]

52. We were lucky...

others in are area were not. Some..had just bought their homes, and others had just finished major renovations. I can only imagine taking that kind of a hit. The flood was considered a 'hundred year flood'. Nothing like it had occurred in our area before. Not only home owners, but businesses were out of luck as far as the insurance companies actually providing any of the coverage they had been paid for. It seems there is a fairly large segment of our population who believes government should have no social responsibility at all, but merely provide a clear path for the businesses to do more business. It might not be so bad if government did not intervene and require payment for every frigging thing a citizen might possibly need to do life. Of course the same people are all a-okay, rah-rah with sending people off to die, literally or figuratively in a war leaving destitute families behind.

[pokercat999]

53. Finally a good idea. Why do some people hate to see

others get something even if they feel they don't deserve it? With all that has happened in the last 15 years would it be so bad for (poor and injured)people to get a break? We can't find a few extra billion from what the rich are stealing in Iraq?

[MNDemNY]

19. If you've already filed a loss claim against income..

Why should you be paid twice??

[sandnsea]

4. who are these people in washington

Who attaches tax liability to housing grants after a national disaster. I don't even comprehend the morals or thought process of someone who wants to suck money out of a guy making $40,000 a year. WTF?? The 50% have got to start voting and raising their voices. This shit would stop in an instant.

How are you funkybutt, I haven't seen you post in a while.

[funkybutt]

14. Thanks for asking

I'm okay. Nothing's easy in the Big Easy these days.

:hi:

[jojo54]

6. I always thought that a Repuke administration couldn't strap us

any worse.

BOY, WAS I WRONG!!!

[annabanana]

8. These poor guys can't catch a break.

WHY is it so hard to get them the help that they need? If the administration intended that the resources be made available, they WOULD be.

[Tempest]

12. Before you condemn this, think about it

The homeowners already received received a tax break from the government in 2005:

If they claimed a casualty loss for their damaged property as a deduction on their 2005 tax return

The homeowners are in effect receiving two grants, one of which was at taxpayer expense.

[sandnsea]

15. aaargh, the horror!!!

why oh why oh why do you care.

It's OUR money. Don't you want it to go directly to the people to help them rebuild??

[MNDemNY]

21. I know, let's just use the honor system..

If you need cash, just come up and take what you need from the box.

[sandnsea]

27. You've obviously never applied for govt anything

Or you'd know how stupid that comment is.

[MNDemNY]

28. And you, an "old pro"?

[sandnsea]

30. Your insurance comments

make clear you haven't paid attention. I'll ask one last time why you're so terrified a person destroyed by a disaster will get a few thousand dollars - without being in similar hysterics over the billions the corporations and speculators are making day after day. And you're not, don't pretend, people like you always excuse corporate excess with "they create the jobs".

[MNDemNY]

33. You tend to read way to much into my comments.

So, someone with 40,000 dollar income should receive a larger benefit than one with say, no income? Now that's PROGRESSIVE.

[pokercat999]

54. Hmmmm doesn't sound too bad until one takes into

account the likes of you. Obviously YOU would grab it all. Only a thief knows and understands a thief.

Try walking through a little of this life with yours hands open instead of a tightly closed fist. You'd be amazed!

[MNDemNY]

23. A classic Knee-jerk reaction, understandable, but off target.

[Tempest]

24. Why do you want to see the more affluent get the money?

See post #17.

[sandnsea]

25. from "formerrushfan"???

:eyes:

The article referred to a guy making $40,000 a year. Did you even read it?

The sad thing is, half the time it's the poorest who buy into this bullshit. They're afraid their "betters" will think they're trying to get something for nothing. It's ridiculous.

It's OUR country, OUR money, WE decide who we want to help - not the corporate fatasses who suck this kind of money out of the tax system in ten minutes.

[Tempest]

37. $40,000 is not poor or lower middle class

Not for that part of the country.

Nor was someone who makes $40,000 house worth as much as it would if it were in California or another state.

[sandnsea]

40. Wow. Are you fucking kidding me??

I am speechless. Just speechless. We're constantly told to feel sorry for those making $150,000, they're not rich and have such a hard time living in their gated communities.

And now people want to come along and say $40,000 is rich??

That isn't well off in ANY part of the country. That is struggling to make ends meet anywhere.

No wonder we end up with Clintons and Bushes.

[FormerDittoHead]

17. Exactly. This is 100% correct, tax wise, and it's consistent with its principles.

One main principle of taxation is that it's taxed once. Conversely, your expenses & losses can be accounted for only once, and so on with other incomes and deductibles.

This rule will affect those with higher incomes the most, and will probably not affect lower income people at all.

To let people have a gov't grant for a loss they've already taken as a deduction off their taxes would be double dipping.

Those in higher tax brackets (35%) will have received the highest benefit (35%) from the gov't when/if they had declared a loss in '05. Those with the largest houses and largest incomes would have had the largest benefit here.

The poor, those with lower incomes, however, didn't get to write much off of their incomes, because they didn't have the incomes in 2005 high enough to be offset with the loss to begin with, especially with the standard deduction.

If one didn't earn much / anything in 2005, they couldn't have written much off to begin with, the amount of 'recapture' would be small, and in any case their bracket wouldn't be in the 35% bracket as this report leads off with.

If you want to increase their loss grants, fine, I'd be for that, but having done taxes I can see this is a fair and consistent rule. (warning: those not reading the bold type before contradicting me will be ridiculed)

If you others were to make your knees stop jerking and check this out by trying to understand how income taxes work, you'd see how this works.

[sandnsea]

26. One main principle of WE THE PEOPLE

is that WE decide the tax laws. If WE decide WE won't want to burden these folks who have been traumatized so much, than WE DON'T. It's called government BY THE PEOPLE. Like we did for the 9/11 victims. Get it? WE are the Deciders. Hard for an authoritarian, rules and regulations, "formerrushfan" to comprehend, I'm sure.

[MNDemNY]

35. From your tone I take by WE, you meen ME.(you)

[FormerDittoHead]

36. Cool your jets, Rodger Ramjet...

I guess you didn't read the part about you getting my ridicule if you didn't read the part in bold.

I would invite you to go back and read that part in bold.

Yes, WE THE PEOPLE wrote the tax code.

In it, WE THE PEOPLE established basic rules for the code to follow, like the "tax once" principle.

I would invite you to look at my other ~two thousand posts, and I would look forward to your apology for that ignorant personal attack that you threw at me in the end of your "message".

[Tempest]

38. Ignore

Sorry.

[sandnsea]

39. And WE can change it when necessary

And if that means these folks get tax free grants, then we can decide that. Regardless of how terrifying the idea of "free money" is to some.

And you chose your screen name, I'm guessing you didn't lie. It says volumes. Not my fault.

[MNDemNY]

51. Then lobby to change the tax code.

Or do you think you should just be able to do that unilaterally?

[LanternWaste]

61. putting forth an opinion on the tax code...

So Sandnsea putting forth an opinion on the tax code as it stands is "acting unilaterally?

[pokercat999]

55. cuse me, you must be aware by now there is no "people"

in we the people it's now "we the corporations"

[Gormy Cuss]

41. While what you wrote is accurate, here's the part that stinks.

from the article, bold emphasis mine:

As few taxpayers understand the intricacies of the tax code, even fewer thought to consider the potential Road Home taxation issue back when they decided whether to claim a casualty loss on their 2005 return -- or, through a special provision, their 2004 return. The IRS decided only late last year that the grants would be taxable. That left local accountants giving clients nebulous advice, even as they met with them this year to prepare 2006 or 2005 returns, which could be filed all the way up to April 24.

Given the poor response to Katrina in the first place, one would think that the Feds would try hard not to slap around those with losses yet again. The decision on tax status for the grants should have been made when the the program was announced and spelled out in the application forms. If it had potential tax liability the government could have instituted a mandatory withholding similar to the way lottery winnings are treated.

Should have, could have, would have -- seems to be a pattern when it comes to Katrina.

[FormerDittoHead]

43. Yes, this does stink. The grants should be considered a recovery of loss, rather than income.

The grants should NOT be taxable, rather, as I wrote, only treated as such if a loss deduction had already been taken.

The first senario would be like collecting insurance on the loss of your home (not taxable) AND writing it off as a loss from your taxes as well, OK.

But so right - these grants should NOT be taxable.

[MNDemNY]

20. Right on.

[Jeff In Milwaukee]

44. Here's the thing...

If I remember correctly, Casualty Losses are reported on Schedule A and can do nothing more than eliminate a person's taxable income for that year. It can't create a Net Operating Loss and it can't be carried forward. So if your tax liability was, say, $3,000 for Tax Year 2005, your actual benefit for claiming the loss would be limited to $3,000.

And $3,000 is f'ing peanuts if you're trying to rebuild your house. Taxing a person on their rebuilding grant (which could yield a tax liability considerably more than the original tax benefit) seems pretty gratuitious to me. If the grant, as taxable income, pushes you to the 15% tax bracket, your tax on a $50,000 grant could be $7,500 -- more than twice the benefit you claimed in 2005.

Considering the federal government's disastrous response to Katrina, taxing people on this nickel and dime stuff is an outrage.

[fasttense]

45. Thanks Jeff In Milwaukee for explaining the problems so clearly.

Along with the fact that only recently has the IRS determined to tax the poor homeowners, I can see how easily it can become a burden for someone who has lost everything.

But you know all those oil corporations aren't paying their assessed fees for pumping free oil from our public lands so someone has to pay the tax bills. Especially since the richest American citizens have gotten their taxes cut.

[D-U-D-E]

56. Involuntary Conversion

when a home is destroyed in a natural disaster it is deemed to have been involunarily converted. Classroom examples usually illustrate the capital gain which is realized when the house is well insured.

For example :

e.g. your principal residence, with an adjusted basis of $200,000, The house is destroyed by a hurricane and you receive insurance proceeds of $820,000. (you increased your policy frequently)

Four months later, you purchase another residence for $900,000. You have a realized gain of $620,000 and may exclude $500,000 under Section 121 (married filing jointly). The remaining $120,000 gain may be deferred and the basis of their replacement residence is $780,000 ($900,000 - $120,000).


The grant the goverment is giving you will be used to replace or rebuild your residence, every dime you put into that purchase is then added to your basis in the new home. By not taxing the grant you are increasing the amount of the basis (and giving more) which will reduce taxes when your home is sold or converted at a later date.

I'm not saying its right, its just the way its done. and Jeff was correct, there is no carryover in realized losses.

[KAZ]

58. Could you point me to the part of the code about not being able

carry over a realized capital loss? Doesn't make any sense to me. Thanks in advance!

[D-U-D-E]

59. correction

no way to exceed the $3000 threshold. I was trained to exclude residential real estate losses from consideration for planning purposes. Not a CPA...

[Jeff In Milwaukee]

62. Look Here

http://www.irs.gov/pub/irs-pdf/i4684.pdf

and here...

http://www.irs.gov/pub/irs-pdf/p547.pdf

Interesting rules regarding the treatment of unscheduled replacement property. Living in Wisconsin, we don't get too many federally-declared disasters (other that the 2005 Packers), so I've never done a hurricane return.

[Larry Ogg]

13. They have to do something to compensate for:

The gazillions of dollars that mysteriously vanished during the Iraqi reconstruction that never happened!

Besides it’s much easier for IRS’s to go after innocent victims of a disaster, than it is to create a political disaster and go after rich corporate thieves.

[PDJane]

16. The poor aren't supposed to be able to recover.

They aren't supposed to get back their houses or their property.

This is a massive switch of assets from the poor to the rich, and it's quite deliberate.

[KamaAina]

46. Hmmm... could they amend their '05 returns to remove the loss claim?

Could be a stupid question, as I am not a homeowner and don't itemize -- but there just has to be some way for these people not to get screwn AGAIN! :banghead:

If this or other accounting tricks don't get it done, a "Coxey's Army"-style march on DC might be in order...

[funkybutt]

49. The Road Home didn't exist

when people were filing their 2005 tax returns. We were all encouraged to file a loss if we had one. For us, we got a nice return in 2005, but it certainly wouldn't even begin to compensate us for our loss. Maybe if we had more income, we'd have been better off.

If I get a Road Home grant, I'd be happy to pay back the return from 2005!!

[KAZ]

57. That would be the way to go if they were in a lower bracket in '05.

Otherwise, it's a wash. That said, I still don't see why we're putting these folks through this. They've been through enough. Some legislation is in order.