Tax Help for Alabamians Affected by Hurricane Katrina 

Release Date: March 29, 2006
Release Number: 1605-202

» More Information on Alabama Hurricane Katrina

MONTGOMERY, Ala. -- As Alabama residents are filing taxes this year, those who were affected by Hurricane Katrina should not be concerned that disaster assistance through the U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA) and the State of Alabama will result in future penalties to any income-based benefits, such as social security. Alabamians should also take advantage of specific rules designed to make tax filing easier this year, like the deadline extension, deductions for demolition costs, and tax breaks for those who housed evacuees.

Disaster Relief is not Taxable Income:

Disaster assistance cannot be taxed as income if it was spent for necessary personal, medical, dental, family, living, or funeral expenses. Grants for housing and other needs assistance are not counted as income in determining eligibility for any income-tested benefit programs that the U.S. government funds. In addition, assistance to repair or replace a home or the contents of a home destroyed by Hurricane Katrina will not be taxed as income.

Disaster relief payments from the government or donations from charitable organizations will not affect eligibility for individual federal or state benefits such as Social Security, Medicare, food stamps, or welfare assistance.

Unemployment assistance payments will generally be taxed. However, qualified disaster mitigation payments made to the owners of property to reduce the risk of future disasters are excluded from gross income. Such payments must be made pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. Taxpayers, however, may not increase basis in property by the amount excluded from gross income. In addition, taxpayers may not take a deduction or credit for any expenditure to the extent of the amount is excluded from income with respect to such expenditure.

In addition, taxpayers may elect to defer recognition of gain realized from the sale or transfer of property to the federal government, a state or local government, or an Indian tribal government, to implement hazard mitigation under the foregoing acts if they purchase qualifying replacement property and meet other federal tax law requirements. Of course, up to $250,000 ($500,000 if married filing jointly) of gain from the sale of a principal residence may generally be excluded from income. See IRS Publication 523, Selling Your Home, for further details.

Alabama taxpayers who suffered severe hurricane damage are eligible for relief from filing and payment deadlines through self-identification. These affected individuals from the disaster declared counties (Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington) should identify themselves by writing "Hurricane Katrina" in red ink at the top of the return when filing.

Tax Deductions for Demolition Costs through 2007:

Alabama taxpayers in the following counties with property damage from Hurricane Katrina may elect to deduct 50 percent of costs paid or incurred from August 28, 2005, to December 31, 2007, for the removal of debris from, or the demolition of structures on real property that is held for use in a trade or business, for the production of income, or as inventory: Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington.

Tax Breaks for Those Who Housed Hurricane Katrina Evacuees:

For the taxable years of 2005 and 2006, Alabama taxpayers may be able to claim an additional tax exemption of $500 for each individual that stayed in their home for at least 60 days in a row ending in the year they claim the exemption. The maximum amount an individual host can claim is $2,000 ($1,000 if married filing separately).

Taxpayers do not qualify for the exemption if they receive money (or other compensation) from any source for housing costs like rent, or heat, or electricity used by the displaced individual. Taxpayers are not disqualified from taking the exemption if they receive money or other compensation not related to housing costs, such as gas for a car used by the displaced individual, food and clothing used by the displaced individual, or long-distance telephone calls placed by the displaced individual.

For information concerning who qualifies as a Hurricane Katrina displaced individual and additional restrictions, see Internal Revenue Service Form 8914, Exemption Amount for Taxpayers Housing Individuals Displaced by Hurricane Katrina, which may be obtained on the IRS website at www.irs.gov/pub/irs-pdf/f8914.pdf.

How to get Tax Help

FEMA urges affected Alabamians to seek tax counseling this year. The IRS is providing special help for those directly affected by Hurricane Katrina, as well as survivors and personal representatives of the victims. A toll-free number is available for people who have trouble filing or paying their taxes because they were affected by either hurricane or who have other tax issues related to the hurricanes.

Call 866-562-5227
Monday through Friday
In English-7 a.m. to 10 p.m. local time
In Spanish-8 a.m. to 9:30 p.m. local time

For more information on the topics above, visit www.irs.gov or see the IRS Publications below:

Taxpayers with incomes under $38,000:

Call 800-829-1040 to contact the IRS for referrals for free tax preparation at Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) locations.

Last Modified: Wednesday, 29-Mar-2006 14:30:38