Tax Help for Louisianans after Hurricanes Katrina and Rita 

Release Date: March 27, 2006
Release Number: 1603-419

» More Information on Louisiana Hurricane Rita
» More Information on Louisiana Hurricane Katrina

In the interest of providing additional information to Hurricane Katrina and Rita evacuees who are filing tax returns, we are providing this important tax information from the Internal Revenue Service to supplement the information contained in release #405 dated March 17, 2006.

BATON ROUGE, La. -- The U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA) and the State of Louisiana want residents affected by Hurricanes Katrina and Rita to apply for disaster assistance without fear of future penalties to any income-based benefits, such as social security. Louisianans 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. In addition, assistance to repair or replace a home or the contents of a home destroyed by Hurricanes Katrina or Rita 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, 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 principle residence may generally be excluded from income. See IRS Publication 523, Selling Your Home, for further details.

Filing Deadlines and Payment Extended:

The Internal Revenue Service will automatically postpone taxpayer filing and payment deadlines until August 28, 2006 in Cameron, Jefferson, Orleans, Plaquemines, St. Bernard, St. Charles, and St. Tammany Parishes.

To ensure that those who suffered severe hurricane damage in Louisiana outside the above parishes get necessary relief from filing and payment deadlines, taxpayers must identify themselves as impacted. Taxpayers in the following parishes who need the available hurricane-specific extensions should write "Hurricane Katrina" in red ink at the top of their return when filing: Acadia, Ascension, Assumption, Calcasieu, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson Davis, Lafayette, Lafourche, Livingston, Pointe Coupee, St. Helena, St. James, St. John the Baptist, St. Mary, St. Martin, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana Parishes.

Tax Deductions for Demolition Costs through 2007:

Louisiana taxpayers in the following parishes with property damage from either Hurricanes Katrina or Rita 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: Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana.

Tax Breaks for Those Who Housed Hurricane Katrina Evacuees:

For taxable years 2005 and 2006, taxpayers may be able to claim an additional exemption of $500 for each Hurricane Katrina displaced individual to whom they provide housing free of charge in their principal residence for at least 60 days in a row ending in the year they claim the exemption. The maximum amount a taxpayer can claim for all years 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.

How to get Tax Help:

FEMA urges affected Louisianans to seek tax counseling this year. The IRS is providing special help for those directly affected by Hurricane Katrina and Rita, 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 1-866-562-5227
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:

Publication 4492 - Information for Taxpayers Affected by Hurricanes Katrina, Rita or Wilma

Publication 547 - Casualties, Disasters and Thefts

Taxpayers with incomes under $38,000:

Call 1-800-829-1040 to contact the IRS for referrals for free tax preparation at Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) locations.

FEMA manages federal response and recovery efforts following any national incident. FEMA also initiates mitigation activities, works with state and local emergency managers, and manages the National Flood Insurance Program.  FEMA became part of the U.S. Department of Homeland Security on March 1, 2003.

Last Modified: Monday, 27-Mar-2006 17:01:44