Residents and business in the 20 parishes declared a federal disaster area will be able to claim flooding losses on their 2015 income taxes even though the damage occurred this year.
That's one of the long-standing provisions of federal policy when the president issues a disaster declaration, as President Barack Obama did last week. Several other tax provisions, including being able to delay quarterly IRS payments, also kick in with a disaster declaration.
Losses not covered by insurance or other reimbursements usually can be used to lower the amount of taxes owed. The normal procedure is to claim the loss when filing taxes for the year in which the loss occurred.
But in the case of a federally declared disaster area, individuals and businesses can claim the loss in the previous year's taxes by amending their returns.
"The intention of this is to allow you to access cash as soon as possible in the event of a loss," accountant Angele Givens said.
So filers who amend their 2015 returns to include the loss may be able to recoup taxes they've already paid and get a refund. Those who haven't yet filed their 2015 returns also may claim the flood-related losses. Taxpayers have until April 17, 2017 to decide if they want to amend their 2015 returns.
Filers also may choose to go the normal route and wait to claim the uncovered losses on their 2016 taxes.
Deciding which year to claim the loss, or to even claim it at all, is complicated.
"There are so many moving parts," said Givens, who knows from personal experience.
Givens' New Orleans home a few blocks from the London Avenue Canal was destroyed when the levee broke after Hurricane Katrina in 2005. She decided not to amend her 2004 return but to wait until it was time to file her 2005 return to claim the loss.
Later, however, she had to reverse her decision to claim a loss after she got money from the Road Home program.
While the program received scorching criticism because of its glacial pace in disbursing benefits, it did eventually get money out to people who suffered losses — total or otherwise — after Katrina. But that created a problem for those who had taken a tax loss, because the money from Road Home wiped out most or all of the claimed loss.
Taxpayers then had to decide whether it was better to pay taxes on the Road Home money, or to amend the earlier return and give up the losses they had claimed, possibly owing taxes on the earlier return.
"Everyone's situation is different," Givens said. "Everything is not what it seems."
She chose to amend her earlier return and give up the loss she originally claimed in her 2005 return. Thousands of other Road Home recipients did the same in a seemingly needless repetition of effort that increased their exasperation with the slow Katrina recovery.
No one knows yet whether there will be an assistance program for flooding victims along the lines of Road Home. But any government assistance complicates the question of whether to claim a casualty loss.
Although a federal aid program to help disaster victims can provide as much as $33,000 per h…
"Any disaster recovery grant received from the government would be considered taxable income," Givens said.
In addition to letting taxpayers claim flooding losses earlier than they normally would, the disaster declaration also pushes back a number of deadlines.
For example, those who asked for a filing extension before the April 18, 2016 deadline for their 2015 taxes will now have until Jan. 17, 2017 to file. Previously, the deadline extension would have expired in mid-October.
Those who pay their taxes on a quarterly basis also have been granted a reprieve until Jan. 17 for their third-quarter taxes, normally due in mid-September.
Meanwhile, businesses also will get some relief because of the disaster declaration, including an Oct. 31 deadline for quarterly payroll and excise tax returns, which has now been pushed back to Jan. 17 as well.
The Louisiana Department of Revenue has announced similar deadline changes for state taxes and filings due over the next few months. And both the feds and the state have waived late-filing penalties.
Meanwhile, Congress can always change the law to help flood victims in other ways, as it did after Katrina.
The best way to stay abreast of tax requirements under a disaster declaration is to visit irs.gov, the Internal Revenue Service website, or to consult a tax professional. The IRS website provides access to a number of publications and forms, including Publication 2194, "Disaster Resource Guide for Individuals and Businesses."
In addition to people living in the declared disaster area, individuals who are involved in relief activities "affiliated with a recognized government or philanthropic organization" also qualify for these same tax benefits. People outside the disaster area but whose tax records are housed inside it qualify for the filing and deadline breaks, too.
Twenty parishes are now covered under a federal disaster declaration in response to severe f…
The disaster declaration is for the following parishes: Acadia, Ascension, Avoyelles, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson Davis, Lafayette, Livingston, Pointe Coupee, St. Helena, St. Landry, St. Martin, St. Tammany, Tangipahoa, Vermilion, Washington and West Feliciana.
For more information, click here.