A key tax deduction that can quickly put cash in the hands of victims of floods, hurricanes and other major disasters may be on the chopping block under President Donald Trump and Republicans' tax reform plan unveiled last week, local tax experts said.
Known as the personal casualty loss deduction, it allows homeowners and some small businesses to count catastrophic losses that aren't reimbursed through insurance or grants against their tax liability, allowing them to get some money back during hard times.
"The casualty loss deduction, whether you have insurance or whether you don't have insurance, is part of the equation in recovery and in making people whole," said Gerard "Jerry" Schreiber Jr., of Schreiber & Schreiber CPAs in Metairie.
But included in the $5 trillion tax reform framework unveiled last week is the elimination of most current itemized deductions. The principle of the proposal is to streamline income tax brackets in a bid to cut taxes, while balancing that against removal of the deductions.
Some local tax attorneys and accountants, like Schreiber, are interpreting the sweeping language in the framework to include the casualty loss deduction as among those on the chopping block. The Wall Street Journal also pointed this out Thursday.
Homeowners can claim the unreimbursed loss through an amended return for the prior tax year, said Micah Stewart, tax director for LaPorte CPAs and Business Advisors. Stewart said homeowners and small businesses can file as soon as they are able after a disaster and don't have to wait until the latest year's income tax returns are due.
"That helps a lot of taxpayers, including small businesses, to get cash in their hands to help at trying to move forward," Stewart said.
Stewart said he helped many homeowners seek the deduction after Hurricane Katrina in New Orleans in 2005, as well as after last year's floods in the Baton Rouge area and, most recently, in Houston. The value of the deduction varies, depending on the size of the loss and a person's income.
Schreiber and others also noted that Trump's reform framework does not envision applying the proposed changes retroactively. That should mean hurricane victims this year in Houston, Florida, Puerto Rico and the U.S. Virgin Islands should not be affected by the changes.
But Schreiber also emphasized that what has been proposed so far is really more of a series of "discussion points." Trump and his allies in Congress have not proposed actual legislation yet, laying out their concepts only in the broadest of strokes Wednesday.
In fact, the nine-page framework document does not specifically say that the casualty loss deduction would be eliminated. The framework talks about doubling the standard deduction and eliminating "most itemized deductions," except those for home mortgage interest and charitable contributions.
Trump and other administration officials have also aired their wish to cut deductions in their public comments about the plan.
"In fact, we are eliminating most itemized deductions that primarily benefit the wealthiest taxpayers," Trump said Wednesday at an event in Indianapolis, according to a White House transcript.
Stewart, Schreiber and others say one can conclude from the framework's language that the casualty loss deduction would be among those itemized deductions cut under Trump's framework, though they cautioned more details are needed first.
"We just don't know what final form this takes. The documents thus far are very vague and are just general discussion points and nothing specific," Schreiber said.
This uncertainty also raises some questions, Schreiber said.
The deduction allows homeowners with the largest losses to spread them out across income tax returns going back three years or apply them on future tax returns. Schreiber said he couldn't say how the new proposal would affect residents with damages this year in Florida, Texas or Puerto Rico who tried to apply the deduction on future tax returns or Louisiana residents trying to do the same thing.
"That could be eliminated, too, OK? We don’t know. So, if you had a bigger deduction than you had in income going forward, we don't know what the effect of that would be in this tax reform," Schreiber said.
Lance Kinchen, a tax attorney and CPA with Breazeale, Sachse and Wilson, said he has doubts some of the itemized deductions will stay on the chopping block because so many interest groups will fight the changes.
"You just had three major hurricanes in Puerto Rico, Florida, Houston and the flood here last year that wasn't even a hurricane, so all that's currently on people's minds, so, in the next 12 months, tax revisions that eliminate those casualty losses, I would think, people would think that's not an equitable situation," Kinchen said.
Perhaps to Kinchen's point, a disaster tax relief bill authored by U.S. Rep. Kevin Brady, R-Texas, would, in part, broaden homeowners' ability to make use of the casualty loss deduction for the hurricanes that hit this year.
The bill, which passed the House and Senate three days after introduction and appeared headed to Trump on Friday, eliminates a requirement that the uncompensated disaster losses must exceed 10 percent of a person's adjusted gross income.
"Hundreds of thousands of families have lost everything, even loved ones. This bill will help them begin to recover through meaningful, targeted tax relief they need now," Brady said on the House floor.
Chairman of the House Ways and Means Committee, Brady's district in the greater Houston area was slammed by Hurricane Harvey. He also is a key congressional leader for the "fair and simple" tax reform package that could eliminate the casualty loss deduction for future storm victims.
U.S. Rep. Garret Graves, R-Baton Rouge, and former U.S. Rep. Charles Boustany, R-Lafayette, each proposed disaster tax relief bills after last year floods in Louisiana with a similar provision on casualty loss deductions. The Louisiana congressmen's bills never made it out of Brady's committee.
Graves, who voted against Brady's bill, said he supports tax relief for hurricane victims, "but to suggest that their 1,000-year storm was worse than ours is outrageous."
"People lost everything in both cases," Graves added. "It is wholly inappropriate for hurricane victims to wait a month for tax relief while we’ve been waiting for nearly 14 months."
Graves promised the issue was not over and has been given assurances Louisiana's post-flood tax relief will be revisited. Brady's Washington, D.C., office referred calls to the Ways and Means Committee. Representatives from that committee did not return a request for comment Friday.