Filing tax returns is confusing enough but will be much more complicated this year for tens of thousands of flood-stricken south Louisiana homeowners trying to account for their damaged homes and belongings, expenses and plummeting property values.
“We’re in uncharted territory,” said Gerard “Jerry” Schreiber Jr., of Schreiber & Schreiber CPAs in Metairie. “There’s never been an incident like this before where there were so many uninsured people who were affected by such massive flooding."
The complications are true even for insured homeowners, who have to weigh their losses against insurance payments they receive.
"As people start to work on their tax returns, there will probably be more questions coming up," said Schreiber, who was honored recently by the American Institute of CPAs’ tax division for his devotion to tax work related to disaster relief.
The place to go is the Internal Revenue Service's form for itemized deductions, where casualty losses are claimed.
The biggest issue for people who suffered property losses in the flood is determining how much the value of their home declined and how much property damage they sustained.
Because few people got a property appraisal immediately before and after the flood, in most cases, Schreiber said, the best way to determine how much the fair market value of a home declined is to look at how much it cost to gut, clean and repair the house. He also noted the IRS doesn't allow the use of property tax statements from parish tax assessors to determine the fair market value of a damaged home, though area assessors have lowered tax values to reflect the impact of the flood.
“Everyone who came back to their house had a lot of cleanup expenses,” Schreiber said. That includes items such as mops, garbage bags, bleach and sponges. “That all goes on the casualty loss ticket.”
Any insurance payments homeowners received for the damage to their property needs to be deducted from the repair costs, he said. Grants from the Federal Emergency Management Agency do not have to be included, Schreiber said, because those are generally awarded to cover living expenses.
With repairs still underway for most homeowners, the overall cost may not be known yet.
Homeowners who sustained damage to their home can file their 2016 tax returns by the April 18 deadline, then go back and amend their return to claim the casualty loss.
Taxpayers will have to itemize their returns to claim losses for the flood. And any tax benefits will be applied to the filing bracket the homeowner is in. For example, if your house sustained $100,000 worth of damage and you are in the 15 percent bracket, the benefit is $15,000.
"This is just the start of the process," Schreiber said.
Homeowners have even wider flexibility on timing when they apply their losses against taxes, said William Potter, senior tax director at the Baton Rouge accounting firm of Postlethwaite & Netterville.
Homeowners who suffered property losses in the storm can choose to amend their 2015 tax returns, take the loss this year or apply it sometime before April 15, 2019. “You have three years to do it,” he said. “You may choose to go back if you had higher income in previous years.”
On state tax returns, people who lost furniture, electronics, linens, clothing and other home furnishings in the flood can claim a refund of the state sales tax they paid on the item, Potter said. This does not apply to automobiles and immovable items, such as major appliances, water heaters and wall-to-wall carpet. The documents can be obtained through the state Department of Revenue website.
“You can make a claim on a bed that was bought 20 years ago,” he said. “You just have to itemize what the items were.”
Jaye Calhoun, a partner in the New Orleans office of Kean Miller who is a member of the law firm’s state and local tax group, said another thing homeowners should be aware of is that they may not be able to claim deductions for local property taxes. Because of the flood, a number of parishes were delayed in sending out property tax notices. In East Baton Rouge Parish, the property tax bills didn’t start arriving until a week or so ago.
“Ordinarily, the property taxes you pay in the tax year, you’re able to claim the deduction on your return,” she said. Because the notices were delayed, Calhoun said homeowners won’t be able to get a deduction on property taxes until they file their 2017 returns next year.
“In Livingston Parish, they were not even accepting property tax payments in December,” she said. “You could not even go make a payment if you wanted to.”