[StBernard] LRA grants have IRS implications

[Westley Annis]

In last week's Answer Spot, you said the LRA grant money is not taxable. A
fact sheet released by the IRS this week states that: "Individuals who
received grant payments from the LRA and the MDA (Mississippi Development
Authority) to compensate them for the damage to or destruction of their
primary homes by Hurricane Katrina will not be required to include the grant
proceeds in gross income." This seems to clearly agree with your column, but
the fact sheet continues: "The recipient of the LRA or MDA grant payment
must reduce the amount of any casualty loss attributable to the damaged or
destroyed primary residence by the amount of the LRA or MDA grant payment.
In addition, the recipient must reduce his or her tax basis in the damaged
or destroyed primary residence by the amount of the LRA or MDA grant payment
as well as by the amount of the allowable casualty loss deduction
attributable to the damaged or destroyed primary residence." Now I believe
you can see that reducing a deduction is, for all practical purposes, the
same as if you increased taxable income. What do you think? 
 
The goal of the Road Home program is to reimburse consumers for their
uninsured property losses. In doing so, it reduces the amount of financial
loss you sustained. And as a result of that process, you won't be able to
deduct as much of a loss on your income tax return. 
The IRS allows many filers to take a deduction for property that is damaged
or destroyed as a result of a sudden, unexpected and unusual event. In the
wake of Hurricane Katrina, Congress passed legislation that made it even
easier for victims of the hurricane to deduct their property damage. 
Money you receive from the Road Home program will not be taxed. However,
because that money erases all or part of your loss, you'll have to reduce
the casualty loss you deduct on your income tax return. 
For more information on the special tax implications of Hurricane Katrina,
check out www.irs.gov and click on "Help for Hurricane Victims." 
 
For more information on the Road Home program, go to www.road2LA.org.