Washington–Gulf Coast homeowners affected by Hurricane Katrina could increase their tax-deductible casualty losses under bipartisan legislation introduced yesterday in the Senate.

The measure, sponsored by the senior members of the Senate Finance Committee, would also ease taxes applied to individual retirement account withdrawals and certain charitable contributions.

Introduced by Sens. Charles Grassley, R-Iowa, chairman, and Max Baucus, D-Mont., ranking minority member, the bill is expected to win quick action in the Senate.

Similar legislation is in the House Ways and Means Committee is sponsored by Chairman Rep. Bill Thomas, R-Calif.

With rapid passage expected in both chambers the bill could be on the President's desk as early as next week

The proposed legislation also contains provisions allowing individuals in regions devastated by Hurricane Katrina to withdraw funds without tax penalties from their retirement accounts to help tide them over, as well as language designed to spur charitable contributions.

Regarding casualty losses, under present law, non-business casualty losses are deductible by taxpayers who itemize only to the extent they exceed 10 percent of adjusted gross income and a $100 floor.

In some circumstances, taxpayers are permitted to include a current-year casualty loss on an amended prior-year return, Sens. Grassley and Baucus said. The proposed legislation would eliminate the 10 percent floor for casualty losses incurred in the Hurricane Katrina disaster area, including those claimed on amended returns.

"Removing the floor will result in increased loss deductions and the amended return option will get money to the victims much sooner, helping them to get back on their feet," the senators said.

Another provision amends a portion of the Tax Code, which deals with damaged or destroyed homes.

The senators said that under present law there is no taxable gain attached to homes replaced within four years after a declared disaster. The bill would extend the time period to five years for property purchased to replace a home that was damaged or destroyed within the Katrina-designated disaster area.

The extended replacement period applies to principal residences and business property. Currently, disaster-destroyed commercial property must be replaced within a two-year period to avoid tax consequences.

Another provision waives the 10 percent penalty for early withdrawal of funds from retirement plans for individuals living in a federally declared disaster area.

Besides removing some of the penalties for early withdrawal of funds for retirement plans, victims of Katrina would be allowed to exclude from gross income otherwise taxable IRA account withdrawals for a charitable contribution.

Additionally, it would raise the permitted individual limit for cash contributions from 50 percent to 60 percent for donations made this year; and give the IRS commissioner permission to extend deadlines for filing tax returns and paying income, estate and gift taxes. Under the latter provision, employment and excise taxes are specifically excluded.

Special Reports /

Bill Would Ease Tax For Damaged Home Replacement

Related Stories

Recommended For You