Extended '05 tax season filled with nuances for Katrina victims

New Orleans CityBusiness, Apr 10, 2006 by Jaime Guillet

Hurricane Katrina complicated nearly every facet of life in New Orleans. The 2005 federal income tax filing brings its own set of complexities causing New Orleans accountants to advise taxpayers to hire a professional to file their taxes.Normally, New Orleans residents would scramble this week to finish their tax returns and mail them to the Internal Revenue Service.

But in February, the IRS extended the filing deadline until Aug. 28 for residents in hurricane-affected regions. President Bush also signed the Katrina Emergency Tax Relief Act and the Gulf Opportunity Zone Act in 2005, which affects a 31-parish region - both contain tax exemptions for hurricane victims.It's more important than ever for people to have their taxes prepared professionally, said Elizabeth Alford, a certified public accountant at the New Orleans firm Postlethwaite & Netterville. If you've had any sort of loss or damage associated with Hurricane Katrina, you should definitely have a professional help you with your return. Alford said the Katrina Emergency Tax Relief Act provided two main changes to the personal casualty loss provision. It eliminated the requirement for casualty loss deductions to exceed $100 and be greater than 10 percent of adjusted gross income. Under KETRA, any casualty loss can be claimed. But determining the casualty losses makes filing much more difficult.Tax preparers will tell you this tax season is like no other, said Al Suffrin, communications and public relations director for the Society of Louisiana Certified Public Accountants. There's a formula to compute casualty loss and a big part of that equation is the valuation of real property.The amount of loss is determined by subtracting insurance or any other reimbursable amounts from the fair market value of the property. That means determining the value of the property at the time of the loss. If property has been reimbursed, say from an insurance policy, to the point where the reimbursement exceeds the loss, the taxpayer may end up with taxable income. For example, if someone had $10,000 worth of damage and received a check for $8,000 (subtracting $2,000 for the deductible) the $2,000 deductible could be claimed as a property casualty loss deduction.A lot of people haven't received their insurance checks yet or haven't yet had the work completed on their homes and they'll need to guess what insurance is going to pay for their filing even if they haven't gotten paid yet, said Alford. The fair market value estimation and reimbursement calculation are the main reasons Alford and Suffrin say it's critical to have taxes prepared by a professional. There are other considerations. What if an employer has not provided a W-2 tax form because of storm damage? Vincent Caire, public information officer with the Louisiana Department of Revenue, said residents can download or print out Form 4852 on DOR's Web site and file it with the IRS and the state.New Orleans residents should take advantage of KETRA's many opportunities, said Alford. If you're waiting for insurance money you can withdraw up to $100,000 on your Individual Retirement Account with no penalty and you don't have to report the income for 2005, said Alford. Alford said another KETRA option is amending a 2004 return to attach losses to 2004 income.Let's say your income dropped significantly in 2005, said Alford. It might be better to attach the losses to the 2004 return, dropping you down into a lower tax bracket.Accountants said they don't expect the IRS to nitpick returns - within reason. Anything you submit to either the IRS or the Louisiana Department of Revenue is subject to an audit, said Caire. We're expecting the taxpayer to be honest.-