New Tax-Relief Laws Help With Flood Recovery

Thanks to some new tax-relief laws, however, there may be a bit of financial help with recovery.

The Internal Revenue Service officially began accepting tax returns Friday, and senior H&R Block tax adviser O'Kemm Dixon advised that those affected by the natural disaster start gathering their paperwork.

"This (tax provision) isn't something normally available," Dixon said. "They (flood victims) do need to have a listing of their actual losses."

Last year, Congress passed special tax relief laws for numerous disasters that occurred, including hurricanes Gustav and Ike, the California wildfires and the Flood of 2008.

One provision allows those who suffered a personal casualty loss to claim the loss as part of the standard deduction, which is good news for those who do not like to itemize.

"Normal casualty losses are subject to a 10 percent AGI floor, but that has been eliminated," said H&R Block office manager Janet Upton.

Normally, people are only able to deduct a loss of 10 percent or less of their adjusted gross income. This provision eliminates the 10 percent limit.

Another special provision that only applies to Midwest college students is an extension of the Hope and lifetime learning credits, which are available for students during their first two years of college. The Hope Credit can now be as much as $3,600, and the lifetime learning credit now maxes out at $4,000.

"It applies if you're going to school in a state that was declared a disaster area," Dixon said.

There also are special provisions for those who housed up to four people dislocated by the flood. They can claim up to four additional personal exemptions of $500 per person if those people stayed in the home for 60 days or longer.

Other special disaster provisions include no tax penalty for disaster-related pension withdrawals, a doubling on the limitation of loans from your retirement account and special capital gains tax relief for replacement in a disaster area.

Affected taxpayers include those living in disaster areas, those outside the disaster area whose tax records are located there, businesses located in the disaster area and relief workers.

"If they've kept their FEMA papers, it should be fairly simple," Upton said.

That isn't the only change in this year's tax season, however.

Called First Time Homebuyer Credit, those who have not owned a home in the previous three years and bought a house after April 8, 2008, may be eligible for a refundable tax credit of up to $7,500.

"There's a lot of interest in that one," Dixon said. "It's like an interest-free loan. But remember, starting in 2010, it will have to be paid back."

Upton said one of the more confusing aspects of this year's tax season is what kind of effect the federal stimulus package will have on returns.

"They need to know how much they received in the stimulus package. They may even be able to get money back," Upton said. "Most people either didn't save their information from last year, or they didn't realize they need it."

According to the IRS, 130 million taxpayers received a stimulus payment. Those who did not receive one last year may qualify for the payment if their income has decreased due to a pay cut or loss of employment.

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