Lost in the controversial legislation tossing a $700 billion life preserver to Wall Street was a significantly smaller provision that could help flood and hurricane victims stay afloat during their own recovery. The new federal law allows Louisiana families who suffered property damage from hurricanes Gustav and Ike, as well victims from the recent flooding in the Midwest, to claim thousands of dollars more in deductions on their taxes. The break, included by the Senate, changes the way the casualty-loss tax formula is applied to the current year.
It’s a silver lining to an otherwise tough vote for Rep. Charlie Melancon, a Napoleonville Democrat who represents portions of Acadiana. According to a Rasmussen Reports poll, 44 percent of Americans opposed the bailout. Back home in Louisiana, editorial writers chastised the proposal as corporate welfare and constituents sounded off on talk radio about what was in it for them. Lawmakers on the Hill referred to it as a “legacy vote” and many facing re-election – Melancon is unopposed this year – took care to oppose the measure. Louisiana’s own congressional delegation was also split on the vote.
Faced with the reality that the nation’s financial markets were broken and possibly dragging the country into a recession, Melancon, who bills himself as a fiscally-conservative Blue Dog Democrat, says he had no choice but to support the package. “This rescue called for a hefty investment from all of us, but it only earned my vote when significant steps were taken to guarantee taxpayers weren’t stuck with the bill,” Melancon says.
Moreover, Melancon says he was swayed by the support included for hurricane victims, especially in light of the out-of-pocket costs some of his constituents were facing. In particular, coastal residents have been shocked to find a special hurricane deductible on their policies that is a percentage of a home’s insured value, rather than the traditional deductible of $500 or $1,000. "After Katrina and Rita, many families in south Louisiana saw their named-storm insurance deductibles climb dramatically," Melancon says. "If you lost a roof during Gustav, chances are you're faced with a very big repair cost and very little help from your insurance company. This tax change will help a lot of folks in this situation recoup a few thousand dollars at tax time."
If taxpayers incurred property damage at their primary residence in a federally declared disaster area, they will be able to claim a deduction on their damage under the new law. Previously, taxpayers would only be able to claim damage that exceeded 10 percent of their adjusted gross income – minus $100. Under the National Disaster Relief section of the Emergency Economic Stabilization Act, they will now be able to claim all the damage that exceeds $500, with no consideration of adjusted gross income.
For example, if a family with an AGI of $60,000 lost its $10,000 car in a flood under the old law, the family would have only been allowed to claim a loss that exceeds $100 and $6,000 – in other words, 10 percent of $60,000. Therefore, they would have only been able to claim a loss of $3,900. Under the new rules, the same family would be able to claim a loss of $9,500 for their destroyed car, according to the example provided by Melancon’s office.