Disaster funds mean changes for your taxes - KWWL - Eastern Iowa Breaking News, Weather, Closings

Disaster funds mean changes for your taxes

(DES MOINES) - The Rebuild Iowa Office and the Iowa Department of Revenue have additional information on how to report disaster assistance this tax season. After discussions with federal officials, the Internal Revenue Service has clarified the tax consequences of financial assistance received under the Jumpstart Iowa Housing and Small Business programs.

The financial assistance received under these programs must reduce the amount of casualty loss allowed as a deduction on an individual's or small business's federal and Iowa income tax return. This is similar to how insurance proceeds reduce the amount of casualty losses allowed to be deducted. Support for this position can be found in Revenue Ruling 2005-46 and Revenue Notice 2003-18.

For example, $10,000 of Jumpstart assistance received in 2008 for a $40,000 casualty loss results in only $30,000 allowed as a casualty loss on the federal and Iowa 2008 tax returns. If Jumpstart assistance was not received until 2009, the $40,000 casualty loss can be deducted on the 2008 federal and Iowa returns, and the $10,000 is reported as income on the 2009 federal and Iowa returns.

Changes in federal income tax laws that benefit taxpayers affected by disasters in 2008 include:

  • Eased casualty loss rules
  • Enhanced depreciation
  • Section 179 expensing for certain disaster property
  • Relaxed rules for distributions from IRAs, 401(k), and other retirement plans.

The Iowa Legislature will decide this session if these changes will be allowed for Iowa tax purposes.  Iowans can begin filing taxes online on Friday.

For more information on Iowa disaster relief provisions, please contact the Taxpayer Services Section of the Department at 800-367-3388, or 515-281-3114, or e-mail at idr@iowa.gov

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