Tax Information – 2016 Louisiana Flooding

In hopes of guiding all homeowners, renters, and business owners through the recovery process after the 2016 Louisiana flood, our team has compiled a list of current tax information, resources, and instructions needed during this time.

New Updates For Taxpayers & Small Business Owners:

  • Mississippi and Arkansas have both granted extensions to Louisiana taxpayers due to the flooding. If you reside in a parish that has been designated as a federally declared disaster area, any returns previously due between August 11, 2016 and January 17, 2017 are now due on January 17, 2017.
  • Applications are being accepted for triage grants to support Louisiana small businesses affected by the flooding through the Louisiana Small Business Rebirth Fund. You can apply online at www.labizrebirth.org.
  • The Small Business Administration has low-interest loans available for businesses and individuals affected by the flooding:

            -The deadline to apply for a housing or business repair loan is October 13, 2016.

            -The deadline to apply for a working capital/repair loan for a small business is May 15, 2017.

  • The IRS has issued some “relief” with regard to employer retirement plans. If the plan allows for hardship distributions or loans, the plan administrator may distribute money without as much documentation as normally required. However, any amounts includible for income tax and the 10% early distribution penalty WILL STILL be subject to them.

Sales Tax Refunds:

You may be eligible for refunds of state sales taxes paid on tangible personal property, such as clothing and furniture in your home or apartment, that was destroyed by the flood and that you do not receive any other reimbursement for. To claim the refund, you must file forms R-1362, R-1362S and R-1362D with the Louisiana Department of Revenue (LDR). You will have to attach documentation of the damage, any reimbursement, and all available purchase receipts for the destroyed items. If you do not have documentation available, LDR will make a reasonable estimate of the sales tax paid on the destroyed property based on income previously reported to LDR. You can find these forms here: http://revenue.louisiana.gov/Taxforms/1362(8_16)F.pdf

See the instructions on the forms for items that are not eligible for the sales tax refund, including vehicles, boats, ATV’s, food, recreational equipment and immovable property in your home.

Deducting Losses From the Flood on Your Tax Return:

For the 2016 Louisiana Flood losses, you can deduct the loss on your 2016 tax return or you can elect to deduct the loss on your 2015 return. If you have already filed your 2015 return, you can amend it to include the loss. You have until the due date of your 2016 tax return (April 17, 2017) to make this decision.

If you do not need the refund from amending your 2015 return, we recommend that you wait until you have all of your 2016 information so that you can deduct the loss in the year it provides the most benefit to you.

In order to make the following explanations more understandable, we must first define some of the terms we will use, as the IRS defines them for the purposes of casualty loss deductions:

Fair market value – The fair market value is the price at which the property would be sold between a willing buyer and a willing seller, each having knowledge of the relevant facts

Loss – Your loss for tax purposes is the fair market value (worth) of your property before the flood minus the fair market value of your property after the flood.

Example: Before the flood, your home was worth $285,000. After the flood, your home is worth $200,000. Your loss is $85,000.

Basis – (This is your adjusted basis in the property for tax purposes.) Generally, your basis is what you paid for the property, plus any improvements made to it, minus any allowed depreciation if the property was used for business or rental.

Adjusted Gross Income– Your adjusted gross income is the total income on page one of your individual tax return, less certain specific deductions, such as IRA and some retirement plan contributions, student loan interest, health savings account contributions, and others.

Computation of Deduction:

Primary Residence and Personal Property:

  1. Compare your loss to your basis. Use the lower number.
  2. Deduct any reimbursement or estimated reimbursement from the amount in 1.
  3. Deduct $100.
  4. Deduct 10% of your adjusted gross income.
  5. The amount left is an itemized deduction on your individual tax return.
  • Changes in your income and other itemized deductions between 2015 and 2016 can result in very different tax benefits from deducting the flood loss. This is why we recommend waiting until you have your 2016 information.

Personally Owned Business Property:

  1. Compare your loss to your basis. Use the lower number.
  2. Deduct any reimbursement or estimated reimbursement from the amount in 1.
  3. The amount left is an itemized deduction on your individual tax return.

The deduction for a loss on rental property is computed in the same way (lower of loss or basis, less reimbursement), but it is not an itemized deduction on your tax return. It will flow through as a deduction from income, but the loss may be limited due to passive activity rules.

Flood losses for a business will be deducted on the income tax return of the business. The losses do not have to be reduced by a percentage of income.

WARNING: If you underestimate the reimbursement you will receive and subsequently receive more, the excess received will be taxable income in the year you receive it.

If you have any questions, please email them to [email protected], and we will have someone contact you to answer them. If we receive the same questions from multiple people, we will send out another newsletter with answers.