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Disaster assistance exempted from taxes

The law was written after the IRS ruled last year that about $500-million a year federal aid was taxable.

By JEFF HARRINGTON
Published April 16, 2005

Just in time for Tax Day, property owners getting federal grants to shore up their homes against floods, hurricanes and other disasters have gotten a huge tax break.

Or gotten it back, rather.

President Bush on Friday signed H.R. 1134, which exempted disaster mitigation payments from taxes.

Without the bill, millions of dollars doled out annually to mitigation projects in Florida alone would have been subject to taxation.

The bill was triggered by an Internal Revenue Service ruling last year that some $500-million a year doled out under federal disaster mitigation programs is taxable, possibly retroactively. Included in the ruling was a hodgepodge of grants: money used to retrofit homes with tornado safe rooms or hurricane straps, money to rebuild flood-prone homes on stilts or higher ground and grants to move homeowners whose properties are particularly susceptible to flooding.

IRS officials said they didn't want to make the mitigation programs taxable but had no choice when it came time to interpret the law.

IRS commissioner Mark Everson was quick to praise the law Friday, noting that it was retroactive to anyone who may have paid taxes for mitigation projects since last year.

"People who have paid tax on these grants may file an amended tax return to get a refund," Everson said. Details on the filing process were posted on the Web site www.irs.gov

The Federal Emergency Management Agency last year doled out nearly $400-million for about 1,300 projects under the three disaster mitigation programs affected by its ruling. More than $50-million of that went to about 100 projects in Florida.

John Holmes, who received a grant three years ago to rebuild his flooded-out Ruskin home on stilts, was happy to find out Congress had eliminated the threat of a retroactive tax bill in the thousands for himself and his fellow recipients.

Holmes, 74, a retired toolmaker living off Social Security, said taxation was "kind of crazy anyhow" since the mitigation program was intended to help people who couldn't afford to do the work.

Harvey Ryland, president and CEO of the Institute for Business and Home Safety, a Tampa organization promoting mitigation, applauded the law as "critical legislation."

Ryland said he hopes the federal action spurs state and local governments to approve more incentives to encourage homeowners and businesses to take steps to protect their properties from hurricanes, floods and other disasters.

He cited a survey done for the institute that showed that even at-risk homeowners are reluctant to put up hurricane shutters or otherwise disaster-proof their home unless they receive economic incentives. The one exception: if one of their kids comes home from school and tells them they should.

Jeff Harrington can be reached at harrington@sptimes.com or 813 226-3407.

[Last modified April 16, 2005, 01:24:50]