Galveston Economic Report
David Stanowski Publisher
Tax Breaks for Galveston Residents
by David Stanowski
04 November 2008
The Emergency Economic Stabilization Act of 2008: HR 1424 offers some tax breaks for anyone impacted by Hurricane Ike!
Waives the 10% adjusted gross income limitation on personal casualty losses for losses sustained from a federally declared disaster.
"A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, and unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption."
Casualty Losses are calculated on Form 4684, where they are normally reduced by 10% of the Adjusted Gross Income, and then transferred to Form 1040, Schedule A. Section 706 will result in larger deductions since the casualty loss does not have to be reduced by 10% of AGI!
For more information see Publication 547. Also see Publication 551 for help on determining the value of damaged and destroyed property.
Allows the expensing of business-related costs incurred due to a federally declared disaster for: (1) the abatement or control of hazardous substances; (2) removal of debris or demolition of damaged structures; or (3) repair of damaged property.
This Section allows Galveston residents to write off all of these costs caused by Hurricane Ike on their 2008 tax return rather being forced to depreciate or amortize them over several years!
Provides for a five-year carry back period for net operating losses (NOLs) attributable to a federally declared disaster. Allows such losses as a deduction in computing alternative minimum taxable income.
After completing Form 1040, if the number on line 41 is negative, there MIGHT be a Net Operating Loss for that year. Many Galveston residents could have an NOL for 2008 after large Casualty Losses and losses from businesses run as sole proprietorships, S Corporations and Limited Liability Companies.
The next step is to determine if there actually is an NOL using Schedule A, Form 1045. After doing the calculations, if there is an NOL, Section 708 allows the NOL to be carried back for up to 5 years instead of the just 2 years! A tax refund can be received by filing an amended return on Form 1040X for any of the 5 years prior to the NOL year. If the entire NOL is not used up in the prior 5 years, the balance can be applied to future years.
For example: If a taxpayer has an NOL of -$50,000 for 2008, but had a taxable income of $70,000 in 2007, an amended return can be filed for 2007, reducing the taxable income to $70,000-$50,000 = $20,000. The tax owed in 2007 is now reduced, and a refund is sent to the taxpayer.
For more information see Publication 536.
Modifies certain mortgage revenue bond requirements for principal residences damaged or destroyed in a federally declared disaster.
This is a provision that could be used by the State to issue bonds to finance low-interest loans to help hurricane victims to rebuild their homes.
Allows accelerated depreciation for qualified disaster assistance property. Defines "qualified disaster assistance property" to include nonresidential real or residential rental property in a federally declared disaster area.
This provision permits businesses to claim an additional first-year depreciation deduction equal to 50% of the cost of new real or personal property. This applies to computer software, leasehold improvements, certain commercial and residential real estate expenditures and equipment. All accelerated depreciation deductions will be exempt from Alternative Minimum Tax.
Allows increased expensing of certain tangible property on Part 1, Form 4562.
Under present law, a maximum of $125,000 of personal property may be expensed in 2008, instead of being depreciated. Section 711 raises that limit to $225,000. Also, benefits would phase out at $600,000 instead of $500,000.
For more information see Form 4562, and instructions.
More information is necessary before filing a tax return. Do your own due diligence or consult an accountant and/or tax attorney.
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