Hurricane survivor story: FEMA and the IRS Catch-22

[trof]

I live in coastal Alabama, far enough away from the eye of Katrina to have sustained minimal damage. She actually did me a favor by bringing down many of the "hangers" left by Ivan. Hangers are the broken branches still hung up in trees. The ones that a tree service will charge about $50 an hour to remove. It's an ill wind that blows no good.

Ivan was another story. The eastern eye wall passed directly over our house. Downed trees demolished our screened porch, but the rest of the house was relatively intact. In all, we had 19 oaks uprooted. Some of the rootballs pulled up sections of our asphalt driveway.

We live on a bay, so in addition to "our" debris we also had sections of docks, pieces of boathouses, a demolished boat, and various pieces of flotsam to dispose of. FEMA contracts with debris removal companies to pick up the debris from the street right-of way. It is the individual homeowner's responsibility to get debris brought out of the yard to that point.

Bottom line, we had upwards of $12,000 in uninsured (and uninsurable), out of pocket clean up and repair expenses. Plus $1,900 deductible on what our homeowner's insurance did cover.

I applied to FEMA for some relief and got zip. I don't know what the "secret qualifications" mentioned in another post are, but we evidently didn't meet them.

Here's the IRS catch-22:
We're retired (since 1999) and have monthly income from Social Security and a small pension. That's not enough to meet our rather modest expenses, so I make up the difference with annual withdrawals from my IRA.

My IRA withdrawals are subject to income tax. IRA withdrawals are shown as "income" on my 1040. Because I needed immediate cash to pay a private contractor to clean up and make repairs, I had to take over twice as much out of my IRA as normal. Thus my "income" more than doubled.

Now...I can write off my uninsured losses as "casualty losses" on my income taxes, but first I must subtract 10% of my adjusted gross income. So now I'm working against myself. The more I have to take out of my IRA to pay for casualty losses, the less I can write off as casualty losses.

Arrrggghhh
:argh:

[matcom]

1. shit man

won't your Federal tax cuts make up for some of that? :sarcasm:

sorry pal x(

[REACTIVATED IN CT]

2. I think there is a tax relief

proposal for Katrina victims ( I almost wrote "FEMA victims" ). They are going to waive penalties for hardship distributions from 401k plans for example. You should be able to find info on it by googling - if not, PM me - I have a link to some info at work.

If this proposal ( which I don't think passed yet) does not include penalty free withdrawals from IRA's, you (and others in your situation) need to contact your congress critters immediately

[trof]

4. I wrote my repuke congressman re IRS.

Another problem I had with 2004 taxes was that as of April 15, 2005, I didn't yet have all of the info I needed to accurately file. I had "estimates" on repairs that hadn't been done. I know that many times the actual cost is higher than the estimate.

On the IRS website it says that for people in a federally declared disaster area they "may" waive interest and penalties for up to a year. That's what I asked for. My request was denied.

My congressman said I could file for an extension.
Well, I KNOW that, duh. But to do that you need a pretty accurate idea of what you'll owe and you have to pay it with the extension filing. Otherwise you get hit with the interest and penalties. Which they said they "could" waive. Which they wouldn't, in my case.

If I had known how much I'd owe (if any), I could just file the taxes and be done with it.
Double arrgghh.

[REACTIVATED IN CT]

5. Here's a link to a story

http://money.cnn.com/2005/09/15/retirement/katrina_401k/

The lead paragraph says workplace retirement plans, but further down it does talk about IRA's

[trof]

7. Thanks, but no help for retirees.

For those still in the workplace, it would be some help.
The problem for retirees is twofold.

First, any "extra" money you take out to pay for hurricane damage counts against you in the deduction from casualty losses you can write off.

Second, when you're retired and taking money out of your IRA, it's a one-way valve. Even after you get insurance payments, IF you have a little extra cash left over, you can't put it back into your IRA unless you can do it within 60 days of the withdrawal. It was months until I got my insurance check, and then it all went for repairs.

What I'd like to be able to do is;
1. Take disaster related expenses from my IRA tax free.
2. Not have to include that money in my adjusted gross income so that it lessens the amount I can write off for casualty losses.

[rzemanfl]

3. The casualty loss provisions are a fraud. n/t

[FloridaPat]

6. Too bad you don't live in Miami. You could have gotten relieft for nothing

Yes, rubble removal isn't covered by FEMA. I know lots of people with tons of trees down that couldn't get a penny. Here in Central Florida they had some people charging $7,000 to remove a tree from the yard. I've met some people that are still working to get a check for their homes that were destroyed.

I had over 30 trees down and more to come down because they are bending over. All of them fell on the ground and didn't hurt anything. I have 2 chopped up and haven't cleaned up yet. Forget about doing anything like work during the summer. But I've decided to go in business with all this wood. Selling firewood this winter and have several craft project to use the wood for. There was no way I could haul this stuff to the curb. I have a fire pit for the branches. Found out the ashes make great fertilizer for the fruit trees.