A Hurricane Katrina relief bill enacted by Congress and signed into law on Sept. 23 allows Katrina-affected taxpayers in disaster-declared counties to avoid having to deduct 10 percent of their adjusted gross income and a $100 deductible to claim disaster losses on their federal taxes. Under the legislation, Katrina victims who can itemize deductions will be able to claim their entire disaster loss, minus any insurance payments or other reimbursements. Some tax filers may find that hurricane losses enable them to itemize deductions when they might not have otherwise qualified to do so. The new law also:

• Allows Katrina victims to withdraw up to $100,000 without tax penalties from certain retirement accounts, such as 401(k) plans and Individual Retirement Accounts, to pay for disaster-related needs.
• Suspends limits on individual cash contributions made to qualified charities beginning Aug. 28, 2005, through Dec. 31, 2005.
• Provides a tax benefit for people who volunteer to take in Katrina victims, a $500 deduction for each person they house for at least six months, up to a cap of $2,000.

The IRS allows people in federally declared counties with casualty losses from the disaster to claim this year's losses on last year's tax return, or to amend last year's return if it's already been filed. This may give victims a quicker refund than would be possible filing the loss with a 2005 tax return.

To see how the law applies to their individual situation, evacuees should see a tax consultant or talk with the IRS for specifics. More information is available online at http://www.irs.gov/ and at the Congressional Joint Committee on Taxation Web site, www.house.gov/jct. People who have registered for disaster assistance by calling toll-free 800/621-3362 or (TTY) 800/462-7585 can speak with an IRS representative at any of the disaster recovery centers set up in Georgia, Tennessee, North Carolina, South Carolina and Kentucky to help Katrina victims. The IRS also has established a toll-free hotline for hurricane victims at 866/562-5227. There, callers can find out about available tax relief, get free copies of their tax return transcripts and receive disaster tax loss kits. To calculate a federal casualty loss deduction, go to the IRS website at http://www.irs.gov or read IRS Publication 547, Casualties, Disasters and Thefts.

For state income tax waivers or other benefits for Katrina victims, evacuees should check with the state tax office where they formerly resided. Property tax reductions may also be available in certain jurisdictions. For that information, evacuees are urged to consult the tax office in the county or parish where their property is located. (10/7)