The Rs have said their plan 'reforms' and 'simplifies' our tax code; they did that by tinkering or massaging a tax benefit here and there. Tax benefits, for the purpose of this discussion, includes those things people derisively refer to as loopholes - things that benefit only certain Americans, primarily 'other people' (hence the derision).
One of these benefits extends to people who suffer losses from disasters such as floods and fires.
Right now, disaster victims can deduct losses that aren't insured and that amount to more than 10 percent of their incomes.So, think about friends, family and others living in the Gulf Coast or Puerto Rico who were impacted by the hurricanes and floods earlier this year. Think back to Sandy, Irene, Katrina, and Andrew and all of the other storms we remember by name.
Think about all of the people who were impacted by the flooding right here in NY along the Lake Ontario shore, for months. The official declaration was made for most of counties along the shore back in November, but some were left out and are waiting for a review to be finished to know for sure whether they'll be included in the declaration.
It's easy to picture losses from those and other disasters far exceeding 10% of a homeowner's income, isn't it, especially since flood insurance is prohibitively expensive for many people? And, especially since in many cases (my own backyard included) the flood maps don't make a whole heckuva lot of sense outside coastal areas, major rivers, and other obviously flood-prone areas.
Think about all of the people who have lost their homes in the California fires this year - epic and historic wildfires, still burning. Sure, some of them are celebrities, but most of them are just regular folks, right?
So, what's different after the GOP's massaging of this loophole? Well,
Under the new tax plan, the deduction could only be claimed for those disasters that the president declares a federal emergency. The proposed change would go into effect January 1, 2018, meaning disaster victims could file one final deduction this year if they experienced a loss that did not receive Federal Emergency Management Agency (FEMA) support.What's the impact of the change? It's hard to say for sure, but we do have some historical info.
In 2015, more than 72,000 people filed a casualty or theft deduction resulting in $1.6B in claims, according to the IRS' Statistics of Income Division (The IRS lumps casualty and theft deductions together in its count).Most of us can pretty readily recall the big ones, the national disasters that do receive the presidential declaration, but unless we are paying particular attention or are personally impacted, it's harder to remember the ones that don't. Here's a reminder of just one that didn't make the cut.
The historic wildfires that hit Kansas, Texas, Oklahoma and Colorado last March, however, did not receive a federal disaster designation, meaning those affected would not have been able to utilize the personal-loss deductions if such an event had occurred under the new tax plan...
Losses to the High Plains wildfires last March were significantly less (than those associated with Harvey and Irma). The fires burned 2100 square miles in the four states, causing about $55 million in fence losses. In Texas alone, the personal losses to farmers and ranchers was estimated at $25.1 million.
While farm and ranch losses to wildfire, tornadoes, etc., pale in comparison to damage from major hurricanes, losses to individuals from either event are the same.So, if you were making the decisions about how our tax plan should work, what would you do about deductions for disasters?
- Allow deductions, with no percent of income limitation, regardless of whether a federal disaster is declared.
- Allow deductions, with a percent of income limitation, regardless of whether a federal disaster is declared.
- Allow deductions, with no percent of income limitation, only when a federal disaster is declared.
- Allow deductions, with a percent of income limitation, only when a federal disaster is declared.
- Do not allow deductions, but offer low interest federal loans to everyone to cover uninsured losses.
- Do not allow deductions, but offer low interest federal loans only to those households with income under $200,000.
- Do not allow deductions or federal loans; the homeowner, rancher, businessman, etc. would be responsible for either having enough insurance to protect themselves, or being able to secure loans through state or local governments or their financial institutions.
Have at it, legislators.