Press Release - Reporting Disaster Assistance on Tax Returns

April 8, 2009

FOR IMMEDIATE RELEASE

Contact: Jim McNulty, Iowa Department of Revenue, (515) 281-6183

REPORTING DISASTER ASSISTANCE ON IOWA TAX RETURNS

The Iowa Department of Revenue is reminding taxpayers of the proper treatment of reporting disaster assistance this tax season.

The financial assistance received under the Jumpstart Iowa Housing and Small Business programs must be reported for Iowa tax purposes in the same manner as reported on the federal tax return.  After discussions with federal officials, the financial assistance received under these programs must reduce the amount of casualty loss allowed as a deduction on an individual’s or small business’s federal and Iowa income tax return.  This is similar to how insurance proceeds reduce the amount of casualty allowed to be deducted.  If no casualty loss is claimed on federal and state income tax returns, then the financial assistance is not reported on the federal and state return.

For example, $10,000 of Jumpstart assistance received in 2008 for a $40,000 casualty loss results in only $30,000 allowed as a casualty loss on the federal and Iowa 2008 tax returns.  If Jumpstart assistance was not received until 2009, the $40,000 casualty loss can be deducted on the 2008 federal and Iowa return, and the $10,000 must be reported as a recovery of a previous deduction on the 2009 federal and Iowa returns.

If taxpayers reported a net loss on their 2008 Iowa returns due to a disaster loss, these taxpayers have two options.  Taxpayers may elect to carry back the loss to prior tax periods and receive a refund of Iowa taxes paid for prior years.  This can be done by filing amended Iowa tax returns for periods prior to 2008.  In the alternative, the net loss may be carried forward to offset income for 2009 and subsequent tax periods. 

Questions about Iowa tax law may be directed to Iowa Taxpayer Services at 1-800-367-3388 or idr@iowa.gov.

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