[StBernard] Road Home advice fast

[Westley Annis]

J

Regarding your question of taxes on your Road Home funds, here are the 
facts.  The Road Home award will be taxable only to the extent that you 
claimed a casualty loss deduction related to Katrina your any previous tax 
returns.

The logic here is simple.  You had the benefit of reducing your taxable 
income by the amount of the financial loss you incurred due to the storm. 
This cut the taxes you paid by the amount of your loss times your income tax

bracket.  If you were in the 15% bracket and had a loss of $50,000, you 
reduced your taxes by $7,500.

If subsequently, you receive funds that in essence reduce the financial loss

you incurred, you should pay the tax on the amount by which your loss is 
reduced.  If you receive $125,000 from Road Home to reimburse you for your 
casualty losses (plus some), then at the end of the day, you suffered no 
loss.  If you didn't suffer a loss, you are not entitled to the tax savings 
you took earlier and simply need to pay it back.

As for your thoughts of not taking the award so you don't have to pay taxes 
on it, that doesn't make any sense. First off, I believe (and I am not a 
CPA-check with one) that what's taxable is limited to the amount you claimed

as a casualty loss.  In the case where you had taken a $50,000 casualty loss

and received $125,000 in Road Home award, only $50,000 of the award would be

taxable.  Assuming you had to pay back the $7,500 you saved in taxes, you'd 
still be ahead $117,500.  To pass up $117,500 so you don't have to pay 
$7,500 in taxes doesn't make sense.

It sounds to me like you have a cash flow problem. It sounds like you took 
the tax savings and spent it (probably to keep you head above water) and 
also took out an SBA loan.  The SBA's going to get your Road Home award and 
you won't have the funds to pay back the taxes you saved earlier.   The good

news is that the amount you owe the SBA will be reduced by the amount of 
your Road Home award. The bad news is that you will have to come out of 
pocket with the funds to pay the taxes.

The SBA will recalculate your payment if you pay down a large amount of your

loan.  Have you considered 1) taking out a loan to pay the taxes you owe, 
and 2) repaying the loan using the funds you save by having your monthly 
note reduced?  Paying down your SBA loan by $125,000 should reduce your note

by about $500 a month.  You do the math to figure out how many $500 monthly 
payments it will take to pay off the loan you used to pay your taxes.  I 
suspect you'll have the loan paid off in less than a year.

The bottom line is that everyone's situation is unique.  My recommendation 
is that you consult with a qualified tax professional before turning down 
the award.

Paul


> -----------------------------------------------------

> I have a Road Home question that I know someone from the List can help me

> with.  I need a "fact" not "I think"  --

> If I'm receiving Road Home money but I have a SBA loan the money goes to 

> the

> SBA, correct?   Does this mean I will have to pay the taxes at the end of

> the year out of my pocket?  If I do, I may be the first person to tell the

> Road Home no thank you, keep your money because I will have to pay 35% of

> $125,000.00 out of my own pocket.  And less not forget the social security

> taxes I will have to pay on that.  Oh this is getting worse.  I need 

> honest

> advice from someone that knows the facts.

>

>

> Trying to go back home

>

> J