Middle Class Needs Help, Too : Berman’s disaster deductibility proposal is worth a good, long look

Are your out-of-pocket expenses for earthquake repairs running into thousands of dollars? Tallying up those expenses is even more depressing considering that under current tax law, deductions for unreimbursed casualty losses are very limited. Should losses stemming from unusual special circumstances such as the Northridge earthquake and other federally declared national disasters be 100% deductible? It’s an idea worth exploring.

Current law allows taxpayers to deduct only a portion of unreimbursed casualty losses. Only losses exceeding 10% of adjusted gross income plus $100 can be deducted on federal income taxes. For example, if your adjusted gross income is $50,000, the 10% threshold is $5,000. If you incurred earthquake damage totaling $10,000 (after subtracting insurance and other reimbursements), only $5,000 can be deducted--and you’re still more than $5,000 in the hole.

Rep. Howard L. Berman (D-Panorama City) has introduced legislation to eliminate that 10% threshold for victims of declared national disasters such as earthquakes, freezes or floods. The legislation, which is drawing bipartisan support from California members of the U.S. House, would be applicable to losses on declared disasters occurring on or after last Jan. 17, the day of the Northridge earthquake.

Such an amending of the Internal Revenue Code to apply to very specific emergency situations would provide some relief to middle-class families. These families’ losses are straining household ledgers, but they are either ineligible or did not suffer enough damage to qualify for assistance from the Federal Emergency Management Agency, grants from the Housing and Urban Development Department and other loan and federal relief programs.

What would this change cost? Berman has submitted his bill to the Joint Tax Committee to assess the dollar impact. That finding should be available soon.

Surely the tax break would be tolerable and infrequently applied, though it may not seem so lately with the string of natural disasters across the nation such as earthquakes and floods. But families hit by such disasters take a disproportionate hit on their household budgets from which it may take years to recover. Providing some tax relief would lessen a blow that could otherwise prove crippling.

Emergency situations require special responses. The middle class, although usually fortunate enough to have the resources to rebuild, needs help too.