Restore Louisiana Grant Tax implications

The whole point of the grants is to help assist with uninsured losses. In theory, as long as the total amount rec'd (from insurance, FEMA, and things like Restore LA) don't exceed the amount of your damage, nothing will be taxable.

Now, if you deducted your losses already on a tax return (say for 2016) and you later on receive a grant, the grant would be taxable, because you deducted a loss that in the end, you were reimbursed for.

As I mentioned above, the problem is going to be if you deducted losses in one year, and then were repaid for some of those losses in another year.

Let's say your total losses were 100K and you had 20K in insurance, and you deducted 80K on your 2016 return (assuming no other limitation issues... this is super simplified).

Now in 2017, you got a grant for 50K. That 50K grant is taxable, because you deducted that 50K (in addition to another 30K). In the end, you still have a 30K tax loss.

Now, let's say your 2016 return is on extension, and you are now getting that 50K grant. I would only deduct 30K in losses on your 2016 return (100K loss less 20K insurance less 50K grant). Then, in 2017, none of that 50K grant is taxable.

The issue is recoveries - essentially if you deduct a loss in one year that you are made up for in another year, you have to pick up the recovery in income.

quote:

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I just received an email from the person handling the case for me and she said grant awards are not taxable.

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They definitely should not be telling people this.