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Katrina bonus???
Old 10-10-2005, 03:59 PM   #1
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Katrina bonus???

Hmmm

So - single - est 2005 income below 29k(before Katrina) aka 15% bracket.

With a disaster loss of 100k(still calculating) - I can do a 100k Roth conversion before 12/31/2005 and still be in the low bracket - aka still 29k - because my 100k disaster loss negates my Roth tax liability.

Right? Starting to research this one.

Any other thoughts about making lemonade?

Heh heh heh
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Re: Katrina bonus???
Old 10-10-2005, 04:15 PM   #2
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Re: Katrina bonus???

UncleMick,
Here's to intestinal fortitude and lemonade making. Taxwise, on first glance it seems like it should work, and its just a shame you had to get your Roth Conversion that way. Are they the same 'types' of income? (disaster loss and IRA/regular income) to offset each other? Will there be any special Katrina-related tax benefits that can make a difference?

Finally, after the tax stuff is done and the damage calculated, can you somehow salvage back the bulk of your lifestyle and property use with repairs and reconstruction that could cost less?

If so you may be able to come outta this thing with a bit more silver lining.

Hang in there
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Re: Katrina bonus???
Old 10-10-2005, 05:07 PM   #3
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Re: Katrina bonus???

Sorry I don't have anything to contribute, but would like to hear how the Roth conversion idea turns out.

I wonder if it will be easier to get free advice from the IRS, as a Katrina victim.
I believe they're supposed to give free advice to everyone, actually. Not sure of the quality of the advice.

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Re: Katrina bonus???
Old 10-10-2005, 05:22 PM   #4
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Re: Katrina bonus???

The IRS will give advise but, if they are wrong you do not have any recourse to them.
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Re: Katrina bonus???
Old 10-10-2005, 06:45 PM   #5
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Re: Katrina bonus???

UncleMick, the publication that addresses your issue is 547. http://www.irs.gov/publications/p547/index.html

Look closest at the sections on figuring your loss and deduction limits. There are several rules that will limit the amount of losses you can deduct. For example, if the adjusted basis in your property is far less that its value before destruction, you are limited to the lesser amount in figuring your deduction. There are also loss limits (for example, $100 of the loss isn't deductible and losses are deductible only to extent they exceed 10% of your AGI).

Once you get through these hurdles to figure your loss, you should be good in converting your IRA to a ROTH with the now lower tax bracket. \

EDIT: To clarify a little more, conversions to Roths from traditional IRAs are treated as ordinary income and you can deduct casualty losses against ordinary income, subject to the limits in pub 547.
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Re: Katrina bonus???
Old 10-10-2005, 06:56 PM   #6
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Re: Katrina bonus???

Quote:
Originally Posted by dex
The IRS will give advise but, if they are wrong you do not have any recourse to them.
Yep. The only time you can rely on the IRS is if you get a private letter ruling.
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Re: Katrina bonus???
Old 10-11-2005, 12:45 AM   #7
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Re: Katrina bonus???

Quote:
Originally Posted by Martha
Yep. The only time you can rely on the IRS is if you get a private letter ruling.
Martha is correct.
Several years ago I went to my local regional IRS office
to fine an answer about my late father's IRA. As it
rolled over to my mother,she wanted to know if the
withdraw rate would still be under my father life-
expectency, or now hers. I told her it would now be under hers, as I rememberd reading an article from
Kiplingers a few months earlier. We received three
different answers from the IRS, before the" top" agent
agreed (after she called the head office) that it would
be at her lifespan. I left there with my head shaking.

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