Posted on Sat, Apr. 05, 2008

-- Several readers have asked questions about their federal income tax and the Mississippi Development Authority grants.

Here's one frequently asked question and the IRS's answer about how to handle a grant received in a subsequent tax year:

Q: A taxpayer affected by a disaster timely filed a federal income tax return for the taxable year the disaster occurred and did not claim a casualty loss deduction on that return. May the taxpayer wait until a later year and amend the original return to claim a casualty loss deduction reduced by insurance and other reimbursements received in subsequent years?

A: A taxpayer may claim a casualty loss deduction for the first time on an amended original return as long as the amended return is timely filed. That casualty loss must be reduced by insurance and other reimbursements.

If a taxpayer properly claimed a casualty loss deduction on an original return and in a later year receives reimbursement for the loss, the taxpayer does not amend the original return but reports the amount of the reimbursement in gross income in the tax year it is received to the extent the casualty loss deduction reduced the taxpayer's income tax in the tax year in which the taxpayer reported the casualty loss deduction.

See pages 5-7 of Publication 547, Casualties, Disasters & Thefts, in the section titled "Insurance and Other Reimbursements,"or visit irs.gov.