Rental House in Katrina area

[oceanlovin'ea]

Client lost rental home in Mississippi during Hurricane Katrina. We are just now doing 2006 tax return.

He is still rebuilding the rental property. How do I deduct mortgage interest and real estate taxes on this property?

Thanks Linda F

[Bees Knees]

Not just for Katrina victims, but any rental activity that has a casualty loss can continue to deduct current operating expenses on Schedule E, including interest and taxes, even though there is no rental income. As long as the property is put up for rent as soon as it is ready. The Katrina law also allows you to treat 50% of the demolition and clean-up costs as current expenses rather than capital costs.

[oceanlovin'ea]

Strange turn of events

That is what I thought, but just wanted to hear it from someone else.

This is an older couple. He just retired a couple of years ago and she is on disability. They applied for FEMA help to rebuild and when they went in to sign the papers, the girls in the office handed them a stack of papers an inch or 2 thick to sign. They told them just to sign the papers, it would take them a day to read all those papers and it was time for the office to close. THey didn't want to sign without looking over the papers but felt coerced into doing it. About 2 or 3 months ago, this man was sitting at his desk in his little camper on the property and 2 men walked into his trailer. One sat down on each side of him and identified themselves as FBI agents. They asked if this was his signature. He siad it was. They are charging him and his wife with Fraud. The paper they were asking about that he signed said that the property was their personal residence. They had several charges against them and a stack of penalties. He tried to explain but they wouldn't listen.
They hired a lawyer who has gotten the charges reduced to 2 counts against him and 1 against his wife. He has the money from FEMA that he is willing to repay but they don't want the money. They want to put him in jail.
The government is asking for an accounting of all the money they spend each month to the penny. Then the document states that if this is not completely accurate they will be charged with perjury or fraud again. They are so distraught.
Has anyone else heard of such cases?

[Chief]

Fraud Case

No, I have not heard about such a case. It seems to me that this couple need competent legal counsel.

[oceanlovin'ea]

They do

They have an attorney up there. He has gotten the counts reduced to 2 for him and 1 for her. But the penalties and fines are still there.They attorney is also a night court judge so they feel he knows what he is doing.

I just feel so sorry for them. It was so intimidating to have those 2 FBI men come in and scare you to death.

I think the trial date is next month.

[jimmcg]

I realize hindsight is 20/20 but maybe they should have been represented by an attorney present when the FBI first showed up. Their first clue should have been when they saw the letters "FBI" on the gold badges.

[veritas]

Love big government

Thought the FBI was all busy with terrorism. At least that's what they have said several times when asked why they were not pursuing other crimes.