About that tax reward for Katrina hosts

Someone who reads this space pretty regularly asked last night if rumors were true that anyone who sheltered Katrina/Rita victims would qualify for a $500 tax deduction in 2005. Actually, what he's heard is about half true. The situation is probably worth clarifying here, since we've generically noted the passage of the new tax relief bill containing the provision, but we haven't yet gotten into these particular details.

So:

What we've got in the law so far is a $500 exemption from taxable income, and it's for Katrina only -- apparently not Rita -- and it's written to reward small-scale personal charity. Taxpayers who house Katrina "displaced individuals" other than their own spouse or dependents during the 2005 or 2006 tax year, "in the principal residence of the taxpayer for a period of 60 consecutive days which ends in such taxable year," can take $500 per person, up to $2,000 total, off their taxable income. Accepting any rent for the housing blocks the exemption, regardless of who pays the money. It's in Sec. 302 of the tax relief bill that has already passed, HR 3768, which is now Public Law 109-73. Official versions of the new law should soon appear here and here, but for the time being, click on "Text of Legislation" and go to the "Enrolled" version of the law.

This is in other words not a tax reward for housing businesses that have acted charitably, although it might from a distance have looked like one. Otherwise in HR 3768, housing professionals may wish to note Sec. 404 on special rules for mortgage revenue bonds and Sec. 405 on nonrecognition of gain. However, there's really not much for apartment landlords who have been kind about waiving or deferring rent.