While government continues to make the tax code seemingly impossible for the average citizen to understand, homeowners continue to discover how to manipulate exemptions and deductions to leverage their home investment. One 2007 tax law change, that I’ll bet few take advantage of is the catastrophe savings account deduction.
Kiawah and Seabrook residents are all too familiar with the outrageous expense of homeowners insurance (sometimes not even available), earthquake insurance, flood insurance, and wind and hail insurance. Many of my neighbors on Seabrook are surely “flying naked”, (no insurance) as a result of this enormous expense and difficulty to find a reasonable underwriter.
Under this never publicized tax deduction is the ability for homeowners to set aside money, intended to cover the insurance deductible, in a saving account and take a tax deduction in that amount. Insured homeowners can deduct up to their deductible amount or $15,000, whichever comes first. The vaguely written code only requires that you label the account catastrophe fund to be eligible. If you use it for insurance expenses or leave it there until you’re seventy- (or dead) it’s not taxable! And for those with no insurance- you can set aside up to $250,000 and get a deduction.
This is a great benefit to outer island homeowners. I am always reminded of the impending damage potential of living so close to the ocean, when my children and I take our sunset walks to the beach on the golf cart path of Fairway One and one of my neighbors keeps his storm shutters in the back of his house hung all year round. I always wonder… Why does that guy impede his view of the ocean course with those bulky storm shutters?? But I’ll bet he remembers what happened in 1989.
I don’t recommend that everyone should be “that guy”, but good insurance is a must. The next hurricane is eventually inevitable and this tax break is a really smart option for local homeowners. – Shawn Pillion