• Property damaged by Hurricane Katrina qualified for IRS tax relief.after katrina image by Elly from Fotolia.com
  
  In the United States, the Internal Revenue Service is responsible for collecting taxes for the government. While the IRS may be willing to negotiate payment plans for delinquent taxpayers, tax relief is only offered for certain types of discharged debt and disaster situations.
  
  

Foreclosure

• The Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) permits taxpayers to exclude up to $1 million in forgiven debt if the taxpayer's cost basis in the home is reduced. Before 2007, forgiven mortgage debt was considered to be income. If a bank forgives all debt owed after a property foreclosure, the IRS will not tax the forgiven debt.
  
  

Debt Cancellation

• With credit card debts, the IRS rules that any forgiven money is taxable. Tax relief is only provided through bankruptcy, farm debt, non-recourse loans or insolvency. Debtors are considered insolvent if their total debts outnumber the value of their assets. The IRS allows either partial or full relief from income tax for insolvent debtors.
  
  Farm debt cancellations qualify for tax relief if more than half of an individual's income came from a farm in the past three years. Non-recourse loans are loans where the lender cannot come after the borrower's personal assets to recoup their money. Defaulting on a non-recourse loan, which is then forgiven, is not considered to be taxable. If an individual declares bankruptcy, most tax debts will be discharged.
  
  

Disaster and Theft

• The IRS allows for tax relief if a flood, hurricane, fire, earthquake, tornado, or volcano results in damage to commercial or personal property. Theft also qualifies for property tax relief. The fair market value of damaged property may be written off on your income taxes. Damaged property for personal use requires a reduction of $100 from the entire damages. Only damage amounts totaling more than 10 percent of adjusted gross income can be claimed as an itemized deduction. Disaster and theft damages may be deducted the year that property was damaged or stolen.
  
  

Federal Disasters

• The National Disaster Relief Act of 2008 (NDRA) provides increased tax relief for Americans who suffer damages from a federal disaster. Recent events qualifying for tax relief in 2010 include Hurricane Alex in Texas and severe storms and floods in Kentucky and West Virginia. For federally declared emergencies, there is no income requirement to itemize losses. Total losses must be reduced by $100. Special laws may be passed to provide increased tax relief to property owners. The Heartland Disaster Tax Relief of 2008 provided tax relief for property damaged by Midwest flooding in 2008. This act eliminated the $100 loss reduction.