By April 2006 the way to any tax relief for your uninsured losses was to claim a casualty loss deduction on your 2005 income tax. Individuals who took this option were confronted with a problematic IRS decision in 2008. The IRS ruled that if you took a casualty loss deduction and subsequently received a grant (Road Home, etc.) that the grant would have to be treated as taxable income.

For many this worked out badly. The deduction in 2006 resulted in less tax savings than the increase in income reported in 2008. Amending the 2005 return was for some reason not an option and Congress got involved.

As of April 2008 the Congress is working on a bill that would allow amendment of the 2005 return. Tax payers would be able to remove the casualty loss deduction paying back the difference plus one year of interest. In return the grant would be tax free. If you accept the proposal that a casualty loss should reduce the taxpayers burden, this proposal sounds fair.