BATON ROUGE, La. -- Tax relief for homeowners who paid higher bills because they received hurricane damage grants appears likely now that President Bush has dropped his opposition to a wide-ranging housing bill that includes the provision.

Thousands have paid increased taxes because they received Road Home grants of up to $150,000 while also claiming casualty losses from hurricanes Katrina or Rita in 2005.

The IRS considered the grants a duplication of the 2005 tax break. The agency required people who received a grant and took a casualty loss deduction to add the value of the deduction to their 2007 tax returns as taxable income. The same requirement also applied to people who received grants through Mississippi's post-Katrina housing assistance program.

Besides having to pay higher bills for 2007, the IRS decision also pushed some people into a higher brackets that required them to pay more taxes on all income.

A provision added to a federal housing package -- which could become law as early as this week -- will allow taxpayers to amend their 2005 tax returns to remove the casualty loss deduction without interest or penalties.

Bush had opposed a portion of the housing bill, but the White House says he won't veto the measure. Louisiana Senator Mary Landrieu praised the announcement. Her office says it's unclear how many people may be helped because it's unknown how many took both a casualty loss and received a grant.

(Copyright 2008 by The Associated Press. All Rights Reserved.)