| Casualty Losses can be tax deductions.
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| | releasing process. A careful analysis by
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| Casualty Loss Can Generate Massive Tax
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| | an appraiser might show the improvements
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| DeductionsA casualty loss may occur as a
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| | have no value after the flood. In
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| result of a flood, hurricane, tornado,
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| | appraisal assignments performed by the
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| mudslide or other natural disaster. The
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| | writer, a casualty loss of 10-30% of the
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| intuitive thought pattern is: "My
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| | market value before the casualty has
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| apartment complex worth $5,000,000
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| | occurred (in a straight-forward,
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| suffered major damage totaling $1,500,000
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| | defensible analysis) is typical. This can
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| for repairs and rent loss. Fortunately, I
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| | generate a meaningful casualty loss (and
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| was completely covered for both physical
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| | tax deduction). For example, a property
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| damage and rent loss, other than a small
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| | with a market value of $5,000,000 suffers
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| deductible. There is clearly no casualty
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| | a 30% casualty loss. While the casualty
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| loss I can claim as a tax deduction,
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| | is a serious hardship for the owners, the
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| right?"
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| | $1,500,000 ($5,000,000 X 30%) tax
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| Tax deductions are the basis for tax
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| | deduction will mitigate the financial
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| reduction. Tax deductions reduce taxable
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| | loss. Congress provided a casualty loss
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| income but do not directly reduce federal
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| | tax deduction to encourage investment in
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| income taxes. For example, $100,000 of
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| | real estate. If you have the misfortune
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| tax deductions reduces federal income
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| | to suffer a casualty loss, take the
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| taxes by $35,000 ($100,000 X 35%),
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| | helping hand offered by congress and take
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| assuming a 35% tax rate. Most tax
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| | the tax deduction. Click here for a FREE
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| deductions require a cash expenditure
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| | preliminary analysis of income tax
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| (labor, material, supplies, utilities,
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| | savings for your property. Cost
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| etc). A current period cash expenditure
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| | segregation produces tax deductions and
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| is not required for some real estate tax
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| | reduces federal income taxes across the
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| deductions and may not be required for a
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| | country and in every size market. Below
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| casualty loss. Most real estate owners
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| | are just a few examples of cities where
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| and investors do not consider casualty
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| | cost segregation generates meaningful tax
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| losses as a source of tax deductions. Few
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| | deductions. City:
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| investors claim the casualty loss tax
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| | - Memphis, TN
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| deduction the federal income tax code
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| | - San Francisco, CA
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| allows them. Let's review the criteria
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| | - New Orleans, LA
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| for a casualty loss tax deduction and the
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| | - New York, NY
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| thought process regarding acquisition of
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| | - Hartford, CT
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| a property that has suffered a casualty.
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| | - Las Vegas, NV
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| Real estate owners suffer a casualty loss
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| | - Los Angeles, CA
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| when the market value immediately after
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| | - Atlanta, GA
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| the casualty plus insurance proceeds is
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| | - Orlando, FL
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| less than the market value immediately
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| | - Miami, FL
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| before the casualty. The complex issue is
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| | - Louisville, KY
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| how to value the property immediately
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| | - Salt Lake City, UT
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| after the casualty. Let's consider a
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| | - Boise, ID
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| 1-story suburban office park in
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| | - Lakeland, FL
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| Mississippi which suffered 3-feet of
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| | - Wichita, KS
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| flooding due to Hurricane Katrina. Let's
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| | - McAllen, TX
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| further assume: 1) 8 feet of sheet rock
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| | - Columbus, OH
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| must be replaced in the entire property
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| | - Ft. Lauderdale, FL
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| to rebuild, 2) although the property was
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| | - San Antonio, TX
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| 90% occupied before the flood, occupancy
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| | - Durham, NC
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| is expected to only be 5% while
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| | - Allentown, PA
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| rebuilding occurs, 3) stabilized
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| | - Youngstown, OH
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| occupancy after renovation is not clear
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| | - Little Rock, AR
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| since some businesses may not return, 4)
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| | - Greensboro, NC
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| construction will take 12-18 months due
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| | - Greenville, SC
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| to the labor constraints and 5) the owner
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| | - Kansas City, MO
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| has casualty insurance to rebuild but did
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| | - Raleigh, NC
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| not have rent loss/business interruption
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| | - San Jose, CA
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| insurance. It is clear the market value
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| | - Palm Bay, FL
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| after the casualty is less than the
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| | - Honolulu, HI Cost segregation produces
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| market value before the casualty less
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| | tax deductions for virtually all property
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| construction costs. Other factors to
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| | types, including the following: Property
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| consider are: rent loss, market risk that
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| | Type:
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| not enough tenants will be available
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| | - Regional mall
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| after construction is completed, cost of
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| | - Service station
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| construction management, a illiquid
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| | - Drugstore
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| market with few buyers just after the
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| | - Night club
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| casualty, construction risk, interest
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| | - Supermarket
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| rate risk (rates could rise during the
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| | - Racket club
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| construction period negatively affecting
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| | - Auto service garage
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| value), risk that operating expenses
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| | - Airplane hangar
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| could increase during the construction
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| | - Nursing home
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| period (perhaps insurance) and
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| | - Subsidized housing Almost every
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| compensation for entrepreneurial effort
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| | industry, including the following, can
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| to induce a buyer to coordinate labor
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| | generate cost-efficient tax deductions by
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| capital, management and compensation for
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| | using cost segregation.
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| capital during the reconstruction and
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