Homes For Rent In Memphis Tn
Casualty Loss
Casualty Loss Can Generate Massive Tax DeductionsA casualty loss may occur as a result of a flood, hurricane, tornado, mudslide or other natural disaster. The intuitive thought pattern is: “My apartment complex worth $5,000,000 suffered major damage totaling $1,500,000 for repairs and rent loss. Fortunately, I was completely covered for both physical damage and rent loss, other than a small deductible. There is clearly no casualty loss I can claim as a tax deduction, right?”
Tax deductions are the basis for tax reduction. Tax deductions reduce taxable income but do not directly reduce federal income taxes. For example, $100,000 of tax deductions reduces federal income taxes by $35,000 ($100,000 X 35%), assuming a 35% tax rate. Most tax deductions require a cash expenditure (labor, material, supplies, utilities, etc). A current period cash expenditure is not required for some real estate tax deductions and may not be required for a casualty loss. Most real estate owners and investors do not consider casualty losses as a source of tax deductions. Few investors claim the casualty loss tax deduction the federal income tax code allows them. Let’s review the criteria for a casualty loss tax deduction and the thought process regarding acquisition of a property that has suffered a casualty. Real estate owners suffer a casualty loss when the market value immediately after the casualty plus insurance proceeds is less than the market value immediately before the casualty. The complex issue is how to value the property immediately after the casualty. Let’s consider a 1-story suburban office park in Mississippi which suffered 3-feet of flooding due to Hurricane Katrina. Let’s further assume: 1) 8 feet of sheet rock must be replaced in the entire property to rebuild, 2) although the property was 90% occupied before the flood, occupancy is expected to only be 5% while rebuilding occurs, 3) stabilized occupancy after renovation is not clear since some businesses may not return, 4) construction will take 12-18 months due to the labor constraints and 5) the owner has casualty insurance to rebuild but did not have rent loss/business interruption insurance. It is clear the market value after the casualty is less than the market value before the casualty less construction costs. Other factors to consider are: rent loss, market risk that not enough tenants will be available after construction is completed, cost of construction management, a illiquid market with few buyers just after the casualty, construction risk, interest rate risk (rates could rise during the construction period negatively affecting value), risk that operating expenses could increase during the construction period (perhaps insurance) and compensation for entrepreneurial effort to induce a buyer to coordinate labor capital, management and compensation for capital during the reconstruction and releasing process. A careful analysis by an appraiser might show the improvements have no value after the flood. In appraisal assignments performed by the writer, a casualty loss of 10-30% of the market value before the casualty has occurred (in a straight-forward, defensible analysis) is typical. This can generate a meaningful casualty loss (and tax deduction). For example, a property with a market value of $5,000,000 suffers a 30% casualty loss. While the casualty is a serious hardship for the owners, the $1,500,000 ($5,000,000 X 30%) tax deduction will mitigate the financial loss. Congress provided a casualty loss tax deduction to encourage investment in real estate. If you have the misfortune to suffer a casualty loss, take the helping hand offered by congress and take the tax deduction. Click here for a FREE preliminary analysis of income tax savings for your property. Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of cities where cost segregation generates meaningful tax deductions. City:
- Memphis, TN
- San Francisco, CA
- New Orleans, LA
- New York, NY
- Hartford, CT
- Las Vegas, NV
- Los Angeles, CA
- Atlanta, GA
- Orlando, FL
- Miami, FL
- Louisville, KY
- Salt Lake City, UT
- Boise, ID
- Lakeland, FL
- Wichita, KS
- McAllen, TX
- Columbus, OH
- Ft. Lauderdale, FL
- San Antonio, TX
- Durham, NC
- Allentown, PA
- Youngstown, OH
- Little Rock, AR
- Greensboro, NC
- Greenville, SC
- Kansas City, MO
- Raleigh, NC
- San Jose, CA
- Palm Bay, FL
- Honolulu, HI
Cost segregation produces tax deductions for virtually all property types, including the following:
Property Type:
- Regional mall
- Service station
- Drugstore
- Night club
- Supermarket
- Racket club
- Auto service garage
- Airplane hangar
- Nursing home
- Subsidized housing
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Nondurable good wholesalers
- Durable good wholesalers
- Day care facilities
- Computer and electronic manufacturing
- Health care facilities
- Chemical manufacturing
- Printing activities
- Warehousing and storage
- Electronic and appliance stores
- Apparel manufacturing
O’Connor & Associates is a national provider of commercial property real estate consulting services including cost segregation studies, due diligence,
income tax
, abandonment studies, business personal property valuations, commercial appraisals,
feasibility studies
, highest and best use analyses, and lease audits.
Our services benefit owners of all commercial property types including multi-family housing, retail stores, hospitals, hotels, industrial properties, manufacturing facilities, medical offices, commercial offices, restaurants, self-storage units, shopping malls, shopping plazas and warehouse/distribution centers.
About the Author
Patrick C. O’Connor has been president of O’Connor & Associates since 1983 and is a recipient of the prestigious MAI designation from the Appraisal Institute. He is also a registered senior property tax consultant in the state of Texas and has written numerous articles in state and national publications on reducing property taxes. He continues to set the standard in direction and quality of our appraisal products, adding services ranging from business valuations and business appraisals to cost segregation analysis for income tax reduction.
Rent VS Buy –How do those Mortgage companies work?
My fiance and I are trying to decide what we need to do. I’m curious how those Mortgage Companies work. Our credit isn’t exactly perfect, it’s decent though. Currently, for the past 9 months we’ve been renting a 1 BR apartment for $780/month. We’re wanting a house. Renting a house in a decent area will be between $850-1000/month– which is a house payment! It just seems to be a waste to rent. What do the mortgage companies consider when deciding to finance you? I’m just starting out in my career, but combined my fiance and I make just under $75K/year. We also wouldn’t have a down payment but I see all the time homes with 100% financing. What are our chances of getting approved? We’re going to look at a house tomorrow – 1600 sq ft that is listed for $122k here in the Memphis, TN area. And is there something we need to watch out for when speaking with Mortgage Companies?
I am a Realtor Honestly, you should probably get with a Realtor and tell him what you are looking for. I say this because an area specialist will help you in purchasing the property. Rather than paying $10,000.00 over the price, the Realtor should know better and lead you in a way that you get the most for your money. Now every Realtor is not honest so see if there is someone that you trust. If they have used a Realtor and they recommend them, go with it. The realtor should be able to guide you through every step. If you can’t find one, I know a good one in the area.
landstonegsl@yahoo.com
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