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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.

Article Source: ArticlesBase.com - Casualty Loss

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Any California trial litigation attorney can tell you, whether he or she practices in Indian Wells, Palm Springs or Palm Desert, San Diego, California, Orange County, CA, La Jolla, Del Mar, Laguna Beach, Newport Beach, Corona del Mar, Huntington Beach, Irvine, Santa Ana, Irvine, Ventura, Santa Barbara and San Luis Obispo, Ontario, Rancho Cucamonga, Temecula, Riverside, San Bernardino, the Coachella Valley, CA, La Quinta, Indio, Yucca Valley, or Joshua Tree, depositions can make or break your case. A good defense attorney can make even the calmest deponent nervous. And then there are some deponents who can drive a litigation lawyer nuts.

Many times, clients want to know how to answer deposition questions. First of all, I tell my clients to answer truthfully. Then I advise clients not to watch how politicians answer questions. This is what can happen if a client ignores that advice.

"You said to the policeman investigating the scene of the accident that you weren't wearing a seat belt yet today you state that you were wearing one," the defense attorney stated to my client.

My client smiled sweetly at the news commentator, just like Sarah Palin did to Charles Gibson in her first television interview.

"Would you care to explain this discrepancy?" the attorney asked. The attorney had introduced himself as Charles Johnson.

"Well, Charlie, I believe everyone should wear seat belts when they are in a car.

"Okay, but can you explain why you told the police officer at the scene that you weren't wearing a seat belt?"

My client smiled sweetly again, giving the attorney her best impression of a political candidate.

"Charles, I believe in a woman's choice, however I feel even more strongly about the sanctity of life."

"You're not going to answer the question, is that what you're saying?" the attorney asked, looking over his own eyeglasses.

"Well, I really think that there are much bigger issues to discuss," the client answered, putting the attorney on the defensive.

"Don't you think it's important for us to know if what you say now is different from what you said earlier?"

My client looked directly at the attorney. "Charlie, I believe what is important here is that your client ran a red light."

"Lets move on to the fact that you claim you never had a back injury before this accident.. How do you reconcile that with your treatment for back pain prior to this accident?"

"Charlie, as you know, you can have a visit to a doctor without it being for an injury. I have to say this type of questioning borders on being sexist."

"Did you or didn't you have treatment for a back condition prior to this accident?" the attorney said, raising his voice.

"It's not what you go to for a doctor, it's what the doctor does for you, Charles, and when you realize that women are different from men, you'll learn that women doctors do things differently than male doctors."

"You're refusing to answer my questions."

"I've answered all of your questions," my client said.

"No," the attorney said. "All you've done is give me stock answers to the questions you want me to give and not answer the questions I'm asking." The opposing attorney turned to me and realized I hadn't made a single objection.

"Please, ask me your question, and I'll be as honest as I can."

"Is it true that this has been your third accident this year and that each time you've been rear ended."

My client smiled and the attorney asking the questions knew he would not be getting an answer to this one that he could use.

"I believe that God has a plan for each of us and sometimes he tests our resolve."

"That's your answer?" the attorney asked. "You might as well be speaking in tongues right now."

"God has a plan for all of us, Charles, even for you," my client said.

"If it's to drive us nuts, it's working," the attorney said. "I'll give you one last chance to answer a question. Did you cause this accident?"

"Charles, what may be interpreted as a cause could sometimes be otherwise viewed as simply trying to avoid the, you know, impossibly difficult or, trying to prevent that kind of thing, then again, even when you are driving carefully, these accidents...and this could be viewed as one of those situations. Does that answer your question?"

Two hours later when the deposition had ended, the attorney was looking frazzled.

"How did I do?" my client asked me after the deposition was over.

I smiled sweetly like any good politician. "It's not how well you did," I said. "It's how many psychiatric treatments that attorney is going to need before he is able to attempt another deposition."

Note - In California, refusing to answer questions can lead to having a motion filed against the party who refuses to answer deposition questions, and an imposition of a fine against the deponent or attorney who abuses the discovery process. Sadly, many deponents and attorneys in California abuse the deposition process when they think the other party's attorney won't take the time to file a motion to compel. An attempt to evade questions as a politician often does, or answering with stock answers instead of providing answers responsive to the questions is clearly improper. And politicians who answer questions in this manner are not setting a good example. On the other hand, some of Sarah Palin's answers to questions put to her by Katie Couric, similar to this deponent's last answer, were so incomprehensible it is hard to know how a judge might view answers such as hers.

Sebastian Gibson graduated cum laude at UCLA in 1972 and received two law degrees in the U.S. and the U.K., graduating with an LL.B. magna cum laude from University College, Cardiff in Wales and a J.D. from the University of San Diego School of Law in Southern California.

The Sebastian Gibson Law Firm serves all of San Diego, Orange County, Palm Springs and Palm Desert, the Coastal Cities from La Jolla and Del Mar to Laguna Beach, Newport Beach, Irvine, Santa Ana and Irvine and up to Ventura, Santa Barbara and San Luis Obispo. We also serve the Inland Empire cities of Ontario, Rancho Cucamonga, Temecula, Riverside and San Bernardino and all the cities in the Coachella Valley

If you are involved or need legal defense in any kind of litigation anywhere in Southern California, including personal injury, wrongful death, insurance, business, copyright, trademark, advertising, corporate, entertainment, environmental, media, broadcast, constitutional, real estate, civil, privacy rights, contract, agricultural, international, maritime, education, election, probate, civil rights, employment or discrimination, state or federal, we invite you to visit our website by clicking on one of these two links. We have the knowledge and resources to represent you as your Palm Desert Litigation Attorney and Newport Beach Litigation Lawyer in Malibu, Hollywood, Los Angeles, Pacific Palisades, Ontario, Rancho Cucamonga, San Diego, Orange County, Palm Springs, Palm Desert, Long Beach, Santa Ana, Anaheim, Riverside, Rancho Mirage, Indian Wells, Chula Vista, Irvine, San Bernardino, Huntington Beach, Fontana, Moreno Valley, Oceanside, Garden Grove, Palmdale, Corona, Escondido, Orange, Fullerton, Costa Mesa, Victorville, Carlsbad, Temecula, Murrieta, Mission Viejo, El Cajon, Vista, Westminster, Santa Monica, Santa Barbara, Venice, Hollywood, Hesperia, Corona del Mar, Laguna Beach, Dana Point, Costa Mesa, Newport Beach, Buena Park, Indio, Coachella, Newport Coast and Crystal Cove.