Hurricane Harvey Property and Federal Tax Refund Program
Owners of property that flooded in Texas are eligible for substantial property casualty loss tax deduction, typically for 10% – 30% of the value of the property before the flood.
The only limit is you can’t deduct more than your remaining basis.
However, your deduction can be much larger than your equity in the property.
Yet only one or two percent of those eligible take the deduction.
The Hurricane Harvey Federal Tax Reduction Program is here to help you reduce both your property taxes and federal taxes after such a devastating disaster.
A property casualty loss may occur as a result of a flood, hurricane, tornado, mudslide, or other natural disaster. Property owners that suffer such a loss would then likely qualify for a Federal Tax Refund due to Hurricane Harvey.
Yes, you can receive significant tax savings regardless of flood insurance coverage.
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.
Here’s what you need to know:
- DO NOT expect the appraisal district to be aware of whether your house or business property flooded if it is not reported.
- Self-reporting of property damages to the appraisal district. Document condition now and as of year-end. Send appropriate documentation to the appraisal district. Photos, bids, invoices for work done and information on prior flooding if any will be helpful.
- If you do not report the flooding, the initial 2018 value very likely will assume not flooding. Given the conservative nature of appraisal districts and appraisal review boards, it is unlikely the final value will exceed market value and be unequally appraised, requiring binding arbitration to achieve a reasonable result.
- You will need a Market value appraisal of all flooded properties as of 1/1/2018, including in-depth analysis of the diminution in value due to having to report the property flooded.
- If necessary, as part of the Property Tax Protection Program, O’Connor will attend informal and formal hearings, and then pursue either binding arbitration or coordinating a judicial appeal.
O’Connor is offering a Free Estimate of the possible Federal Income Tax Refund available for owners of properties that flooded.
Tom McHuffy owns a $300,000 house and a $5,000,000 restaurant, and both flooded. After considering twelve different factors, the appraiser calculated a casualty loss deduction of $65,000 for the house and $1,100,000 for the restaurant, in addition to the physical costs of repair.
Tom has to deduct 10% of his taxable income, or $25,000. His net deduction against federal and state income taxes is $1,140,000. Tom will not have any federal taxes due for about four years.
Consider the following recent appraisals:
- A house was worth $300,000 before Harvey and $235,000 after Harvey, exclusive of physical damage. A $65,000 casualty loss could generate federal tax savings of $29,000, based on a 45% tax rate. The appraisal fee was $650, or about 2% of the tax savings.
- A commercial property was worth $6.5 million before Harvey and $5,100,000 after Harvey, not considering the physical damage. The $1,400,000 deduction could reduce federal income taxes by 45%, or $630,000. The appraisal fee was $7,500, or about 1% of the tax savings.
If your property has suffered a loss and you would like to find out more information, contact us now for a Free Estimate of the Federal Tax Refund you may qualify for. Call us at 833-AID-4-HARVEY.
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