Wildfire Roadmap to Recovery: Meeting #8, February 21, 2008Rancho Bernardo Community Presbyterian Church

Tax Issues: Personal Property & Real Property

Wildfire Roadmap to Recovery: Meeting #8, February 21, 2008Rancho Bernardo Community Presbyterian Church

Tax Issues: Personal Property & Real Property

Fine print:

The information provided in this program is intended for general educational purposes only. It should not be construed as legal advice.

The speakers at today’s program are volunteering their time as educators.

Neither United Policyholders nor the Rancho Bernardo Community Presbyterian Church endorse or warrant the quality or services of any volunteer speakers.

Income Tax Issues & Real Property Tax Issues

Background: For ’03 Cedar Fire Survivors, there was much confusion/misunderstanding regarding both of these issues

Knowledge is power…

THANK YOU TO TONIGHT’S SPEAKERS FOR HELPING EVERYONE AVOID COMMON PITFALLS

Alan Clopine, CPAJeff Olson, San Diego County Assessor’s

Office

Income Tax Implications –Alan Clopine, CPA

On 10/29/07, the IRS granted tax relief for Southern California Fire Victims

Affected taxpayers can claim disaster-related casualty losses on their federal income tax returns in either 2006 or 2007

If you claim the disaster loss on last year’s return, put the disaster designation “California Wildfires” at the top of the form

Calculating the Disaster Loss

FIRST: Determine the adjusted basis in the property before the disaster loss (generally the original purchase price PLUS improvements LESS depreciation deducted)

SECOND: Determine the decrease in fair market value of the property as a result of the disaster loss. (Appraisals of the property both BEFORE and AFTER the disaster loss are a good idea)

THIRD: From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.

EXAMPLE:Figuring the Disaster Loss Deduction: An Example

Adjusted basis of property $500,000 (A)FMV before disaster loss $850,000FMV after disaster loss $250,000Decrease in FMV $600,000 (B)Loss [smaller of (A) or (B)] $500,000Subtract insurance received $375,000Loss after reimbursement $125,000

(Note: This $125,000 loss must be in excess of 10% of adjusted gross income to receive a tax benefit).

How To Take The LossThe Prior Example Showed a Loss of $125,000

This loss may be deducted on the taxpayer’s 2007 return (to be filed by 4/15/08)

OR

The loss may be deducted on the taxpayer’s 2006 return (file an amended return for 2006)

THIS MUST BE FILED BY APRIL 15, 2008

The taxpayer decides which year the deduction is more beneficial

What If I Haven’t Received My Insurance Proceeds Yet?

You should estimate the amount you expect to receive in insurance proceeds.

If you later find the insurance reimbursement was different that what you expected, you adjust your return in the year received.

Can I Have A Gain Even Though I’ve Lost My Home?

Yes, if your insurance reimbursement exceeds the lowerof your adjusted basis and decrease in FMV, you have a gain.

HOWEVER, that gain is not currently taxable if you build a replacement property:

Main home: replace within four years after the close of the first tax year in which your gain is realized

Other property: replace within two years after the close of the first tax year in which your gain is realized.

Additional ResourcesIRS Publication 2194 (Disaster Losses Kit for Individuals). This publication has good worksheets to help quantify your property losses. www.irs.gov

IRS Publication 547 (Casualties, Disasters, and Thefts). www.irs.gov

FTB Publication 1034 (Disaster Loss). www.ftb.ca.gov

Call Alan Clopine, CPA at Centara Capital (619) 398-1700. http://www.centaracapital.com/company/bio-aclopine.html

Under state law, the Assessor must reassess property upon new construction

Excluded from the definition of “new construction” is any timely reconstruction where the property after reconstruction is substantially equivalent to the property prior to damage or destruction.

However, State law ALSO provides that any reconstruction that is not substantially equivalent to the damaged or destroyed property shall be deemed to be new construction and only that portion that exceeds substantially equivalent reconstruction shall have a new base year value.

Know the facts…

There has been a common misconception that calamity victims can build up to 500 additional square feet without incurring additional property taxes.

This is not the case!

Additional square footage is subject to reassessment at market value

For property tax purposes, any square footage that is above and beyond what existed prior to the calamity is subject to reassessment at market value.

Also subject to reassessment…

Anything that is built after the calamity that did not exist or was not assessed prior to the calamity is subject to reassessment.

For example: Air conditioning, additional bathrooms, patios, decks and garages

Improved quality is reassessable…

When the quality of newly constructed structures is substantially greaterthan that which was lost, this difference in value is also reassessable.

Construction which is above and beyond what existed and was assessed before the calamity is reassessed at market value.

Therefore, when assessing new construction after a calamity, the Assessor’s Office is required to compare the structures that were damaged or destroyed with the new replacement structures.

Assessment of pre-calamity structures…

In order to receive credit for pre-calamity structures, the structures must have been present in the Assessor’s records and assessed on the property tax roll.

For example, if a taxpayer lost a garage in a fire, but the garage was built without a permit and was never assessed for property taxes, no credit would be given and the rebuilt garage would be reassessed at market value.

The structures that were a part of the tax records before the calamity shall retain their original base assessment.

If you have further questions…

Contact the Assessor’s Office at (619) 505-6262

Our heartfelt thanks to:

Rancho Bernardo Community Presbyterian ChurchAll our UP Mentors and SponsorsThe speakers at tonight’s meeting

Break Out Sessionsfor Fire Survivors

Open to 9:30 pm: Firm Stop timeUpstairs:

State Farm : Dormer WestFarmers : Skylight WestAllstate : Upper Courtside EastUSAA: Small room off lobby (see D Shalinsky)

Other Companies: Sanctuary