Reporting insurance claim (pocketed amount)

[ILLMAS]

TP had a break in and the insurance co. gave him 10K for the replacement of the heater and a/c unit, TP only spent 7K. The insurance claim was to become whole or complete not to improve the property, would be wise to report the 10K as other income and 7K as repairs, or just to report the net of 3K as other income?

Thanks

MAS

[Guest Taxed]

Unusual situation. The few clients that I had make a claim against their insurance policy for any loss ended up in the hole after the deductible. But I have always recommended deducting repair expenses net of insurance reimbursement plus the deductible.

So following that logic it would be 3K other income.

Obviously they are already deducting the insurance premiums.

[jklcpa]

Form 4684 and Pub 547. You didn't say what the adjusted basis of the stolen property was or what type of entity this is. If this is an individual and is personal use property, use page 1 of 4684, income producing property (a rental) would be reported on page 2.

[ILLMAS]

Form 4684 and Pub 547. You didn't say what the adjusted basis of the stolen property was or what type of entity this is. If this is an individual and is personal use property, use page 1 of 4684, income producing property (a rental) would be reported on page 2.

The heating and ac unit came with the purchase of the house, it was never capitalized individually. So it's very hard to determine the basis.

[Guest Taxed]

I thought this was a business. Is it a private residence, non rental?

[ILLMAS]

I thought this was a business. Is it a private residence, non rental?

Investment property, but what I meant to say is, I never capitalize components when someone buys a building, they will have to hire a company that does that. For example if they pay 170K for the building and land, I take 10% for land and the rest for the building, I don't break it down by roof, electrical, plumbing etc....

[Lion EA]

Make sure you have some reason to use 10% for land. Around here, land can be as much as 100% as the building is often torn down to build a McMansion. A couple of recent tax bills had about a 50% value for the land in a neighboring town for residential property. Just CYA with documentation.

[ILLMAS]

We city slickers cannot tell from the closing statement what part of the cost basis is for land, rule of thumb is to use 10% (accepted by the IRS), Lion I believe you were from Berwyn, so you know its more house then land.

[Guest Taxed]

>> A couple of recent tax bills had about a 50% value for the land in a neighboring town for residential property.

Lion is absolutely correct. I do most of my returns in MA and some in CT, upstate NY, VT, ME and I routinely see land values as much as 50% of the total property valuations.

Closing statement will NOT tell you the value of the land. You will need to see their actual tax bill from the city or town that has the mill rate x the valuation. A lot of cities and towns in our area have that as public records on the internet so when i do tax returns I can look it up myself.

[michaelmars]

LOL when I saw the 10% posted I was just counting the minutes till it got slammed. I too use 10% and once in a while had to negotiate up but is you start high then you can only go higher. Its one of the throwaways to keep for an audit and since most real estate has losses that are suspended the re-adjustment doesn't effect the individual. I personally think its a bit subjective since one person may buy the lot and keep the building where another buyer would tear it down and rebuild. only if my client was going to raze the building would I use a higher land value which in that case would be 100%.

Here in NY there is a whole cottage industry for real estate tax reassessments. Everytime mine go up I go for a reassessment and get it lowered so why would I use the governments value for my clients?

When you have a $5,000,000 co-op in a 40 story building, probably less than 10 should be land.

[easytax]

LOL when I saw the 10% posted I was just counting the minutes till it got slammed. I too use 10% and once in a while had to negotiate up but is you start high then you can only go higher. Its one of the throwaways to keep for an audit and since most real estate has losses that are suspended the re-adjustment doesn't effect the individual. I personally think its a but subjective since one person may buy the lot and keep the building where another buyer would tear it down and rebuild. only if my client was going to raze the building would I use a higher land value which in that case would be 100%.

Here in NY there is a whole cottage industry for real estate tax reassessments. Everytime mine go up I go for a reassessment and get it lowered so why would I use the governments value for my clients?

When you have a $5,000,000 co-op in a 40 story building, probably less than 10 should be land.

Never did a high-rise or co-op --- so if you're busy - disregard -- if not, please share how one might figure land % on a 40 story building. Is it as simple as co-op owned is 5 mil while full value of all units in 40 story are say 2 bill, with actual land purchased (with or without previous building) say 10 mil. Do you use dollars, square ft., etc. I'm just nosy and curious here -- don't ever expect one, but I like to learn.

Thanks in advance, either way (busy or able to answer) !!!.

[michaelmars]

I just go with 10%. Usually the taxpayer is buying the apartment and has nothing to do with original cost of the building. New construction is easier since you have the actual building cost.

[Mr. Pencil]

would be wise to report the 10K as other income and 7K as repairs, or just to report the net of 3K as other income?

No, you have to treat it as a casualty loss with insurance. Form 4684 is confusing, but read each line carefully. Very carefully. If the heater and air conditioner were being treated as part of the building, you don't have any gain or loss. Although a LOSS is the lower of basis or unreimbursed drop in Fair Market Value, FMV is ignored for a GAIN. It is only taxable when excess reimbursement exceeds the basis of the property. So just reduce basis by $3000. You really don't even have to put any of it on the tax return.

On the other hand, heater and a/c are odd things to steal. Were they vandalized? If they were appliances instead of real estate, with no extra cost basis at purchase, the $3000 will end up on the last line and then go to Form 4797. No, I take that back. You have $10000 gain, and new depreciation on $7000.

[jklcpa]

Theft of a/c units isn't uncommon at all. Thieves have even been stealing the industrial sized units from commercial buildings and churches. The easier ones to steal are the apartment complexes where the units might all be in one location. Sometimes the whole unit is stolen, but sometimes only the coil is removed and the copper and aluminum is turned in for the scrap metal price. It's been an ongoing problem for a while now.

[grmy2h]

Thieves are even starting to steal freon. We found one yesterday at a nursing home where the units are backed up to the woods. We put freon in 4 days ago because unit was low. They called back yesterday and when we went every drop of freon was gone and no leak whatsoever could be found. (HVAC is my day job.)

[Guest Taxed]

Unfortunately USA is fast becoming a third world country because of our economic and social problems. Did you bother locking your car or house door 30-40 years back? Now if something is not nailed or chained it is gone!

We had the entire plumbing fixtures and pipes stolen in our little town. The folks had moved out and house was for sale. The thieves came in a van and the next door neighbor thought they were fixing the house to sell.

[ILLMAS]

Our city passed an ordinance to have scrap metal yards collect personal information from costumers because some of them were stealing city owned man hole covers and selling them as scrap.

[Gail in Virginia]

In Virginia if you sell more than 600 pounds, or make 24 trips to a scrap dealer in a year, you have to have a permit starting July 1 of this past year.

[kcjenkins]

All efforts at passing new laws to control people who break the existing laws.

[SaraEA]

Regarding land value, tax records don't help. You need to see the assessor's report, which breaks down the assessed value of land, "improvements" (e.g., house), outbuildings (e.g., fences, sheds, pools), etc. Then you can figure the ratio of each component to the total assessment. I am now doing tax planning for clients who sold an oceanfront cottage they bought in the 1960s and began renting out in the 1990s. When put in service as a rental the land value was 8 percent. A little doubtful in my mind, but it is a small lot common to beach house communities. I checked the assessor's report from last year, and the land value is now 76% (which makes more sense--run down old cottage and prime real estate).

This is actually good for the clients because so much of the sales price will be allocated to the land. I haven't run the detailed numbers yet so am not sure how much depreciation will be recaptured. (There were a few structural improvements over the years, so various parts went into service at various times.) The new tax laws, however, are proving to be very expensive for these clients. They have a HUGE gain and will thus lose their personal exemptions and most of their itemized deductions. To add insult to injury, this and their other capital gains from investments will be taxed at 20%, and all their investment income will be subject to the 3.8% Medicare surtax which alone will add over $10k to their tax bill. They've been thinking about selling for a long time, but I'm not even going to mention at this late date that they should have sold last year.

[Gail in Virginia]

In Virginia if you sell more than 600 pounds, or make 24 trips to a scrap dealer in a year, you have to have a permit starting July 1 of this past year.

All efforts at passing new laws to control people who break the existing laws.

I agree. It will inconvenience some honest people, but thieves will still be thieves.

[michaelmars]

one problem is that legislatures get rated on how many bills they introduce or support so they have to keep coming up with new laws to show they are active and "worthy" of reelection

[kcjenkins]

Yeah, that would be 'rubbing salt in the wound' at this point. Some clients make us want to do that, of course, but you are kind not to.