Wednesday, June 29, 2011

Taxes, Disasters and A Victorian Restoration

I know that house blogs are supposed to be about how much fun it is to scrap paint and find missing treasures, but since this year has been a year of fire, flood, and tornadoes it seemed like a good time to talk about bad things.  I thought it might be useful to talk about our experiences with some the tax issues we have faced in our Eureka Victorian Restoration.

There are no pictures at tax time so I added a picture of out house jacked-up getting ready for a new foundation.

After the 2010 earthquake we clearly had some damage and there was no State or Federal largess that offered to pay our cost  even though it was a declared State Emergency.  There was no direct aid, so we where left with the working with the regular tax code.

One thing about old houses is that they are disasters waiting to happen.  Maybe it's an earthquake, fire, tornado or  a flood, but it's always something. 

While local governments may have some form of property tax help for restoration including historic preservation or historic easement, Eureka has no such help for single family houses.  You should  check with the local assessor, city and county offices to be sure. 

Property Tax Relief.   In our case after the earthquake we pushed the city to re-asses our house, thereby immediately lowering our property tax.  The City was happy to do this because they get reimbursed by the State of California due to the disaster declaration (kudos to local Assemblyman W.C. Chesbro).   This was easy to do, we just provided the contractor's cost estimate.  This also protects you from being re-assessed after the repairs have been completed.   In the end your property value stays at the pre-earthquake level and we have a nice new foundation.

Income Tax Help.  Earthquake insurance is pretty worthless in California - high rates and even higher deductibles.    So you're on your own - until tax time.   Keep your records you can deduct a portion of the uncompensated or uninsured loss - it doesn't matter if its a declared disaster or just bad luck.  There is a formula that calculate the uncompensated loss as a percentage of your income and a portion is then a deduction from income.   We had something like $30K in damages and were able to deduce $12K from our federal income.    In the end the cash tax savings is only a small portion of the loss, but in those cases where your house has taken a real beating in can be a substantial deduction come income tax time.

That's all there is.