In The News

May 2010 Newsletter Features What to Do After the Flood

As the flood victims begin to assess the damage and put their lives, homes and businesses back together, our firm is here to help. To read the rest of our newsletter, click here.

Casualty Losses: Qualifying for Federal Tax Deductions

Now that the rains have stopped and the flood levels are receding, many Tennesseans are surveying the damage done to their property, whether personal property or business property.  The good news is the federal tax laws allow a deduction for losses of personal and business property due to a casualty—a sudden, unexpected, and unusual event such as a fire, storm, flood or hurricane—for which many Tennessee residents qualify.

Regardless of the type of property, if you suffer a loss from the recent floods, then your loss will be equal to the less of either: (1) the adjusted basis of the property (generally, what you paid for it); or (2) the loss of value by reason of the casualty (generally, the value immediately before the flood minus the value immediately after).  In addition, your loss may be reduced by any compensation received from insurance or otherwise.

Unfortunately, you bear the burden of proving the facts needed for qualifying for the deduction—including the existence of the casualty as the cause of the loss, the resulting decline in fair market value, the adjusted basis of the asset(s), and that you actually owned the asset(s).  Proof of the casualty is easy enough.  Keep copies of newspaper or online articles about the recent floods, and also obtain a copy of the Presidentially-Declared Disaster Area notice for your county.  In substantiating the loss, you must establish: (1) the adjusted basis of the asset(s) involved; (2) the decline in value of the property as a result of the casualty; and (3) the amount of any reimbursement.  In order to justify your loss, you will need proof of what you paid for your property, as well as proof of its value before and after the flood, if you have it.  In order to prove the value of real estate and other substantial assets after the flood, an appraisal may be necessary.

If the loss is from property used in a trade or business or income-producing property (such as rental property), then you can deduct the full amount of the loss as determined above.  If the loss is from non-business (or personal) property, certain limitations apply restricting the amount you can deduct.

Generally, a loss is deductible in the year it is sustained, 2010 in this case.  However, losses sustained because of natural disasters in Presidentially-Declared Disaster Areas may be deducted in the prior year, 2009 in this case.  Therefore, you have a choice to wait until early 2011 to claim this deduction and hopefully get a refund, or file an amended return for 2009 and get a refund sooner.  The one drawback to claiming the loss sooner is that if you get insurance proceeds after filing the amended return, you may have to file another amended return paying some of your refund money back.

The IRS also has resources available on its website for calculating the amount of your casualty losses (go to www.irs.gov and search for Publication 584).

Casualty Losses: Qualifying for Federal Tax Deductions

Now that the rains have stopped and the flood levels are receding, many Tennesseans are surveying the damage done to their property, whether personal property or business property.  The good news is the federal tax laws allow a deduction for losses of personal and business property due to a casualty—a sudden, unexpected, and unusual event such as a fire, storm, flood or hurricane—for which many Tennessee residents qualify.

Regardless of the type of property, if you suffer a loss from the recent floods, then your loss will be equal to the less of either: (1) the adjusted basis of the property (generally, what you paid for it); or (2) the loss of value by reason of the casualty (generally, the value immediately before the flood minus the value immediately after).  In addition, your loss may be reduced by any compensation received from insurance or otherwise.

Unfortunately, you bear the burden of proving the facts needed for qualifying for the deduction—including the existence of the casualty as the cause of the loss, the resulting decline in fair market value, the adjusted basis of the asset(s), and that you actually owned the asset(s).  Proof of the casualty is easy enough.  Keep copies of newspaper or online articles about the recent floods, and also obtain a copy of the Presidentially-Declared Disaster Area notice for your county.  In substantiating the loss, you must establish: (1) the adjusted basis of the asset(s) involved; (2) the decline in value of the property as a result of the casualty; and (3) the amount of any reimbursement.  In order to justify your loss, you will need proof of what you paid for your property, as well as proof of its value before and after the flood, if you have it.  In order to prove the value of real estate and other substantial assets after the flood, an appraisal may be necessary.

If the loss is from property used in a trade or business or income-producing property (such as rental property), then you can deduct the full amount of the loss as determined above.  If the loss is from non-business (or personal) property, certain limitations apply restricting the amount you can deduct.

Generally, a loss is deductible in the year it is sustained, 2010 in this case.  However, losses sustained because of natural disasters in Presidentially-Declared Disaster Areas may be deducted in the prior year, 2009 in this case.  Therefore, you have a choice to wait until early 2011 to claim this deduction and hopefully get a refund, or file an amended return for 2009 and get a refund sooner.  The one drawback to claiming the loss sooner is that if you get insurance proceeds after filing the amended return, you may have to file another amended return paying some of your refund money back.

The IRS also has resources available on its website for calculating the amount of your casualty losses (go to www.irs.gov and search for Publication 584).

Lease Rights Following the Flood: Casualty Provisions

The flood has affected many of our neighbors, including businesses.  While flood insurance or business interruption insurance may be helpful to some property owners and businesses, almost all landlords and tenants have provisions that relate to casualties in their leases.  The water and flood damage of the magnitude suffered in Middle Tennessee almost certainly qualifies as a casualty.

The rights of landlords and tenants under these casualty provisions generally are independent of insurance and liability provisions, and these casualty provisions will help guide the parties’ next steps, regardless of whether the property is determined to be a total loss or not. Many times, these casualty provisions give landlords the sole right to determine whether the lease will continue post-casualty (i.e., once flood waters subside from the property).  The landlord usually has some amount of time to repair and/or rebuild, and if the repair/re-build happens within a certain amount of time, the lease will continue.  If repair/re-build cannot happen on the given timetable, the lease may terminate.  This is good for landlords because it affords some measure of control over their property.

The good news for tenants is that many leases allow for rent abatement during the time that the property is unusable.  So, from the time water damage or flood waters forced the tenant from the leased property until the time repair/re-build is completed, the tenant may not have to pay rent.

Some casualty provisions are short and straightforward, and some are complex.  Always consult your lease if you have questions, and seeking legal advice may be helpful.  Most casualty provisions may be reviewed quickly and efficiently.

Lease Rights Following the Flood: Casualty Provisions

The flood has affected many of our neighbors, including businesses.  While flood insurance or business interruption insurance may be helpful to some property owners and businesses, almost all landlords and tenants have provisions that relate to casualties in their leases.  The water and flood damage of the magnitude suffered in Middle Tennessee almost certainly qualifies as a casualty.

The rights of landlords and tenants under these casualty provisions generally are independent of insurance and liability provisions, and these casualty provisions will help guide the parties’ next steps, regardless of whether the property is determined to be a total loss or not. Many times, these casualty provisions give landlords the sole right to determine whether the lease will continue post-casualty (i.e., once flood waters subside from the property).  The landlord usually has some amount of time to repair and/or rebuild, and if the repair/re-build happens within a certain amount of time, the lease will continue.  If repair/re-build cannot happen on the given timetable, the lease may terminate.  This is good for landlords because it affords some measure of control over their property.

The good news for tenants is that many leases allow for rent abatement during the time that the property is unusable.  So, from the time water damage or flood waters forced the tenant from the leased property until the time repair/re-build is completed, the tenant may not have to pay rent.

Some casualty provisions are short and straightforward, and some are complex.  Always consult your lease if you have questions, and seeking legal advice may be helpful.  Most casualty provisions may be reviewed quickly and efficiently.

Flood Relief Contractor: Dealing with Damage Requiring Immediate Repair

The disastrous floods throughout Middle Tennessee have left many in our area dealing with damage to their homes that requires immediate repair.  Contractors and home restoration services will certainly be in high demand, which may open the door to less reputable contractors trying to exploit desperate consumers. In the rush to get your home restored, it is critical that you know what to do when selecting a home repair/restoration professional in order to prevent further hardship.

Here are a few tips:

Get an estimate in writing from your contractor.  Despite the urge to get the work started as soon as possible, document your engagement with the contractor. Sure, there may be unforeseen issues resulting from the damage, but you are entitled to some fair advance expectation of what the job will cost. Getting an estimate in advance places the burden on the contractor to provide you with notice of those unforeseen issues…and advance notice of any increase in costs.

Be sure that the contractor you hired is licensed with the state.  In the rush to get somebody—sometimes anybody—working on the damage, a homeowner may neglect to take the “due diligence” precautionary measures of vetting the contractor with whom they are dealing. The State of Tennessee Board for Licensing Contractors has an that allows homeowners to investigate whether the contractors they are dealing with are licensed.

If you live in an impacted area, you may be approached by door-to-door contractor solicitations. This could be a legitimate contractor reaching out to people who need help the most, or it could be somebody seeking to exploit other people’s hardship. Again, check on the contractor through the State’s online records, or call the State contractor board at (800) 544-7693. Additionally, the Tennessee Secretary of State maintains records of all corporate entities authorized to do business in Tennessee and provides an online database with those companies. Ask questions about the contractor and their particular experience, and, of course, get it all in writing.

Don’t be afraid to ask questions and seek guidance There are many government and private institutions offering guidance and help in dealing with the aftermath of a flood, including:

Tennessee Emergency Management Agency for specific guidance as to available services in Tennessee.

Tennessee Board for Licensing Contractors

Tennessee Secretary of State

Local resources, such as blogs, may have the most up-to-date information on aid and agencies seeking to provide relief.

Flood Relief Contractor: Dealing with Damage Requiring Immediate Repair

The disastrous floods throughout Middle Tennessee have left many in our area dealing with damage to their homes that requires immediate repair.  Contractors and home restoration services will certainly be in high demand, which may open the door to less reputable contractors trying to exploit desperate consumers. In the rush to get your home restored, it is critical that you know what to do when selecting a home repair/restoration professional in order to prevent further hardship.

Here are a few tips:
Get an estimate in writing from your contractor.  Despite the urge to get the work started as soon as possible, document your engagement with the contractor. Sure, there may be unforeseen issues resulting from the damage, but you are entitled to some fair advance expectation of what the job will cost. Getting an estimate in advance places the burden on the contractor to provide you with notice of those unforeseen issues…and advance notice of any increase in costs.

Be sure that the contractor you hired is licensed with the state.  In the rush to get somebody—sometimes anybody—working on the damage, a homeowner may neglect to take the “due diligence” precautionary measures of vetting the contractor with whom they are dealing. The State of Tennessee Board for Licensing Contractors has an that allows homeowners to investigate whether the contractors they are dealing with are licensed.

If you live in an impacted area, you may be approached by door-to-door contractor solicitations. This could be a legitimate contractor reaching out to people who need help the most, or it could be somebody seeking to exploit other people’s hardship. Again, check on the contractor through the State’s online records, or call the State contractor board at (800) 544-7693. Additionally, the Tennessee Secretary of State maintains records of all corporate entities authorized to do business in Tennessee and provides an online database with those companies. Ask questions about the contractor and their particular experience, and, of course, get it all in writing.

Don’t be afraid to ask questions and seek guidance There are many government and private institutions offering guidance and help in dealing with the aftermath of a flood, including:

Tennessee Emergency Management Agency for specific guidance as to available services in Tennessee.

Tennessee Board for Licensing Contractors
Tennessee Secretary of State
Local resources, such as blogs, may have the most up-to-date information on aid and agencies seeking to provide relief.

Casualty Losses: Qualifying for Federal Tax Deductions

Now that the rains have stopped and the flood levels are receding, many Tennesseans are surveying the damage done to their property, whether personal property or business property.


  The good news is the federal tax laws allow a deduction for losses of personal and business property due to a casualty—a sudden, unexpected, and unusual event such as a fire, storm, flood or hurricane—for which many Tennessee residents qualify.


Regardless of the type of property, if you suffer a loss from the recent floods, then your loss will be equal to the less of either: (1) the adjusted basis of the property (generally, what you paid for it); or (2) the loss of value by reason of the casualty (generally, the value immediately before the flood minus the value immediately after).  In addition, your loss may be reduced by any compensation received from insurance or otherwise.


Unfortunately, you bear the burden of proving the facts needed for qualifying for the deduction—including the existence of the casualty as the cause of the loss, the resulting decline in fair market value, the adjusted basis of the asset(s), and that you actually owned the asset(s).  Proof of the casualty is easy enough.  Keep copies of newspaper or online articles about the recent floods, and also obtain a copy of the Presidentially-Declared Disaster Area notice for your county.  In substantiating the loss, you must establish: (1) the adjusted basis of the asset(s) involved; (2) the decline in value of the property as a result of the casualty; and (3) the amount of any reimbursement.  In order to justify your loss, you will need proof of what you paid for your property, as well as proof of its value before and after the flood, if you have it.  In order to prove the value of real estate and other substantial assets after the flood, an appraisal may be necessary.


If the loss is from property used in a trade or business or income-producing property (such as rental property), then you can deduct the full amount of the loss as determined above.  If the loss is from non-business (or personal) property, certain limitations apply restricting the amount you can deduct.


Generally, a loss is deductible in the year it is sustained, 2010 in this case.  However, losses sustained because of natural disasters in Presidentially-Declared Disaster Areas may be deducted in the prior year, 2009 in this case.  Therefore, you have a choice to wait until early 2011 to claim this deduction and hopefully get a refund, or file an amended return for 2009 and get a refund sooner.  The one drawback to claiming the loss sooner is that if you get insurance proceeds after filing the amended return, you may have to file another amended return paying some of your refund money back.


The IRS also has resources available on its website for calculating the amount of your casualty losses (go to www.irs.gov and search for Publication 584).


 

National Flood Insurance Program: What Lenders Should Know

The National Flood Insurance Program (NFIP) was created by the National Flood Insurance Act of 1968.


 Two subsequent laws, the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994, have made the purchase of flood insurance mandatory for Federal or Federally-related financial assistance for acquisition or construction of buildings in Special Flood Hazard Areas (SFHAs).


Flood insurance is mandatory for buildings in FEMA-identified high-risk flood areas, referred to as SFHAs.  Whenever you make, increase, extend or renew a mortgage, home equity, home improvement, commercial or farm credit loan in an SFHA, you must require flood insurance. You may require flood insurance on all loans, even those outside SFHAs.


Ensure that flood insurance coverage is maintained for the term of all the loans on a building. Escrowing flood insurance premiums can help make sure you meet this requirement, and it helps protect you and your borrowers from uninsured flood losses.


Know the amount of flood insurance coverage to require. The required coverage is the lesser of the following: (i) the maximum amount of NFIP flood insurance coverage available, (ii) the outstanding principal balance of the loan, or (iii) the value of the building only. (Land and land values are not covered under the NFIP.)


Notify borrowers in writing of the requirement to buy flood insurance for new and existing loans. If you determine that a home or business is in an SFHA before loan closing, you are required to notify the borrower within a reasonable time prior to the loan closing. If you determine that an existing loan for a home or business is in a SFHA, you are also required to notify the borrower within a reasonable time.


There is no waiting period for flood insurance to go into effect when it is purchased in connection with making, increasing, renewing or extending a loan. In most other instances, there is a 30-day waiting period before flood insurance goes into effect.


For more information about the mandatory purchase of flood insurance requirements, and other related topics, read the .


Flood insurance and the mandatory purchase laws help protect your investments as well as your borrowers’ against uninsured flood losses. Floods can occur in unexpected areas of the country. Make sure you and your borrowers are protected from uninsured flood losses for their homes, businesses and belongings by following these requirements.


 

Health Risks of Flood Waters: EPA Guidelines

The Environmental Protection Agency (EPA) cautions the public and emergency responders about the potential hazards associated with flood waters. During heavy rains, sanitary sewers may overflow into floodwaters. Avoid contact with floodwater due to potential contamination with raw sewage and other hazardous substances. Avoid swimming and boating in floodwaters and do not allow children or pets to wade or play in floodwaters.


EPA offers the following guidelines for those in contact with flood water:


- Wash your hands before drinking and eating;


- Wash frequently using soap -- especially disinfecting soap;


- Do not smoke;


- Limit direct contact with contaminated flood water;


- Pay attention to any cuts or open wounds and limit exposure to flood water;


- Pay attention to any unusual symptoms and report them to health care professionals;


- Keep vaccinations current.


The public and emergency response personnel should follow guidelines from federal, state and local health and safety professionals. Early symptoms from exposure to contaminated flood water may include upset stomach, intestinal problems, headache and other flu-like discomfort. Anyone experiencing these and any other problems should immediately seek medical attention.


Children are at greater risk than adults from contaminants carried by flood water. Since they dehydrate faster, they need to drink plenty of fluids. If the safety of your water is in question, either use bottled water or bring tap water to a rolling boil for at least one minute...and let it cool before use.


EPA and the Tennessee Department of Environment and Conservation have compiled other useful information on the web to assist individuals and municipalities address post-flooding clean up concerns. Issues include mold, septic systems, municipal water treatment plants, drinking water and food.