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Silver Lining from Hurricane Ike

Hurricane Ike inflicted a steep penalty on the Texas Gulf coast. However, there is an inconspicuous benefit casualty loss tax deductions. Taxpayers may be able to take a 2008 deduction if either personal or business property was damaged by Hurricane Ike.

Meaningful Deductions

Some taxpayers will be able to completely eliminate their 2008 federal income taxes by utilizing a casualty loss deduction. It is not necessary to sell the property to be eligible for the write-off. In addition, even if insurance proceeds completely reimburse the cost of construction, the taxpayer likely qualifies for a substantial write-off. This is a generous tax benefit for those affected by a casualty.

Get a Refund for Prior Year Taxes

For a major casualty such as Hurricane Ike, in a presidentially declared disaster area, the deduction can be used in either the current or preceding tax year. Hence, it is possible to claim a large income tax refund (of the prior year s income taxes), as a result of Hurricane Ike.

What is a Casualty Loss?

A casualty loss is damage, destruction or loss of property from any sudden, unexpected and unusual event. Casualties can include fire, flood, hurricane, tornado, and earthquakes. The casualty loss is calculated as follows: market value of property immediately before the casualty, less the sum of: a) market value immediately after the casualty and b) insurance proceeds.

I m Insured; Do I Qualify

A frequent misconception is the owner of insured property does not qualify for a casualty loss. This simply is not true. Even if insurance proceeds fully fund restoration, the owner probably qualifies for a casualty loss. The casualty loss is really only subject to casualty loss limitations (0 per casualty and in excess of 10% of adjusted gross income for personal-use property).

Huh? I get a deduction even if fully insured?

Yes, because of the procedure for calculating the casualty loss. The difference in value before and after the casualty is more than the cost of repairs. Let s consider an example. You have been planning to purchase a house in Galveston. Would you rather purchase: 1) a house in good condition with no storm damage or 2) a house seriously damaged by a storm. Let s now be more specific. The value of both houses (in good condition) would be 0,000. The damage to the second house is estimated at 0,000. You can purchase the second house for 0,000 (0,000 less 0,000 of restoration costs).

Market Value and Entrepreneurial Profit

Market value is the price for which a property would sell, assuming reasonable exposure to the market, knowledgeable buyer and seller and that neither party is under duress to act. Entrepreneurial profit is the compensation required for an investor to assemble and coordinate labor, capital and assets. In this case, it is the compensation required to: 1) negotiate the insurance claim, 2) supervise contractors and 3) coordinate capital (debt and equity to purchase and renovate the house). No reasonable person would purchase the damaged house without compensation for the risk and work required to renovate the property.

Holding Costs

Whether or not holding costs would be deducted depends on the specific property and circumstances. For a home, whether or not holding costs and lost rents should be considered will vary from case to case. For income properties closed because of a casualty, the lost revenue and cost to replace tenants would reduce the market value of the property after the casualty.

Holding Costs Example

Hurricane Ike flooded the first floor of a 100,000 square foot, two-story office building. The building had been 85% occupied. Tenants will be able to occupy the second floor about 2 to 4 weeks after the storm. However, the first floor will not be available for occupancy for 9 to 15 months. Tenants have the option to terminate their lease if space is not available for more than 30 days. The owner believes all first floor tenants will relocate.

Time to Rebuild

Renovating a property is always an arduous process. Renovation following a major casualty is even more difficult since insurance adjustors, insurance company staff and contractors are busy. The first step in the restoration process is to negotiate a settlement with the insurance company. This is sometimes a quick and painless process. In other cases, insurance companies use time as a negotiating weapon since the property owner must continue loan payments even if the property is partially or totally vacant. For income properties, it is not unusual for this process to take 2 or 3 months. It sometimes takes 6 to 12 months. In addition, getting funding once work is partially complete can also be a slow process. It is also necessary to obtain contractors or a general contractor. This process can begin prior to finalizing an insurance claim. However, contractors will do work as property owners can commit to payment. A contractor who agreed to do the work may not be available once the insurance claim has been settled.

Time / Cost to Lease Vacant Space

It takes time to lease and build-out commercial real estate. It is also expensive. In addition to the revenue lost while space is renovated and leased, additional costs include leasing commissions and tenant improvements.

Determining the Casualty Loss

Obtain an appraisal from a qualified appraiser. For real estate, it should be a real estate appraiser. For commercial real estate, confirm experience with commercial real estate appraisal. The appraisal should provide a value for the property: 1) immediately before the casualty and 2) immediately after the casualty. The valuation after the appraisal should consider issues which would impact the property including: 1) costs of renovation, 2) entrepreneurial profit, 3) lost rents prior to the property returning to stabilized occupancy, 4) tenant improvements, 5) leasing commissions, and 6) potential stigma. Depending on the level of destruction, the level of business activity in the area could decrease. This could reduce the level of business for either residential or commercial properties. The issue is not if the level of business decreases after the casualty. The issue is the perception immediately after the casualty.

Limitations

The casualty loss deduction is limited by the amount of the remaining basis of improvements. For example, prior to the casualty, your remaining depreciable basis for an apartment complex was ,000,000. This includes 0,000 for land and ,500,000 for improvements. The casualty loss determined by the appraiser is ,230,000. Since the casualty loss is less than the remaining depreciable basis for the improvements (,500,000), you can deduct the entire amount.

Documentation

Casualty loss deductions are often substantial and material. In many cases, they completely eliminate the taxpayer s income taxes for one or two years. Documentation is essential. Photographs of the property can clearly document the scope of damage. Damage can also be documented by written communications with tenants, vendors, insurance adjustors and lenders. The appraisal should clearly explain the basis for calculating the casualty loss. The essential portion of the appraisal is the analysis regarding factors impacting market value immediately after the casualty.

Timing

Discuss your tax situation with your CPA or tax return preparer. If your property is located in a presidentially declared disaster area, discuss whether you should seek a refund for the prior year or claim the tax deduction for the current year. (If the property is owned by a limited partnership with multiple partners, also consider the cost of having each limited partner file amended returns for the prior year.) Plan to have all necessary documentation when you meet with your tax preparer.

Conclusion

Natural disasters bring much heartache, pain and financial distress. Congress has provided specific tax benefits for those suffering casualty losses. It is prudent and responsible to reduce your taxes with this clear-cut source of tax relief.

The appraisal division of O Connor & Associates is a national provider of commercial real estate appraisal services including cost segregation studies, retail space due diligence, insurance valuations, commercial real estate appraisal, feasibility studies, financial modeling, gift tax valuations, highest and best use analyses, casualty loss valuations and HUD map market studies.

Frequently Asked Questions

  1. QUESTION:
    In a silver 1976 washington quarter, what is the silver content expressed as a % of a troy ounce?
    I know its 40% of the '76 quarters coin weight .I need to know how much of a troy ounce of silver it contains.Example 1976 silver ike dollar equals .3616 troy ounce.

    • ANSWER:
      The answer is .0739 oz of pure silver according to A Guide Book of US Coins. (The Red Book).

  2. QUESTION:
    How much is my miniature 1972 Eisenhower (IKE) Silver Dollar worth?
    My 1972 IKE Coin is a mini version of the 1972 Eisenhower Silver Dollar. Is it worth anything? If so how much would you think?

    • ANSWER:
      Mini coins of all kinds have been around since the 1960's and continue today. Most sold in sets of cent through 1/2 dollar or when dollars were made they added that to the sets. Most sets sold in the range and singles for a each. They are a novelty item and not a coin collecting item. Most are good conversation items and good for a joke or two. I was given one and the person said, see what happened to the dollar its value shrunk. They are just a fun type item.

  3. QUESTION:
    How much is a 1976 silver dollar worth now?
    I have a silver dollar from 1976 and i am just wondering how much it is worth.

    • ANSWER:
      If you mean the 1776-1976 Ike dollar then the silver ones (S mint mark) in a blue envelope and the proofs in a brown box that are 40% silver sell for around .50-. The others are clad and not silver and are worth in circulated grades and a few dollars in mint state.

  4. QUESTION:
    What is the current value of the 1978 silver dollar?
    I have some 1978 silver dollars that I would like to sell, but before taking them to a store I want to find out what the value is so that I can get top dollar. Also have some half dollar pieces as well.

    • ANSWER:
      The Eisenhower or 'Ike' dollars from 1971-1978 are becoming more collectible as time goes by, but the 1978 coins have no silver in them. A recent estate sale I went to saw bags of circulated Ikes going for face value or .10 per coin - you paid for how many were in the bag. With the buyer's premium , it worked out to .10 or .21 that people were paying.

      So they're not just face value coins, but unless you have a huge lot of them, it's not going to be worth your time to run them around to stores. If you have 50 of them and get .10 each, you're getting over face and you'll eat that up in gas in no time, not to mention what your time is worth.

      If they are S mint proof coins, it's a different story, as those were made to collect and have extra collector value. But P and D mint coins you're better off spending if they're circulated.

      If they're uncirculated, came straight from a bank in 1978 and not touched since, a dealer might go as high as .50 each.

      There's no premium at all on the half dollars unless they're like-new uncirculated, and then, you might get sixty cents each.

      They're not old enough yet to have any real value.

  5. QUESTION:
    Is there any record of a 1974 silver-clad dollar with no mint mark?
    I believe I have a 1974 silver-clad Eisenhower dollar, but it has no mint mark. Does anyone know if one of these have ever been found to exist?
    Nevermind. It appears to be a counterfeit. It's a sliver-plated 1974 Philadelphia dollar.

    • ANSWER:
      It may not be a counterfeit, but just be a silver plated Ike dollar. Silver plating coins was a big thing in the 1960-1980's. Now it is gold plating State Quarters.

  6. QUESTION:
    How do I know if I have a silver coin when it comes to my quarters,dimes,and nickels?
    I sometimes have alot of change laying around and I wanna know how would I know if any are silver or even part silver?

    • ANSWER:
      Dollars, half dollars, quarters, and dimes dated before 1965 are 90% silver. Nickels made in 1942 - 1945 are 35% silver (the nickel was needed for the war effort). There are some Ike dollars that have some silver in them. Also, half dollars (JFK) minted from 1965-1970 have 40% silver in the outer layers. There are silver proof sets that were made later but would take up too much room to list all of them. Also, commerative dollar and half dollars have silver in them. Suggestion - get a red book which lists all of the US coins and their makeup - then you can look up any coin and see what they are made of.

  7. QUESTION:
    Where to sell a coin collection for at least melt value?
    I have roughly 130 dollars worth of old coins according to coinflation dot com. They are mainly Eisonhower dollars. Do you know of anywhere I can get melt value for them or do they run at face value?

    • ANSWER:
      The vast majority of Ike dollars are not silver. Only the special ones that were available from the mint in special packaging were. They are just made of copper & nickel. The ones in circulated grades are just worth a dollar. Mint state ones have a small added value.

  8. QUESTION:
    how much are Kennedy's 1964 haft dollars worth i have 6 others from 65-66-67-68 how about ike dollars 1971?
    how much are Kennedy's 1964 haft dollars worth i have 6 others from 65-66-67-68 how about ike dollars 1971 have 6 of them.

    • ANSWER:
      The 1964 Kennedy half is 90% silver and contains about worth of silver. A dealer might pay or so for it.
      The 1965 through 1970 Kennedy halves are 40% silver. A dealer would pay around .50 for one.
      The 1971 Kennedy half contains no silver and is only worth face value.
      The circulating version of the 1971 Ike dollar likewise contains no silver, and you probably won't get more than face value for it.

  9. QUESTION:
    How much silver in a silver dollar?
    My friend is trying to sell me some silver dollars he has. I am not sure how much silver is in the US silver dollars and how much is silver now?

    • ANSWER:
      There are three possible answers, depending on the date. The good news is that the dates don't overlap.

      There is a US bullion coin called the "American Silver Eagle". It has a face value of , and contains one troy ounce of silver. It looks like this: http://americansilvereagles.us/wp-content/uploads/2010/03/2010-American-Silver-Eagle-Bullion-Coin1.jpg

      From 1971 to 1978, the US struck the Eisenhower dollar for circulation. They also made some in 40% silver for collectors. A 40% silver "Ike" has .3438 troy ounces of silver.

      All other silver dollars are what are called "standard" silver dollars. They were last struck for circulation in 1935, although there have been a few commemoratives struck since then. They contain .77344 troy ounces.

      At the current price of silver (.33/ounce), the silver value in them is worth, respectively, .33, .83, and .87.

  10. QUESTION:
    Are my coins worth something and if not can i still use them?
    I have some Eisenhower silver dollar coins, fifty cent pieces, and some old dollar coins. I was wondering if i could use them to purchase things. I would think so cause it is still US currency but i am not 100% sure.

    • ANSWER:
      Most Eisenhower dollars are not silver. The ones that are all were produced at the San Francisco mint and have the S mint mark, but not all S coins are silver. These were produced for special mint sets and proof sets, and you generally don't find them in circulation, because they weren't made to be used as money.

      Other 'Ike' dollars did circulate, but most people didn't spend them if they got one. If you have any that look like they've never circulated, or very little, they'll be worth more than face value, though how much depends on year and condition.

      Kennedy half dollars from 1965 - 1970 are 40% silver and worth a couple of dollars each just for the silver. All half dollars dated 1964 and earlier are 90% silver and worth over just in silver. Quarters pre-1965 are worth at least each.

      Old dollars aren't old unless they're 1935 and before. Don't spend 'em if you've got 'em. Dollar coins (not counting the Ikes) weren't made again until the Anthony dollars 1979-1981 and the Sacagawea and Presidential dollars of the present. Those, you can spend.


are all ike dollars silver