Case Study: Cost Segregation After Natural Disaster
If your building looks like this
You could still be eligible for tax savings through cost segregation
In 2020, Hurricane Laura devastated the communities of southwestern Louisiana. All told, the hurricane resulted in over $19 billion in property damage. In addition to the cost of the damage itself, the resulting red tape surrounding insurance payouts and the tax implications thereof have left many small business owners reeling. Eight months later, clients are telling us that they are still tangled in negotiations with insurance companies to get the money that they’re due as a result of damages from Laura.
This brief post is intended to shed light on a cost-saving opportunity that is still available to building owners whose properties were damaged by the hurricanes. In July of 2020, we began to consult with a property owner in southwestern Louisiana who owned several properties in the area. He was impressed by the tax savings projections available through cost segregation. However, he needed time to consult with his tax advisors before moving ahead with a study. Just one month later, Hurricane Laura made landfall and dealt severe damage to one of his properties. A portion of the property had to be almost completely gutted before the repairs could begin.
In his case, the damage to the properties was covered by insurance. Damages covered by insurance do not affect the depreciable basis of the property. In other words, even though the property sustained severe damage, for tax purposes it continued depreciating as if there were no damage whatsoever. As a result, despite the natural disaster, the taxpayer received a large tax deduction by applying a cost segregation study.
The study resulted in a five-digit tax savings for the client for tax year 2019, which allowed him to free up much needed capital to invest in his business in the midst of multiple natural disasters and the economic impact of COVID-19 restrictions. You may be eligible for additional deductions under the current tax law. We can run a no-cost projection of the tax savings available to you through cost segregation. Contact us for more information, or use our online form to request a cost segregation estimate for your property.
For more information please contact our Director of Cost Segregation at clayton@lumpkinagency.com.
The information provided in this blog is intended for general information only, and is not meant to constitute tax advice.