IRS Tax Deduction for Tree Damage

[JimLewis]

Here is an interesting tidbit probably some of you didn't know about. The IRS is offering a tax deduction to consumers who incurred tree damage in 2006. Just something maybe you could let your customers about. But better act quick! Tax day is coming soon.

Here's the link to the article;
http://forestry.about.com/b/a/141215.htm

 

[treeseer]

Thanks for the link and welcome to AS. Landscape trees can also be declared as casualties if they are appraised.

 

[John Paul Sanborn]

A separate appraisal of the shade trees themselves and estimates of their replacement cost can be used as appraisal factors, but the actual sales prices for properties comparable to the damaged property are the only evidence the IRS will accept at more or less face value. Since sales prices for similar properties with and without shade trees aren't readily available in most rural areas, shade tree appraisal and replacement cost are frequently used as the primary appraisal method.
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The amount by which the loss exceeds any insurance payments received is reduced by $100 and is further limited to the amount by which the loss exceeds 10 percent of adjusted gross income.

From what I've heard/read is that it is very difficult for people to get these past the IRS, especially when using the Valuation Guide. Very conservative and "realistic" metrics should be used when evaluating irreplacable trees.

E.g.- You use TFM and say that you need four 6in trees to replace the 46 oak on a $200k house, a rule of thumb is landscapes are 40% of the property value. If the total value of the landscape 80K, and it costs 2k per tree to install with frostball and crane, does that tree reasonably constitue 10% of teh cost of the landscape?

Then the client must realize that casualty loss is a top-line deduction, not a bottom line credit. So what they "get back" is a small percentage of the reduced value equal to their tax bracket. By my ethical measuring stick, I would urge the client to work with a qualified tax professional before any reprts are writen.

The refund may not cover the cost, unless they are just using the tree bid method and not a report.

 

[BayouTree]

Just curious

JPS- When insurance companies pay out for the loss of a tree that has been appraised do they normally pay out the appraised value, or do they pay out what the decline in the value of the property is as a result of the loss of the tree?

 

[JimLewis]

JPS- When insurance companies pay out for the loss of a tree that has been appraised do they normally pay out the appraised value, or do they pay out what the decline in the value of the property is as a result of the loss of the tree?

Well, I'm not JPS. But I do have some experience with that. We do a lot of insurance estimates for clients in our area where, say, a car ran into their large tree and now the auto insurance company is settling the claim with the homeowner whose tree was hit. In those cases, in my experience, the insurance company pays out the actual replacement value of the tree, plus the cost of removing the damaged or fallen tree. Then, what usually happens is the customer takes the money, pockets most of it, and has us install a much smaller version of that same tree that was damaged.

 

[treeseer]

the customer takes the money, pockets most of it, and has us install a much smaller version of that same tree that was damaged.

Sounds familiar. I see nothing wrong with it. Bear in mins also that the appraiser's fee is deductible.

jPS, TFM was disallowed in IRS court after Hurricane Andrew in 1992. Many appraisers now use Replacement--hey, bug trees CAN be moved--or my preference, cost of cure.

"you need four 6in trees to replace the 46 oak on a $200k house, a rule of thumb is landscapes are 40% of the property value."

40% is a little high; 20% is closer to the consensus that ASCA pubs and folks refer to.