Most property owners, managers, boards, and/or insurance agents believe that obtaining an insurance appraisal for their property is one of the best decisions they have ever made. The reasons for this are simple:
- Our reports are unmatched in the industry and can serve as a cost segregation study as well as an appraisal. Cost segregation allows taxpayers to segregate various building costs into shorter depreciable lives. Additionally, personal property such as furniture, fixtures and equipment can be depreciated over a five-year recovery period.
- Cost segregation is significant for all real estate investors because the structure of a building does not only consist of the walls and roof and some interior rooms, but such other items as land improvements (storm sewers, curbs and sidewalks, parking lots, swimming pools, landscaping, etc.) and personal property (flooring, interior finishes, decorative lighting, kitchens, interior glass and electrical wiring for appliances, etc.).
- While a property’s structure is subject to a 39-year recovery period, land improvements qualify for a 15-year recovery period and personal property qualifies for a five-year recovery period. The IRS allows owners, through the process of a cost segregation study, to identify land improvements and personal property which can be separately depreciated over the shorter recovery period such as five years. A building will typically yield 25%-35% of the total costs that can be segregated into land improvements and personal property. This can translate to major tax savings for savvy real estate investors.
- Since depreciation is a non-cash flow item, a cost segregation study could provide a significant impact on this year’s tax return. For example, a substantial tax benefit is achieved in the case where depreciation has not been taken on a building constructed for $8 million with eligible improvements of $2 million placed in service on January 1, 2000. The cumulative depreciation of $1.1 million that was not taken previously can now be deducted in the first year of change. Additionally, the balance of the depreciable assets continues to be depreciated over the remaining life, these deductions, over the remaining useful life, provide an after tax present value benefit of $600,000.
Obtaining an insurance appraisal demonstrated due diligence on the part of the board members, property manager, and/or insurance agent.
- The owners, board members, manager, and/or agent have the peace of mind knowing that the property is accurately insured.
- An insurance appraisal assists your agent in placing the property coverage with a carrier by providing documentation that underwriters need to write coverage.
- Obtaining an insurance appraisal prevents under-insuring which puts the property at risk for having funds to rebuild in the event of a catastrophic loss; over-insuring would result in paying extra insurance premiums.
- An insurance appraisal provides a third party, unbiased valuation of the property’s replacement cost.
- If a loss occurs, an ETS appraisal, along with all data acquired in performing the appraisal, will be available to the client to help expedite the settlement of the claim.
- All digital photographs taken at the time of the physical inspection are electronically achieved for the clients use in the event of a loss.
- Having an up-to-date insurance appraisal provides accurate values for coverage, eliminating the possibility of a co-insurance penalty in the event of a loss.