The preservation of historic buildings plays a vital role in maintaining the architectural and cultural heritage of our communities. To encourage property owners and developers to invest in these projects, the government offers a variety of tax credits and incentives. However, navigating the complexities of these programs can be challenging. That's where a historic tax
Insurance Replacement Cost Appraisals
An insurance appraisal is a replacement cost analysis which provides an accurate estimate of the amount of insurance required to replace each structure and/or amenity exactly as it stands on the day the report was prepared. The appraisal provides both a hazard and flood insurable value (if the property is in a flood zone). Engineered Tax Services (ETS) calculates each buildings reproduction cost on a component-by-component basis from the ground up. Our software processes the complex calculations needed to correctly estimate the labor and material costs for each building component and system.
Our software also calculates the taxes, fees, overhead, and profit to provide an accurate estimate of what it would cost to reproduce the structure today. ETS may be able to take advantage of additional savings from our report as it relates to your property insurance. Our detailed engineering report can eliminate the guess work that goes into underwriting property casualty policies. Realistically, the guess work never works to your favor. There is also potential savings in shifting insurance rates from real estate assets to personal property assets.
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.
- A full consultation with a representative of the property to discuss the scope of the work.
- An in-depth on-site inspection of the property by the appraiser.
- An examination of all construction plans for the structures included in the insurance appraisal.
- The production of an appraisal report with the construction plans utilizing state of the art engineering and construction cost data software programs.
The complete insurance appraisal includes:
- Definition of Hazard Valuation (any non-flood peril).
- Definition of Flood Valuation (based on National Flood Insurance Program Guidelines)
- Detailed Building Descriptions
- Property Location Map
- Photographs of Each Appraised Structure (High Resolution Digital Photographs)
- Recapitulation of Values
- Replacement Cost Estimates (Hazard and Flood)
- Insurable Replacement Cost Estimates (Hazard and Flood)
- Depreciated Replacement Cost Estimates (Hazard and Flood)
All digital photographs taken at the time of the physical inspection are electronically archived for the clients use in the event of a loss.
When a historical property is renovated and there is a focus on energy conservation and green construction, the property may qualify for Energy Tax Credits. While these credits cannot often be used by the holders of historical properties, they can be “gifted” to the architect or contractors involved in the restoration. These credits can range from between $0.60 and $1.80 per square foot.
- Home Owner Associations
- Master Associations
- Time Shares
- Country Clubs
- Golf and Tennis Clubs
- Hotels and Resorts
- Medical Buildings
- Retail Stores
- RV Resorts
- Bed and Breakfast Inns
- Commercial Buildings
- Office Buildings
- Colleges and Universities
- Strip Malls
- Retirement Homes
A courthouse was valued to determine the insurable value; the property was well over 200 years old and had musket holes from three wars (1776, 1812 and 1864). In addition, the property had just been fully restored. The county that owned the property proudly boasted that it had spent over $15 million to restore the property and was upset the valuation came in at around $5 million. The original insurance policy was for the “functional replacement cost” with an option for actual cash value, if the property was not replaced. The property was valued a second time. While working with the carrier to treat the property as “historical,” the valuation still did not meet the property owner's expectation – even though the value in the report more than doubled the original valuation.
The solution was a combination of education and loss control. It is generally easier to create a replica of the property in the event of a total loss than to refurbish an existing property. Some of the elements of the property, such as the bullet holes, could never be replaced; therefore, a display showing the holes was made and placed inside the property. A replaced section of the old courthouse was recovered and used to make the display.
ETS also recommended high-quality documentation of the property, focusing on any filigree to help in restoration in the event of a loss. By working with the property owner and the carrier, we were able to meet their expectations and needs. More important, this valuable part of American history was better protected. Modern restoration needs to take into account not just the historical nature of the property but the green elements of construction; many of today’s restorations strive to be LEED-certified buildings. ETS is uniquely qualified to help meet these needs too.
During these tough economic times, the AIA Leadership Academy and tax-intelligent planning for clients can give architectural firms a competitive edge. AIA partner Engineered Tax Services explains. In the wake of the pandemic, these are challenging times for architectural firms, particularly regarding the field of commercial real estate. But there are tools you can access
Many architects are either unaware of the applicability of research and development (R&D) tax credits to their firms or struggle to understand how the credit applies if their projects or project activities qualify for R&D Tax Credits, why they qualify, and how much the credit might be. R&D Tax Credit Background The R&D tax credit