As if the flood wasn't already enough, the effects of last September's historic rainfall in Boulder County could add wrinkles to the tax preparation process for some local residents.
Sean and Meg McCroskey know they have a "daunting" task ahead.
The Salina couple, whose uninsured home was declared a total loss after the flood, remain in a holding pattern.
"To be honest, we just don't know at this point" how it will affect the taxes, Meg McCroskey said. "Our house is on the buyout list; until that comes to fruition, we don't know what the implications are."
After speaking with their accountant, one step the young couple can start to take is creating an itemized list of what was lost to the flood, providing the date purchased, cost at the time of purchase and the fair market value for those items.
"Which is a daunting task if you can imagine," McCroskey said. "And a depressing one at that."
The McCroskeys will not be alone in their tax-related headaches this year.
Local and national financial and tax experts spoke with the Daily Camera last week to help provide some direction and tips to help flood victims navigate tax season.
These professionals included Mark E. Lumsden, a certified public accountant at Anton Collins Mitchell LLP's Boulder office; David Gardner, a certified financial planner for Boulder-based Yellowstone Financial and columnist for the Daily Camera; and John Trapani, a Westlake Village, Calif.-based CPA who specializes in catastrophic event tax services and recently led flood-related tax help sessions around the state of Colorado.
For businesses that suffered losses due to flood, "it's fairly straightforward," Lumsden said.
"It's just another cost of doing business," he said. "It's just any other repair or maintenance expense."
Losses on the individual taxpayers' side, assumptions are made that a casualty loss is the value of the lost items themselves and the cost of repairs, he said.
"It's the decrease in value that was caused by the casualty situation," he said.
The cost basis analysis includes the lesser of what was paid or the decrease in fair market value.
"If you paid $1,000 for something and it appreciated to $5,000 and you completely lost it, you'd only be able to deduct $1,000," Gardner said.
Losses from the September 2013 flood can be applied to the 2012 taxes because the flood event in Boulder County was a presidentially declared disaster area.
The intent with the application of a 2013 loss on the prior year's taxes is to help people attain a refund quicker, Lumsden said.
"See what one gives you the better tax savings," he said.
If taxpayers elect to apply the 2013 disaster losses to the 2012 taxes, they have until April 15 to do so, Trapani said.
If losses are greater than 10 percent of annual gross income, that would trigger the casualty loss provision.
"That's the first amount that they lop off," Gardner said. "If the loss does not exceed that, there's no use in tabulating it and claiming it."
As part of the calculation of the losses, the taxpayer needs to subtract money received from insurance, federal aid or donations, he said.
If a property is scheduled for a buyout through FEMA, taxpayers should be cautious, Trapani said.
"Where there is any possibility of such a buyout, taxpayers should delay claiming any tax deductions from the casualty loss as they do not have a 'closed transaction,'" he said.
If a taxpayer prepares the return believing the recovery will be less than the loss but receives additional funds in the following year, it could result in an ordinary taxable gain.
"If a homeowner (primary residence only) has any possibility of being bought out under any Hazard Mitigation program, they should wait to claim any loss until that sale is either completed or no longer is a possibility," Trapani said.
People who experienced a flood should not 'rush to deduct,' Trapani said.
"The most dangerous thing is taking a deduction too prematurely," he said.
For example, an individual determines a $50,000 loss and reports that loss in his 2013 taxes by April 15 and then in May discovers an additional $25,000 of deductions. The latter would have to be reported in the year of discovery: so 2014 in this case, Trapani said.
As a result, there's now a 10 percent of annual gross income adjustment for 2014, which could reduce the deductions more than if that $25,000 was reported in 2013.
"That's the big one, is getting your documents together, getting your information down and not rushing to deduct," he said. "Wait to make sure until you have all the information."
For taxpayers who may not have all their documents in hand, Trapani recommended filing an extension and submitting by the Oct. 15 deadline for the 2013 year filing.
When itemizing losses, thoroughness is key.
"Anything that you file, you need to prepare to defend," Lumsden said.
The consideration becomes one of reasonableness, Trapani said. Receipts may be destroyed, but other forms of evidence could come via pictures, public records and files from the likes of a title company.
When itemizing, taxpayers should spend their time efficiently, focus on the large items first and move on from there. Schedule time with family members to sit down and go room by room to recall the items, Trapani said.
When trying to assess a drawer of kitchen utensils, for example, "don't drive yourself nuts," he said.
"Maybe they cost $3 to $5 a piece," he said. "Do a reasonable job, don't go crazy, modulate your time versus your results."
Keep in mind the net deduction value, he said.
When determining valuations, care should be taken on both the appraisal and cost of repair methods.
Trapani stressed the importance of having a qualified appraiser provide an appraisal of the property before — in some cases, a "hypothetical appraisal" — and one after the event.
"Generally speaking, my experience with taxpayers is the appraisal method is the better method," he said. "It's easier to apply on one hand, and at the same time it does require two actual real estate appraisals."
Another valuation to consider is the "cost of repairs" method.
"It's not the 'estimated cost of repairs,'" he said. "It is the 'actual cost of repairs.'"
And those cost of repairs do not include any kind of improvement or changes from the original property, he said, noting that the valuation would not be accurate if, in the rebuild, ceramic tile were to be replaced with granite.
Before filing, seek out a qualified tax professional.
In such a catastrophic event, taxes are the last thoughts in people's minds, Lumsden said.
Because of the complexity of the issue, he recommends sitting down with a tax professional. Admittedly biased, Lumsden said tax software and chain preparation offices may not provide the full scope as to what a flood victim needs.
"This is such a weird area that it's definitely worth sitting down with a professional," he said.
Contact Camera Business Writer Alicia Wallace at 303-473-1332 or email@example.com