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Our primary residence in Bentonville, AR was hit by the Tornado on March 12, 2006. We sustained enough roof damage that the County plastered a "Cannot Occupy" sign on our house.
We were insured and had the house repaired (roughly 100 days living in temporary housing), but how do you determine the FMV immediately following the loss?
Per the IRS tax guidelines:
If your property is not completely destroyed or stolen, or if it is personal-use property, determine your loss from a casualty by first figuring the decrease in fair market value of your property as a result of the casualty event. To do this, you must determine the fair market value of your property both immediately before and immediately after the casualty. An appraisal is the best way to make this determination. Compare the decrease in fair market value with your adjusted basis in the property. The adjusted basis is usually the cost of the property plus or minus certain adjustments. From the smaller of these two amounts, subtract any insurance or other reimbursement you receive or expect to receive. The result is your loss from the casualty. For more information about the basis of property, refer to Topic 703, or refer to Publication 551, Basis of Assets.
The way are determining is the following (with example $'s):
FMV immediately before loss: $269,900 (per Appraisal less than 1 year old)
FMV immediately after loss: $177,920 (equals Mortgage Owed - Insurance Paid - Cash in Savings).
For me, that is the FMV because it is the lowest we could reasonably sell the house that was uninhabitable and was encumbered with a 1st Mtg, and it is the highest that someone would reasonably offer for a home that was uninhabitable until repaired (it would also have to be someone that could purchase the property with cash, as they could not get a mortgage until the property was repaired).
Thanks!
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