Casualty Loss of Value Due to Ice Damage to Trees
or other Damage

Damage can occur from a variety of sources, a natural disaster such as a tornado. hurricane, ice storm, fire, vandalism, negligence. or a variety of other reasons.  A neighbor may mistake property lines and cut your trees by mistake, a pipeline may cut through the roots of a major landscape ornamental tree, a fire may ravage a community. 

If you have suffered the loss of trees due to ice or other factors, first let me say I'm sorry.  Is it worthwhile to have an appraiser estimate the amount of loss for casualty loss purposes?  Very likely, yes!    In my experience, I have found that people generally tend to grossly underestimate the value of trees.    

Loss of value can occur from a variety of sources, both within the property lines and outside them.  Value is maximized through the Theory of Conformity, that is, in a nut shell, as long as all properties in an area are essentially similar and harmonious, value is maximized.  When properties differ, value can be lost, for example, a run down property in the neighborhood can negatively affect values of nearby properties.  Many factors can affect value, but for this article, we will focus primarily on damage to trees and landscaping, but primarily trees. 

Recent Ice storms in Oklahoma have resulted in the loss or damage of many trees.  Consumers will want to check with their tax preparer to see if they would benefit from considering a Casualty Loss in their tax return. 

A damage appraisal is an assessment of the reduction in monetary value of a property for loss of trees, due to an identifiable cause or event.  It's purpose is to assist the client in the recovery of the monetary loss through an insurance claim or legal action, and in some cases, a tax write-off of the casualty loss.  The appraiser provides a valuable service by providing a piece of paper (the appraisal) that is worth cash to his client. 

What someone will pay is what determines how much the real world actually values trees.  Researching, documenting and supporting the appraisal is difficult and involved, there is no simple cookie cutter formula that can be applied in every situation.  Each property is individual and a detailed analysis is required if the appraisal is to be supportable in a court of law. 

Disclaimer:  I am not a tax professional.  You should not rely on any presentation made here without individually verifying that the information presented is correct, and then, only after consultation with a Tax Professional.  This information is believed to be reliable, but has been gathered from a variety of sources that are subject to change.  This information is provided solely as a starting place for discussion with your Tax Professional. 

The IRS has made available their Publication 2006 Disaster Losses Kit for Individuals p2194.pdf that was available at the time of this writing at the IRS website at http://www.irs.gov/pub/irs-pdf/p2194.pdf. 

According to the IRS "If you were affected this year by a major disaster or emergency in you area, this Disaster Losses Kit can help you claim unreimbursed casualty losses on property that was destroyed by a natural disaster. (P. 3 paragraph 1)" 

The same publication, on page 12, quotes Page 2 of the IRS Publication 584 (Rev. Dec. 2005) Casualty, Disaster, and Theft Workbook: 

Amount of loss.

You figure the amount of your loss using the following steps.

1. Determine your cost or other basis in the property before the casualty or theft.

2. Determine the decrease in fair market value of the property as a result of the casualty or theft. (The decrease in FMV is the difference between the property’s value immediately before and immediately after the casualty or theft.)

3. From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Apply the deduction limits, discussed later, to determine the amount of your deductible loss. Cost or other basis. Cost or other basis usually means original cost plus improvements.

If you did not acquire the property by purchasing it, your basis is determined as discussed in Publication 551, Basis of Assets. Fair market value. Fair market value is the price for which you could sell your property to a willing buyer, when neither of you has to sell or buy and both of you know all the relevant facts.

When filling out Schedules 1 through 20, you need to know the fair market value of the property immediately before and immediately after the disaster, casualty, or theft. Separate computations. Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Then combine the losses to determine the total loss from that casualty or theft.

Exception for personal-use real property. In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Figure the loss using the smaller of the following. • The decrease in FMV of the entire property. only in the tax year in which the casualty or disaster occurred. You can generally deduct a theft loss only in the year you discovered your property was stolen. However, you can choose to deduct disaster area losses on your return for the year immediately before the year of the disaster if the President has declared your area a federal disaster area. For details, see Disaster Area Losses in Publication 547.

 OK, paperwork out of the way.  The question becomes, how much value did the tree that broke due to ice (or other cause) contribute to my property and how was my value affected? 

Measuring value is what real estate appraisers do.  It is widely recognized that trees can have a substantial affect upon value, and it stands to reason, that the loss of a tree can also affect value, the question is, by how much? 

How much was my value impacted by the loss of a tree or trees?  The simple answer is, I can't tell you.  At least not without knowing a lot more about the whole picture.  I can give you some guidelines however. 

First, the loss of a single, large tree or group of trees, that was a focal point for the entire property can have a major impact.  The loss of a single tree, out of a group of trees, where the one lost was not particularly noticeable, will have a lesser impact or possibly no impact at all, if no one notices it's gone.  The loss of a single branch may have no loss of value, however, if that branch had extended out to "Frame" the house, such as framing in a photo, the loss could be significant. 

There you go, minimal, significant, just what is my dollar loss?  Let's cut to the chase, is it worth my while to hire an appraiser to estimate my loss or not?  Again, I wish I could tell you, but I just don't have enough information, but . . .

What I can tell you is this, in Arizona a property sold for a little over a million dollars while a similar property that had a backyard waterfall, trees and attractive landscaping sold for over two million.  In this case, the value more than doubled.  In another town, houses that faced a tree lined street literally sold for twice the price of houses on the next street that had few trees, the houses were virtually identical.  There are many other documented cases where the presence or absence of trees can double the value of properties.  So, the conclusion can be drawn is that trees and landscaping have the potential to double the value of a home. 

With this as an upper limit of value, your loss could be anywhere between this and zero, however, it is not difficult for something as noticeable as trees to have an impact of 10% to 20% or more.  It is possible that as little as a 5% loss on a $50,000 property might be worth pursuing, and the higher the value of the property, the more likely that an appraisal would be cost effective for the property owner. 

The bottom line is, if you lost a few branches, I'm sorry, but it's probably not worth your time to hire an appraiser, however if the loss is such that friends or neighbors notice, it probably is in your interest to hire an appraiser.  I can tell you that in my experience, homeowners tend to grossly underestimate the value of trees and would suggest that, at a minimum, you consult with an appraiser who is experienced in estimating the value of trees. 

As a note of caution, be sure to ask the prospective appraiser if he or she is has had prior experience in estimating the loss of value doe to the loss of a tree or limbs.  The typical residential appraiser of today frequently focuses so much of their time mass producing appraisals for first mortgage lenders, that they don't take the time to do the research necessary to produce a report that is satisfactory for supporting loss to the IRS. 

This could be considered a "Complex Appraisal Assignment" that would require the use of the highest level of appraiser designation, the "Certified General Appraiser," as opposed to a certified residential appraiser or licensed residential appraiser.  Be sure to check your state and national requirements in this area.  Appraisers at Scott Appraisal Company in Bartlesville, Oklahoma are Certified General Appraisers in the state of Oklahoma. 

What can I do to prepare for the appraisal and assist the appraiser?  Having a good set of photos that the appraiser can take with him and keep for his files, showing the before and after photos.  Take photos immediately of any downed or damaged trees or limbs.   If the appraiser can actually arrive before the trees are removed, in many cases, can greatly assist the appraiser in knowing exactly what he or she is dealing with. 

When you take photos, include an item to show size, such as a ruler, yard stick, dollar bill, coin, or other item that can be used for measurement/comparison purposes.  Get a close up showing growth rings if possible.  If no photos are available, check with friends, family or neighbors on the off chance they might have a photo showing your house.  Scenes of heavy snow, fall colors or the arrival of out of town friends or family often take place outside and may have your house in the background. 

Get documentation from tree trimming or clean up crews as to how many, the size of trees and volume of debris removed from your property.  Check for damage to underground sprinkler systems or your yard by the actual trees, or the removal process.  Document as much as you can with a bill from your lawn sprinkler company, landscaper, bills for new sod, etc.  While not all may be required for an appraisal, the more information that you can have available, the better, and be sure to provide an additional copy to your tax preparer.