Expert: Phil Nicols - 2/18/2009

Question
QUESTION: Can you provide me with what is considered legal out of pocket expenses due to damage by plumbing which was not properly installed. Can loss of use of your condo and lost wages while working on getting the repairs done be claimed?
I have plane fares, car rentals, and repairs also that were not covered by my insurance policy also to claim. Is there some where I can look at what can be reasonably paid back to me by the plumbers insurance company?
Regards-Greg

ANSWER: Greg -- this is an accounting question -- and one that will pertain to your state or province specifically.

My accountant is a rather square. He won't do anything outside the box however I have heard of lots of cases where people are claiming a lot more than I do.

One way of doing it is add up all your claims and use a percentage -- in other words some of that expense is not directly related to the income producing property.

It also depends on how you hold the building.  Is it in your name personally?  Or a company etc.

If it is in your name personally than all the income should be coming to you personally and therefore you should be able to write off or percentage of that because a percentage of your income is coming from the building.

The acid test question is this; "Did I need to spend the money in order to create the income?" If the answer is yes then it should be directly related and as a candidate for right off.

But, if the building is in a company by itself -- than that company is an entity on its own and should be treated as such.

There are lots of ways of pushing the envelope without getting yourself into too much trouble.  You need to find an active accountant -- and possibly even a tax lawyer specializing in commercial property in the area that you live -- that is the property could be in Guatemala and you could live in Ontario -- in that case you're supposed to report all income in Ontario.

But then there are cases were the property is also in Ontario but the registered Corporation is in the Cayman Islands and therefore taxes are paid based on that country's tax basis.

It's not just a simple can a claim this or that -- it's a whole can of worms on its own.

Again I am not a tax lawyer or an accountant but I do know enough that if you're making unreasonable claims, this will create a red flag and, at least here in Ontario, they have bureaucrats that are paid to do nothing but chase after people who want to avoid paying taxes.  So everything in moderation.

Good luck

Best, Phil

---------- FOLLOW-UP ----------

QUESTION: I was looking to sue or go after the plumbing companies insurance carrier. To fully recover all that I am entited too. This I believe would then be an accounting wash where the incoming would basically equal what I lost. From what I sent my ins carrier they are also going after the plumbers ins carrier. This condo is in Florida and I am the owner. Thanks.
Regards-Greg

Answer
Greg, I dont see a question here. you want to sue the plumbers..

As I said, if you spend the money to gain the income, you should be able to write it off on your income tax -- if the condo is in your name personally -- if it is in a company name, then any income and expenses would have to be dealt with as such.

As far as suing the plumbers -- that is an issue on itself.  You are going to have to hire a lawyer who's going to require a retainer, and the lawyer will have to be in the same place that the action is being carried out.  Presumably Florida in this case, so you will need to hire a Florida lawyer.

I'm sorry if I can be of more help first of all, I specialize in commercial real estate not condominiums.

Second, as far as the income versus expenses, that's an accounting question, and as far as your legal issues, you need to consult with a lawyer.

Good luck

best, Phil