Empowering recovery: California wildfire tax relief strategies

The following is a verbatim output of transcribing from a video recording. Although the information in this transcription is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or grammatical, spelling and transcription errors.

Shashi Mirpuri

Hi everyone. Welcome to today's Baker Tilley webinar. Before we begin, we'll cover a few housekeeping items. To the right of your screen, there are multiple application engagement tools you can use. If you have any questions during the webinar, you can submit them through the Q&A engagement tool. Next to the Q&A application is the polling section. Here a pop-up screen will appear with a question. Please select your answer and click Submit. Once you submit your answer, the polling question will close. To find additional session documents, click Resources. Here you can find session-related content to download, such as the PowerPoint slides, relevant documents, and more. After the webinar concludes, you will receive an e-mail with a link to watch the recording. Lastly, don't forget to take the post-event survey. This will be available on your engagement panel to the right of your screen shortly before the webinar concludes. Our team greatly appreciates your feedback and we use it to guide future content development. Now let's pass it over to today's speakers.

My name is Shashi Mapuri and thank you for joining Baker Tilly's webinar on empowering recovery California wildlife tax relief strategies. I'm accompanied today by a few of my colleagues. I have Jigna Doshi from the Wooden Hills office, also a tax principal. I have Tony Ollman, the principal in our risk management practice from Madison, WI. And last but not least, Alan Freeman, Managing Director in our real estate advisory practice based out of Irvine, CA. Before we start, I also want to let you know we're about 155 attendees. We'll try to answer as many questions as we can in the chat, but please, if we do not get to you, put your questions in the Q&A and we'll try to get back to you within 24 to 48 hours. At the last slide, we have our contact information. You're more than welcome to e-mail us with specific questions and we'll try to get back to you as soon as possible.

Before we jump into the tax jargon, I just want to level set a little bit on the actual LA wildfires and the disaster it caused. To date, we lost about 28 lives and about 16,000 homes were destroyed. Significant homes were destroyed in the Palisades as well as in Altadena with the Eton Fire. The UCLA Anderson School of Management estimates that the total damage will be in excess of $100 billion, making this event the most destructive weather-related disaster in United States history. In addition, we have to think about the issues that have to go forward such as breathing the air quality, housing shortages in LA, which was already a problem, as well as significant challenges to our insurance.

So what did the IRS and Franchise Tax Board do? The first thing they did is they announced that individuals and businesses residing in LA County have a deferral of the returns and payments all the way to October 15th. So if there was any type of filing requirements typically between January 7th of 2025 to October 15th of 2025, they got pushed right here. I have enclosed the most common types of forms and returns that people commonly file or are aware of. So your corporate and pass-through entity returns typically due on March and April 15th have been pushed to October 15th. The individual and trust returns typically due on April 15th have been pushed to October 15th. Your nonprofit tax-exempt entities have been pushed. For those familiar with the California Pte, they have been pushed as well and quarterly estimated tax payments have been pushed. This includes your 2000 Q4 that was due back on January 15th as well as your 2025 Q1, Q2, and Q3. They've also pushed HSA contributions. And the one thing I just want to note here is that when it comes to payroll, it's really just a deferral of filing the actual tax returns, not the actual payment. So when you have payroll issues, there are specific rules for EDD as well as the IRS.

The IRS and the Franchise Tax Board did this a few years ago when we had the rains and the flooding. But the big difference is when they did this a few years ago, it was a blanket kind of extension throughout California. For the most part, all of California except for four or five counties were included. This particular relief is really geared towards LA County residents. So a big difference between what we saw two years ago. Also note that if you are in the middle of a 1031 exchange and you have certain dates to meet like your 45-day identification date, your 180 identification date, they too have been pushed to October 15th. And again, just as a reminder that when it comes to payroll, there are specific rules between EDD and the IRS. Again, this is not an exhaustive list. It's the most common ones that I put down. If you have a specific form or a specific question on that, please shoot it in the Q&A and we can research that and get back to you. The relief does not cover 1099s, W-2s, and Form 1040s, which are also pretty common.

So who qualifies for this relief? The relief is available to any individual or business with an address of record within LA County. So if you have an address of record within LA County, it's an automatic extension for both federal and California. Nothing needs to be done. However, there's going to be a significant number of taxpayers that qualify but do not have an address of record within LA County. For example, a taxpayer may have just moved into the area. You have tax residents that maybe use a CPA that's outside of LA County as their address on the tax return. You have taxpayers living outside of LA County but maybe have a business or rental property. All of the above would still qualify for the deferral even though they don't themselves have an address of record on file. In addition, it states that if your books and records are kept within LA County, i.e., your tax practitioners in LA County, you too can qualify. So technically speaking, because I'm in Wooden Hills, California in the city of LA County, all of my clients would technically qualify for the deferral because I'm here. So as you can see, it opens up the window quite significantly. The IRS says, hey, if we do not have an address of record on file, but you believe you qualify, there is a proper procedure we have to go through. Baker Tilley will handle that for our clients in the form of a bulk request. So all we would need is a signed POA and we will handle everything else. California hasn't come up with a correct and proper procedure quite yet. Some more to come on that, but they too will conform to this. We're just trying to figure out the proper process and procedure dealing with the California government.

So I want to jump into property taxes. So first and foremost, immediately, if someone has suffered damage or destruction to their home of at least $10,000 or more, they can immediately apply to get their home reappraised within the next 12 months. You do this simply by filling out Form ADS-820 with the Office of Los Angeles County Accessory within 12 months of the date of damage. That's number one. The second thing that you could do is you could try to defer your next property tax installment payment by filling out form ADS-820.3. By doing the two, you can get both your property tax reassessed as well as try to defer your next property tax payment. The following zip codes that are listed here have an automatic deferral of the property taxes all the way to April 10th, 2026. Nothing needs to be filed. It's an automatic extension for your payments. The two things that are important to know though are if you have an automatic impound for your property taxes through escrow or you were already delinquent on your property taxes before January 6th, you do not qualify for this automatic deferral of payment. So two important things. One is the postponement of the impounds. If you're impounding, it's not automatic as if you're delinquent, it's not automatic otherwise. Otherwise, the following zip codes do have an automatic deferral.

So once you've figured out your property tax, whether it's a reassessment or your next payment, the next question is, well, what am I going to do next, right? So you have two options typically, right? You can sell the property and move to another home or you can rebuild. And the question then becomes what happens to our property taxes? So if you decide to sell your home and purchase a new home, we have Proposition 19 that was passed a few years ago, which allows you to carry over your property tax base. If your home was significantly damaged or destroyed, there are certain rules that have to be met. So what are those rules? The property that you had that was damaged or destroyed had to have been your primary residence, not a rental. The original property must be sold in its damaged state. The replacement property must be in California and it also must be your primary residence. The replacement property must be acquired or constructed within two years of selling the original property, and if the replacement property value exceeds the value of the damaged property right before the destruction, the excess will be attached to the property tax base. And last but not least, you have three years from purchasing or completing construction on the new property to transfer the property tax value.

The best way to understand this really is through an example. John's primary residence was destroyed in a wildfire. His taxable property tax base value was $300,000. Before the fire, the current value was $800,000. And he decides to buy a new home worth $900,000. So the difference in the fair market value between old and new is $100,000. You know, 9 versus 8 and then his original base was $300,000. So John will have a new home taxable value of $400,000 on the new property even though he purchased it for $900,000, right? So very powerful. The best way to understand this is if a taxpayer buys a property of equal or lesser value, they keep the same property tax base. If a taxpayer buys a property greater than the original fair market value, that difference is just added to the property tax base. And you know, either way, it's significantly different than just the fair market value of the date of purchase. A taxpayer could also decide to rebuild. If a taxpayer chooses to rebuild their home rather than replace it, the assessed value will carry over to the new construction as long as it is rebuilt in a similar alike manner, the value of the rebuilt home can be up to 120% of the value of their original home right before the destruction. So we have options in both scenarios.

Now I'd like to pass it over to Jigna who'll be talking about disaster-related laws.

Jigna Doshi

Thank you, Shashi. We're going to jump into the tax benefits or rather the tax availability when it comes to deductions related to disaster-related losses. Individuals and businesses in a federally declared disaster area who have suffered uninsured or unreimbursed disaster-related losses have two choices when it comes to deducting those losses on their returns. They can either claim such losses in the year of disaster, which will be the 2025 year, or they can claim the losses in the prior year, which will be the 2024 year. The key thing here is individuals are required to file a claim with their insurance in order to deduct a casualty loss. There are certain limitations as to the amount that is available as deductions. Any net loss in excess of $100 and 10% adjusted gross income floor is available as a deduction. This limitation does not apply to any businesses or income-producing properties. For any mixed-use properties, the losses must be calculated separately for the business and the personal use portion. One thing I'd like to note here is while the federal Disaster Tax Relief Act of 2023 eased some of these limitations, such as the removal of the 10% AGI floor but increasing the $100 limit to $500, those apply only to the disaster incident between December 27th, 2019, and December 13th, 2024. Unfortunately, because the recent wildfire disaster falls outside of the incident, these enhanced limits are not available for January 2025 wildfire victims. At this point in time, in order to elect the casualty loss in the earlier year, which will be the 2024 tax year, the taxpayer must include a Section 165 election statement with the return that includes the basic information about the disaster, such as the name and description of the disaster that gave rise to the loss, the date of the disaster, and the address of the damaged or destroyed properties. It's also important to mention the FEMA disaster declaration number on the statement and the return.

So how do we calculate whether we have a gain or loss? The first step is to determine the lesser of the decrease in fair market value of the property before and after the disaster and compare it to the adjusted basis of the property. So basically, you have to see what your fair market value was before the event and what your fair market value is after the event. And the key point here is you have to get a real estate appraisal in order to determine the fair market value. It cannot be what you think. It has to be a real estate market valuation. The lesser of the two is then reduced from your insurance proceeds to determine what the loss is. We'll go through the calculation and show an example of how the calculation works. Replacement costs and decline in market value are excluded from the calculation. However, your cleanup costs and any repairs can be included as part of the calculation. One thing to note is all losses must be claimed on the same tax return. Whether you're claiming it on a 2024 tax return or you're claiming it on a 2025 return, it has to be in the same tax year. Any excess proceeds must be included in income in the year of settlement. So typically what happens when you're calculating the loss is you estimate your insurance reimbursement to the next dollar. And we know that typically these claims take a longer time to settle and the settlement amount may very well be different from what you originally thought it would be. In such cases, any difference in the insurance settlement will be picked up as income in the year of settlement. Any gain from excess free insurance proceeds can be deferred under IRC Section 1033. No gain is recognized on insurance proceeds received for unscheduled personal property within the property that was damaged. Unscheduled property is essentially any low-value item for which no separate insurance is warranted. Typically, those are furniture, clothing, appliances, electronics, kitchenware, etc. Those are essentially unscheduled property. Any reimbursement for those is essentially excluded from the calculation.

So let's go through an example. A wildfire damaged your home and destroyed your furniture. This was your only casualty loss for the year. Your home is located in a federally declared disaster area designated by FEMA. That is the key. It has to be a FEMA-designated area. Assume you're not going to get any reimbursement from insurance or any other sources and assume the taxpayer's adjusted gross income was $71,000. Our cost for the home is $134,000 and the furnishings were $10,000. The fair market value before the disaster based on the real estate appraisal is $147,000 for the home and $8,000 for the furnishings and the fair market value immediately after the disaster is $100,000 for the home, $5,000 for the furnishings. So going by step one, which is the lesser of the decrease in fair market value or the cost? In our case, the lesser is the decrease in fair market value, which is $47,500 for the home, $3,000 for the furnishing, giving us a loss of $50,500. This needs to be reduced by the $100 and $7,100 which is the 10% of AGI of $71,000 resulting in an allowable deduction of $43,300. So as you can see, even though we had our cost basis of between home and furnishing of $144,000, what we are able to actually claim as a deduction is only $43,300. Any individual who receives insurance proceeds in excess of the property's cost basis because of an involuntary conversion can defer paying tax on gain under IRC Section 1033. The key here is involuntary conversion. Taxpayers have three years following the end of the first tax year in which any part of the gain is recognized to either purchase a new property or rebuild. So, for example, if 2025 is your gain recognition year, you have until the end of 2028 to either buy a new property or rebuild. If this was your primary home, you have an additional one year. So instead of three years, you have four years to either buy a new property or rebuild. In the case of a primary residence, the replacement property does not have to be in the same geographical area or the same line of business.

Let's go through an example. The fair market value before the disaster was $10 million. The insurance settled for $6 million. The purchase price of the primary home was $3 million with an improvement of $1 million, giving us the total basis of $4 million for the primary home. This $4 million, when reduced from the insurance settlement of $6 million, gives us a gain of $2 million. Now there is one more additional favorable benefit available for the taxpayers in terms of IRC Section 121 which is the primary home exclusion. Assume that the taxpayer was married filing jointly, they can reduce the gain of $2 million by $500,000 resulting in a net taxable gain of $1.5 million. This $1.5 million can be deferred under Section 1033 as long as the replacement property is similar and is bought within the time frame which is your three or four years. So one thing that I would mention here is Section 121 as we know typically is available when your primary home is sold. However, a destruction or condemnation of a property qualifies as a deemed sale of the property, allowing us to use Section 121. So you could very well be constructing a home on the same land, but you would still qualify for 121. You're not really selling your property, but because it was damaged and you can't use it, it's essentially a destruction or condemnation of property and it's considered a deemed sale. The other requirement of Section 121, which is the primary home exclusion, is the taxpayer must have used that property as a primary home and lived two of the five years right before the sale. Now when it comes to natural disasters, taxpayers who do not meet the two out of five-year requirement may still qualify for a prorated exclusion. So it's not completely gone. Whereas in a regular sale of your primary home, you have to meet that requirement but in cases of natural disaster and condemnation of properties, you are actually given a prorated exclusion.

Disaster victims also have a few other options to secure cash for their immediate needs while they deal with the disaster. They can take a qualified disaster recovery distribution from their retirement plan as long as the distribution is made within 180 days of the disaster to an individual whose primary home sustained economic loss because of the disaster. The key here is the home has to sustain an economic loss. Such distributions are excluded from the 10% early withdrawal penalty as long as the funds are used towards the construction of replacement and primary home. The distribution is capped at $22,000 across the aggregate of all retirement accounts. So you could have more than one retirement account. You cannot draw $22,000 from each retirement. It's a combined $22,000 distribution.

The taxpayer would receive a 1099 hour for the distributions and they can spread out reporting income over a three-year. They also have an option to elect to treat the entire distribution as incoming one year and the recontribution. Is three years from the date the distribution was received. The taxpayers also have an option to take a loan from their retirement account and the maximum amount is capped at the lesser of 100,000 or 100% of vested benefit, although California only allows a maximum of 50,000. In such loans, repayment period is extended to one year beyond normal payback. The taxpayers also the the disaster victims also can have received funds from crowdfunding sources such as GoFundMe, which is considered a cash gift and non taxable to the recipient.

At the same time, the payers cannot get a deduction because the money is not contributed to a religious or a charitable contribution. Charitable organization therefore is not considered a qualified charitable deduction. Qualified disaster relief payment is another source of non taxable income to disaster area victims. Such payments received by individuals are not included in income as long as they are for expenses not covered by insurance or other reimbursements. So basically double tax benefits are not allowed.

If you have received reimbursement for medical expenses, you cannot claim the same medical expenses on your return as itemized deductions. These payments are not subject to income tax, self-employment tax, or any other employment taxes, and no withholding apply to these payments.

So what really constitutes a qualified disaster relief payment?

It's it is essentially a payment made for reasonable and necessary living expenses and excluded from income. You could have personal expenses, living expenses, funeral expenses, necessary expenses for repairs and rehabilitation of a personal residence, or necessary and reasonable expenses incurred to repair or replace the contents of the personal residence. And the note here is the personal residence doesn't mean it has to be your own home. It could also be a rented home. Any payment received to replace lost wages, insurance reimbursement, other reimbursement, lost business income or unemployment compensation does not constitute qualified disaster relief payment and is therefore included as an income. It is not an exclusion.

I will pass it on back to Shashi to talk about the employer assistance.

Shashi Mirpuri

Thank you, Jigna.

So the one thing I really wanted to mention really quick was Code section 139. So generally when you have an employer and an employer pays an employee, it's compensation, it's taxable to the recipient. Code Section 139 allows employers to pay for or reimburse an employee who has been suffered in a disaster for things such as housing, clothing, food, etcetera. And it is tax deductible to the employer and tax free to the recipient employee, right? Which is pretty cool. It's not part of the W twos. It's not part of the 1090 Nines. It's not even considered a gift.

So for employers that have employees who have been impacted by the disaster, this is a great technique and code section that allows them to give money to help with certain things. Employers can take a tax deduction, and the recipient does not have to pick up income. Both California and the IRS will follow the same treatment.

Additional items to consider:

To avoid denial of a reduction, please maintain itemized lists, receipts, pictures, and document everything. If an agent looks at your return, it won't happen until a few years from now. So, whatever we can do now to support our rationale and deduction, the better we will be in the future.

Assembly Bill 246 was passed, which puts a pause on rental hikes in LA County because people are gouging rent. So, we have a 12-month pause on that.

A lot of individuals may be under the California Fair Plan, which typically has lower insurance coverages compared to bigger traditional insurance companies. If that's true, you would expect a lot of people to be underinsured. And again, that's where the casualty losses we just talked about come in.

Increased interest rates: A lot of taxpayers may have purchased their homes back in the day with historically low rates. Now they need to take out a new loan to purchase or rebuild, and the rates have gone up. So, you'll have to deal with that. FEMA offers some lower loans and rates that might be an option, but it's something to think about as we move forward.

Proving basis might be difficult. Proving the basis of a purchase is easy because it's public knowledge. But if you had documents to support improvements or personal properties such as artwork or collectibles, those documents may have been destroyed in the fire, and those are hard to prove. There's no easy solution to that. It's really just documenting to the best of your ability, your rationale, and coming up with your best estimate of what those amounts are. It's better to do it sooner than later because, as I mentioned, if an agent ever questions it, it won't happen for a few years from now. So, it's better to do it now. You're probably going through that process now anyway with insurance, so that can be a key starting base.

And with that, I would like to pass it to Allen.

Allen Freeman

Thanks, Shashi. One of the key questions facing individuals is the anticipated impact on home prices before and after the January fires.

As you can see on this chart, the UCLA Anderson School of Management analyzed Malibu and Ventura ZIP codes impacted by the 2018 Woolsey Fire and observed that median home prices decreased by 11% in the two years following the fire. According to market participants familiar with these markets, home prices decreased as much as 30 to 50% immediately after the fire. This implies that Pacific Palisades properties not impacted by the fire could even see a short-term value drop of over $1,000,000. The long-term impact of the Woolsey Fire on home prices, however, is unclear given the broad increase in home prices nationwide from 2022 to 2024 as a result of low mortgage rates and limited supply.

In fact, when looking at post-Hurricane Katrina New Orleans, a city similar to Los Angeles with ongoing risk of weather-related disasters and increasing insurance premiums, home price growth was lower than in other U.S. cities. For individuals who experienced a complete loss of their home in the Palisades or Eaton Fire, the focus for casualty loss purposes will be on land values before and after the fire. On January 16th, the first land to go on sale post-fire in the Pacific Palisades hit the market for about $100 a land square foot, approximately 30% lower than land values pre-fire. One local broker has seen bargain hunters offering $0.25 on the dollar for land in the Palisades, which would be about $800,000 for prime lots worth over $3 million pre-fire. This is happening despite Governor Newsom's executive order banning unsolicited offers of impacted properties until April 2025.

As we saw in the preceding slide, it's unclear how home and land values will adjust following these January wildfires. Due to this complexity, individuals and businesses should consider using a qualified licensed real estate appraiser to estimate the decrease in fair market value of damaged residential and commercial real property. An appraiser can calculate the fair market value of the property immediately before and after the casualty and ensure that IRS guidelines are carefully followed to minimize the risk of a dispute with the IRS. Complicating this analysis will be the necessity to complete the appraisal process prior to October 15th in order to claim a casualty loss for the 2024 tax year and the likelihood there will be limited market data points this spring and summer when appraisers will be analyzing home values.

We've noted here some of the technical IRS requirements impacting casualty loss fair market value appraisals. The main takeaway is that the IRS is looking for detailed documentation from the appraiser to support a decrease in fair market value. Now, Tony is going to talk about some action items to assist with managing your insurance claim and contractor management.

Tony Ollmann

Thank you, Alan, and welcome to everyone who's joining us this afternoon.

We're going to begin with a brief fundamental about managing your insurance policy and the basics around it. While I know some of these sometimes feel very fundamental when we're all working through disaster recovery and having so many decisions forced upon us from, you know, 360°, it's important that we take a moment, take a breath, and get back to basics.

Begin by reading your insurance policies thoroughly. You're going to see that there's policy language in there regarding limits and exclusions, including steps that you need to follow to mitigate further damage. Keep in mind that your policy is going to cover only a certain component of the wildfire disaster; possibly subsequent damage or subsequent events may not be covered under your insurance. Furthermore, make sure that you fully understand the deadlines embedded in your policy. When do you notify your insurance company? If you have waited far too long to notify them, are you going to be missing out on potential benefits, including them developing a basic plan for remediation based on your policy? We're going to talk a little bit more about remediation here in a couple of minutes.

So let's hit the basic steps here that go with this: setting up that meeting with your insurance adjuster. This is the time to be tenacious. Be respectful, be professional, but be tenacious. The insurance adjusters are overwhelmed right now. There are not enough of these professionals to meet the overwhelming demand that everyone has on the insurance companies. Therefore, you need to take it upon yourselves to be tenacious and continually follow up with trying to get your insurance adjusters to meet. Yes, you sent an email. Yes, you sent a voicemail. You cannot stop until you've actually reached someone and scheduled an appointment.

Do your best to quantify the extent of the damage. You heard Sashi mention a few minutes ago: document, document, document. You heard Alan make similar references to the kind of documentation, and you can hear it again from me. So now you're asking, "Well, hey, this was all great advice, and I wish I'd heard some of this documentation advice six months ago." Well, begin with what you can remember. Get out to your site, take whatever photographs you can to document the existing conditions. And now you've got to go back and recreate what was inside those four walls. If you have cloud storage for family pictures, holiday events, birthdays, all of these photographs contain information from businesses. It contains information from your houses. It's going to have information about artwork, about possessions. All of these kinds of things are going to be incredibly valuable as you are documenting everything that you are hoping to quantify for the extent of damage.

Work with your adjuster to get an acknowledgment of everything that you've documented. And of course, document all of your communications, preferably email, and save everything—every communication, every email that you have with the adjuster, with the insurance company. Again, the adjusters are doing the best that they can, and they're professionals, and they're going to do the very best that they can to help you, but they are overwhelmed. They are not going to remember everything about your specific event. They don't have the same vested interest that you do. Therefore, whatever you're being told by them, document it so that you have a record of what has been promised.

So let's move into the planning process. The first bullet is to understand that process to avoid payment delays. As facility owners, your best opportunity to get contractors and other mitigation professionals to work with you is to be in a position to cash flow this project. Therefore, as you work with your insurance company, you want to know what the payment duration is. How quickly will they make payments to you? Will these be installment payments? What frequency will these payments come out? Because while you're waiting for the insurance company, your contractors may not be willing to wait for your insurance company to pay you. Therefore, you need to be looking at alternative financing sources. You should be reaching out to your lending institutions today, even before you have a solution on what you want to do. Remember when you were home shopping and you went to the mortgage company to get pre-qualified? Well, do it again today so that you are in a position to move once you have resources aligned, working with that insurance company, and you've agreed on the direction you plan to move with the restoration of the property.

Understand what their required documents are. What kind of documentation is going to be expected not only for the invoice from the contractor but what information do they want behind that invoice? What kind of progress reports are they going to be looking for? What frequency of photographs are going to be expected? Don't just assume that the contractors are going to know what the insurance companies are going to need. You need to own that responsibility and work with your insurance company to have a checklist of exactly what your insurance companies are going to require from you because your contractors don't report to the insurance companies. They work for you, but you have to work with the insurance company. So just don't assume that all of the professionals that you're working with are going to know what these requirements are.

As we move towards remediation, your first choice is always to bid out the remediation work and the reconstruction of the facility. Now we understand that given the limited resources and the competition for construction professionals, workforce limitations, and supply chain limitations, having three or four competitive bids is going to be difficult. Again, this is where I'm going to remind you to be tenacious. Do the best you can to get as many bids as you are able to get your hands on. Furthermore, work with your insurance companies so that you understand what they require. Maybe if you can only get one bid because you have tried every possible way to get multiple bids, but your insurance company requires you to have three, have you invalidated your ability to collect on your policy? So make sure that you are working with that adjuster hand in hand even at this step of bidding it out so that everyone understands the restrictions that you have not only placed on you by the market but by the insurance company as well. Level out any bids that you receive. And what leveling out means is making sure that all of the bids are the same—not necessarily the same price, but are you getting the same scopes of services? Are they using the same materials? Are they offering to do it under the same schedule? Are they offering the same warranties and assurance that back up the quality of the work? So make sure that the bids that you receive are more or less are you buying the same thing from contractor AB and C pick the best contractor, the most qualified and cost effective.

Cost effective does not mean the cheapest. Cost effective means the contractor that's going to deliver the project within the schedule and the price that they've quoted you. The lowest price contractor may not necessarily be the most cost effective. Contractors that are reputable in your industry have good relationships with the local labor force, relationships with subcontractors, as well as replace relationships with the supply houses and all of these are going to impact the success of your project. And if you cannot, be sure that your contractors are going to be able to get material to build a house or to redo your building if you can, If you aren't sure that they can get an electrician or a plumber to do the work that needs to be done.

It won't matter how much your insurance company is willing to to reimburse you if you don't have the professionals and the materials to get the project done. Avoid paying upfront large or large upfront deposits.

I'm sure many of you have read about or heard stories about unscrupulous contractors that go around promising everything, demanding large upfront deposits and then they disappear.

Unfortunately, this happens it it's a black eye to the industry.

Fortunately, it's a very small percentage of the contractors, but it gives the really good hard working contractors a bad reputation. Good contractors are going to work with you on deposits. Certain things will be required upfront, but then require documentation. Make sure if you go out, if you have to put down upfront deposits for construction materials, that you have the invoices that you understand what is being paid for and that you can draw a connection from what you're being asked to pay for in a deposit to a materials invoice to a legitimate supply house, to a delivery truck that's showing up at your job site. These are your responsibility to make these things happen in order to protect yourself during these times.

Drafting a contract with your contractor. Contracts are very complex. We recommend that you engage legal counsel that specializes in construction contracts.

Construction contract language is unique. Consequently, you want to be sure that you are working with good counsel that's going to help you draft a contract that's going to protect you during this time.

You're going to feel challenged. You're going to feel anxiety to go as fast as you possibly can. Don't let that anxiety interfere with good, sound judgement. Be measured, take a breath and take your time. Use the professionals around you to make the best decisions that you can make. As progress is continuing, monitor that progress and balance progress with the invoices.

If they if the invoices look to be about 75% of the budget, does the house or the project look to be 75% complete? If it looks to be significantly different, put the brakes on things and don't pay the bill. Keep in mind your leverage and your only leverage is the money that you have in your checking account and your contractors need that money to move forward. It's important that you hold your leverage to the fullest extent in order to control the progress and success of your project. As you're making progress along, your insurance companies will want to know how is the project progressing before they release funds to you, so make sure that your contractor billing is matching that insurance requirement. You should have had that understanding with your insurance company before you start the project. You want to make sure your contractor understands what your insurance company is, and then of course you need to monitor it throughout the course of construction. Make sure that either you or the contractor photograph the work constantly. Minimally. You should be at your job site twice a week taking photographs. You want to photograph not only the building as it as it is being constructed, but photographing all of the materials that show up to the job site. Those pallets of two by fours, those pallets of roofing shingles, the pallets of four sheets of 4 by 8 plywood.

You want photographs of all of that stuff that is on the job site. So in case something should disappear, you have photographic evidence that it was actually delivered and you have recourse in the case of something is gone. As your project moves into its final stages, develop a checklist or a punch list of what isn't yet finished, and hold those final payments to your contractor until they finish the work.

Lastly, we're going to take just a moment here to talk about business interruption.

There are a couple of different types of business interruption insurance, those that affect business income so it is compensating you for that income loss due to an interruption in business operations.

Extra expenses where you perhaps you have to go out and acquire additional workspace in order to continue operating your business or you needed to come in to immediately do smoke damage remediation so that you people could get back to work. Those extra expenses are often covered by business interruption insurance, so make sure as you are moving through the different events that affected your business operations that you are keeping accurate books and records.

If you've if you've caught nothing else from today's webinar, you've heard it. Document, document, document.

It is the only way that the professionals around you can help you maximize your third party support, whether it's through tax, insurance or or emergency recovery programs to to recover as much of your loss as possible.

Lastly, don't hesitate to bring in different professionals, legal, financial, tax specialist, trade and craft, architecture, architects, engineers, contractors. Most of the people are wonderful professionals. They want to help you. Don't hesitate to bring them in.

And with that, Sashi, I'm going to turn this back over to you to close this out this afternoon.

Shashi Mirpuri

Thank you.

So what I'm leaving you here with is a few helpful links that might be of use for different sources. Temporary housing, SBA loan, kind of like your one stop shop, if you will. So please take advantage of these links if you haven't already.