I recently spoke to a client in North Atlanta whose business storefront suffered damage from the riots in the city. Although a deductible casualty loss was the last thing on their mind, it might be helpful to cover this topic as it relates to damage to your business property.
The recent riots in the metro Atlanta area have resulted in storefronts, office buildings and business properties being destroyed or severely damaged. In the case of businesses with inventory, some of these businesses lost products after looters ransacked their property. Windows were smashed, the property was vandalized, and some buildings were burned to the ground. This damage was especially devastating because businesses were just reopening after the COVID-19 pandemic eased.
A commercial insurance property policy should generally cover some, or all, of the losses. (You may also have a business interruption policy that covers losses for the time you need to close or limit hours due to rioting and vandalism.)
With most of our clients, the insurance check is on the way, but a business may also be able to claim casualty property loss or theft deductions on its tax return for certain non-insured losses.
This one is not a DIY calculation, so contact us for help in the calculation.
Here’s how a loss is figured for tax purposes:
- Start with your adjusted basis in the property (we can help you determine this number).
- Subtract any salvage value
- Subtract any insurance or other reimbursement you receive (or expect to receive).
Losses that qualify:
A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. It includes natural disasters, such as hurricanes and earthquakes, and man-made events, such as vandalism and terrorist attacks. It does not include events that are gradual or progressive, such as a drought or normal wear and depreciation.
For insurance and tax purposes, it’s important to have proof of losses. You’ll need to provide information including a description, the cost or adjusted basis as well as the fair market value before and after the casualty. It’s a good time to gather documentation of any losses. including receipts, photos, videos, sales records, and police reports.
Finally, be aware that the tax code imposes limits on casualty loss deductions for personal property that are not imposed on business property. Contact us for more information about your situation.
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He is also a founding Board Member and Finance Director of the Fayette Pregnancy Resource Center and serves on the Board of the National Equal Rights Institute.