A Simplified Guide to Claiming Your Casualty Loss
A Step-by-Step Guide to Making a Casualty Claim
If your Cherry Hills Village, CO, business recently sustained storm damage from a sudden, unexpected or unusual event, such as a hurricane, flood, tornado, earthquake, or fire, you may be eligible to claim a casualty loss on your taxes. Although somewhat tedious, claiming your storm-related losses doesn’t have to be an overwhelming experience. Understanding several key points can help every business owner prepare their tax return.
The Role of Insurance
Your first action after the storm passed was probably to contact your insurance company. The amount of money you receive from your insurance claim impacts your tax deduction and is a required component of the deduction formula.
Focus on Property
Storm damage can impact many aspects of a business including revenue and productivity. Although vital to business success, these aspects are not tax-deductible, at least in terms of your casualty loss. Your claim must focus exclusively on damaged or destroyed property.
For your tax professional to properly calculate your deduction, you will need to provide several key pieces of information pertaining to your damaged property:
- Proof of ownership
- Acquisition cost
- Pre-disaster value
- Reduced value because of the disaster
- Amount of your insurance reimbursement
The IRS Formula
The deduction calculation process involves the following three steps:
- Determining your adjusted basis in the property, meaning what the property cost to acquire and improve minus depreciation
- Calculating the decreased fair market value of the property
- Subtracting your insurance reimbursement
If you plan on deducting losses for multiple pieces of property, you will need to follow this formula to calculate the value of loss for each item.
When Should You File?
Generally, business owners must claim their deduction in the year the loss occurred. However, if the damage your business sustained occurred because of a federally-declared disaster, you may complete an amended tax return and deduct the loss in the preceding year.
Restoring Your Assets
After assessing storm damage, restoring your business is a top priority. Claiming a casualty loss deduction on your taxes can help reduce the financial burden of the cleanup and restoration process. Maintaining good records will help ensure you have all the necessary information, should you ever need it.