Sadly, many businesses have incurred extensive property damage due to the Black Lives Matter protests in several major cities across the United States. Most of the business owners are understandably upset about the property damage.
But there’s a silver lining, sort of, to the gloomy situation: Part of the loss incurred from the property damage is considered as valid deduction from federal income taxes. Here are things that you should discuss with your Jackson Hewitt tax advisor about this matter.
Be Mindful of the Limits
First off, the entire value of the loss cannot be recouped as an income tax deduction. If your business has coverage, you have to file an insurance claim first. Your benefit payout from the insurance company will be factored in the deduction computation.
The amount of reimbursement from your insurance company will be deducted from the amount that can be deducted from your income tax. The income tax deduction itself is subject for approval.
What if you don’t have renter’s insurance or homeowner’s insurance? What if you chose not to file an insurance claim? In both cases, you’re only allowed to deduct the loss that wasn’t covered by the applicable policy.
But it isn’t just property damage from riots that can be deducted. Under IRS rules, other qualifying events include:
- Acts of God including fires, floors, landslides, earthquakes, storms, volcanic eruptions, tsunamis and windstorms
- Terrorist attacks and accidents
- Vandalism and theft including robbery, burglaries, swindling and embezzlement
Be Aware of the Time Limits
You should deduct the loss on the year it occurred. But there’s an exception to the rule, too – the loss should be due to a disaster and your area was declared as a disaster area by the President. In the latter case, you may deduct the loss for the year preceding the event.
There’s a fairly simple way of calculating the amount of tax deduction.
- Determine the original amount of the damaged property.
- Estimate the value of the item in present terms (after the event has occurred). The difference between its original amount and its present value is its fair market value.
- Choose either the original amount or the fair market, whichever is lower.
- Deduct insurance reimbursements received from the lower amount stated above. This is the amount of your loss.
You have to file supporting documents regarding your loss. These can include before and after photos of the damaged items, as well as cancelled checks, receipts and deeds. You may or may not be asked for a professional appraisal report.