Expand Your Knowledge on Tax Relief for Fire and Storm Damage
You built your business in West Bank, LA, from the ground up. You prepared it with disaster contingency plans, but all the planning in the world won't stop nature. Of course, you make the repairs and you hire restoration specialists to do the cleanup, but did you know that everyone’s favorite uncle, Uncle Sam, can help you with a little financial relief from fire or storm damage?
- Determine if you have a casualty loss, as defined by the IRS. A casualty loss occurs when property is damaged from unexpected events such as hurricanes, tornadoes, floods, and fires. You need to provide proof that you own the property and that the loss was due to a casualty event, as well as the date of the event.
- Determine if you have disaster area losses. Sometimes events, such as hurricanes or wildfires, cause damage in places that are then declared federal disaster areas. The IRS website lists information on special tax relief for storm damage in these areas. The IRS often provides filing extensions or even allows taxpayers to file an amended return for the year preceding the disaster, which often results in a refund.
- Calculate your casualty loss. The tax deductible casualty loss is the lesser of the decrease in fair market value (FMV) or the adjusted basis of your property, minus any insurance reimbursements. Instead of getting an appraisal on your property, you can use the amount of money you spent on restoration costs to determine the FMV. Think of the restoration costs as the amount you must spend fixing up your property to get it back to its condition as it was just before the event occurred. When using cleanup costs as a factor, it is important that the work actually be completed.
Casualty losses for business property are not required to be reduced by the same rules as those used on personal property. Be sure to consult IRS Publication 547 and Form 4684 for detailed rules and examples for determining your loss from storm damage.