Newspaper article St Louis Post-Dispatch (MO)

Flood-Damaged Firms Can Write off Some Losses

Newspaper article St Louis Post-Dispatch (MO)

Flood-Damaged Firms Can Write off Some Losses

Article excerpt

We have received several questions about possible tax relief for individuals and businesses affected by this year's flooding.

In response, this week's column will answer questions concerning businesses. Next week, we will discuss the income tax treatment of flood losses and related issues for individuals.

Q. Our place of business was completely under water and almost everything in the shop was ruined. Can we take an income tax deduction for what we lost?

A. You will be able to claim a deduction for business assets or property ruined or damaged by flood. To qualify for the deduction, the business must prove each loss occurred, and establish the value of each loss.

Q. Can we take a deduction for damage to everything that was at the shop, even some personal property that was there that didn't belong to the company?

A. Deductions for business losses are limited to "assets used in a trade or business" or "held in a transaction entered into for profit." In other words, damage to your own personal property that happened to be at the shop cannot be deducted as a business loss.

For example, let's assume your car was at your business when the water came up. You probably can't take a business deduction, because you own the car personally. You may, however, be able to take a deduction on your personal income tax return.

Q. How can we determine the amount of the deduction we are allowed to take?

A. You need to consider each business asset. For each item you must establish two values - the adjusted basis of the asset (usually, the cost of the asset reduced by any depreciation) and the amount of decline in the fair market value of the asset.

Generally, your loss deduction will be limited to the lesser of these two values. But you also must take into consideration any insurance money or other compensation received for damage, and any salvage value of damaged items. …

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