How to treat business-related losses in tax deductions
Tax Facts Q&A: Is a business-related casualty loss treated differently than a personal casualty loss?
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Editor’s Note: Under the 2017 Tax Act, individuals are no longer entitled to deduct casualty and theft loss expenses as itemized deductions for 2018-2025 (when those losses are not related to property used in a trade or business). An exception exists for losses that occur in federally declared disaster areas.
Question: Is a business-related casualty loss treated differently than a personal casualty loss?
Answer: If a taxpayer sustains a casualty loss with respect to property used in the taxpayer’s trade or business, the taxpayer will not be subject to the $100 floor or 10% of adjusted gross income limitations. The taxpayer who sustains a casualty loss in connection with a trade or business can take the deduction as a business deduction.
A taxpayer who uses property and sustains a casualty or theft loss in performing services as an employee can deduct the casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit on these deductions. However, all miscellaneous itemized deductions subject to the 2% floor were suspended for 2018-2025. If the property subject to the loss was an investment-type property held for profit, the deduction will not be subject to the 2% limit on miscellaneous itemized deductions. This kind of investment-type property includes stocks, notes, bonds, gold, silver, vacant lots, and works of art.
William H. Byrnes and Robert Bloink are co-authors of Tax Facts. They can be reached at taxfactshelp@alm.com.
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