J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Casualties and Thefts

If you suffer a casualty or theft loss to business property, you can deduct the loss. There are no dollar limitations on these losses, as there are on personal losses. Nor are there adjusted gross income (AGI) limitations on these losses, as there are on casualty and theft losses to personal property.

NOTE

Business losses are deductible without having to establish that the cause of the loss was a casualty. Thus, if your equipment rusts or corrodes over time, you can deduct your loss even though it does not fit into the definition of a casualty loss (assuming you can fix the time of the loss). The reason for understanding the definition of the term “casualty” is that it determines where the loss is reported. It also comes into play in connection with deferring tax on gains from casualties, as discussed later in this chapter.

Definition of Casualty

If your business property is damaged, destroyed, or lost because of a storm, earthquake, flood, or some other “sudden, unexpected or unusual event,” you have experienced a casualty. For losses to nonbusiness property (such as your personal residence), the loss must fall squarely within the definition of a casualty loss. Losses to business property need not necessarily satisfy the same definition.

The tax law details what is considered a “sudden, unexpected or unusual event.” To be sudden, the event must be one that is swift, not one that is progressive or gradual. To be unexpected, the event must be unanticipated ...