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 When Your Business Car
 is Involved in an Accident

It can be difficult to claim a casualty loss for damage or theft to personal property because the tax law limits the deduction in two ways:

 You can't deduct the first $100 of any casualty. 
 You can only write off casualty losses when the total amount in one year (reduced by the $100 per casualty amount) exceeds 10 percent of your adjusted gross income (AGI).

  What Qualifies?

   To get a casualty tax write-off, damage must be caused by a "sudden, unexpected or unusual" event such as a earthquake, hurricane, tornado, fire, flood or storm. Auto collisions and thefts can also qualify. (No deductions for damage caused by gradual deterioration, such as destruction caused by termites or a drought.)
   To figure a deductible casualty loss, take your adjusted basis in the property and subtract any:
    Salvage value, and
    Insurance reimbursements you get or expect.
However, there are no limits on losses for business property or income-producing property such as rental real estate. In other words, you can write off business losses without applying the 10 percent limit or the $100 per casualty amount applied to personal losses.

There's a way to salvage a business deduction when you have a car accident with a car used personally.

Suppose your spouse has an auto accident in your personal car on an icy road in February. If your annual AGI is $100,000 and the unreimbursed loss is $3,000, you get no deduction because of the 10 percent limit. However, if you normally use your car for business driving, you can salvage a casualty loss deduction. 

Strategy: After you get the damaged car back from the repair shop, switch cars with your spouse and use it as a business vehicle. If your business use of your spouse's car then comes to, say, 80 percent of its total use, you can now deduct $2,400 (80 percent of $3,000) on your tax return.

It doesn't matter that you started using the car after the accident for business. You can still get a deduction by prorating the time the car is used for business purposes.

Be sure to document business driving use to back up your claims.
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.