Tax deductions for casualty losses – for racers and everyone else

In my last post, I had promised to review tax depreciation for racers. But, with the stories of flooding and tornadoes in the news recently, it might be more appropriate to briefly summarize the tax treatment of losses incurred due to these unfortunate occurrences, known in tax lingo as “casualty losses.”  These rules apply not only to racers, but to taxpayers in general.

Subject to certain rules (see below), you can deduct losses from disasters to the extent not reimbursed by insurance. However, if you have insurance but don’t file a claim, you can’t take the deduction.

If the property is non-business, your deduction is limited to either the tax basis (your investment) in the property or the decline in its value, whichever is smaller. From that number, deduct any insurance proceeds. Any amount that’s remaining is subject to a $100 reduction and can only be deducted on your tax return if you itemize your deductions and the remaining amount is over 10% of your adjusted gross income. Use IRS form 4684 to figure your deduction.

If the property damaged or destroyed is business property, the rules are a lot more liberal. A deduction can be taken without worrying about the $100 or the 10% rule. In addition, you don’t even have to itemize to deduct casualty losses.

If you suffer a loss in an area that has been declared a disaster area by the president, you can either deduct the losses on your 2011 return, or you can amend your 2010 return. The idea behind amending the 2010 return is that people in disaster areas can get refunds quicker, when they need it the most.

From the above, you can see how important it is to be able to determine if your assets qualify as business assets, from a racing standpoint. It affects not only what deductions you can take (as I’ve mentioned in the past), but also how much of a deduction you can take in the event of a casualty loss.

But beyond taxes, my thoughts and prayers are with all who have suffered losses, whether or not they are members of the racing community. My best to all of you.

Let me know if you or your group would be interested in a presentation going into these topics or other tax and financial aspects of motorsports. Contact me at: phil.schurrer.racingprof@gmail.com


Until next time …


Phil Schurrer


“This posting is intended to provide general information regarding the subject matter covered. It is provided with the understanding that the author is not engaged in rendering legal, accounting, or other professional services. This information should not be used as a substitute for professional advice in specific situations. If legal advice or other expert assistance is required, the services of a professional should be sought.”
 - Adopted from a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.

Attorneys and other professionals dealing with specific matters and situations should also research original sources of authority.