How Do I Determine the Amount of a Disaster Loss for Business Assets?

To determine the amount of a disaster loss, you must collect information on each asset in your business. The information you need to collect includes:

• The cost basis of each asset
  
• The fair market value of each asset both before and after the disaster
  
• The amount of reimbursement by your insurance company for each asset.

  Itemizing Business Asset Disaster Losses
  To determine your business casualty/disaster loss for assets, you will need to go through this information and calculation for each asset:
  

  • The cost or other basis of the asset (be prepared to substantiate this cost basis)
    
  • Amount of reimbursement from insurance for this asset
    
  • Any gain (if the insurance payment was higher than the cost basis)
    
  • The fair market value loss, calculated by subtracting the fair market value of the asset before the casualty with the fair market value after the casualty
    
  • The smaller of the cost basis or the fair market value loss
    
  • The casualty loss you can deduct is the un-reimbursed loss.

  An example
  Let's say you have an office desk which cost $500. You receive $150 from your insurance company for this loss. The fair market value before the casualty was $300 and now it is worthless. The difference between the loss in fair market value ($300) and the cost ($500) is $200. Subtract the reimbursement from the insurance company of $150 and your deductible casualty loss is $50. If you receive more in insurance than the loss, you cannot claim any loss.

  For more information, review IRS Publication 584-B, Business Disaster Loss Worksheet, which provides listings of business assets for your use. The worksheets can be used for (a) listing all business assets before the disaster and (b) working through the information on business assets lost or damaged by disaster.