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Rescue a casualty loss from a tailspin

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Suppose your spouse’s car was damaged when he or she skidded on a wet road in April. It cost $3,000 out-of-pocket to repair. But you won’t be able to deduct any of this cost due to the casualty loss limits.

Strategy: Start using your spouse’s car for business. As a result, you can qualify for a deductible casualty loss this year, even though the car was being used personally when damaged.

Here’s why: Deductions for personal casualty losses are limited to the excess of the loss over 10% of your AGI after subtracting a $100 floor per event. On the other hand, there are no such limits for business casualty losses. Any allowable deduction for mixed-use property is based on the percentage of personal vs. business use.

For example, say that you’re self-employed and use one of your cars exclusively for business driving. After the accident, you switch cars with your spouse. That means that the car is used for business 2/3 of the year. On your 2012 return, you can deduct 2/3 of the casualty cost, or $2,000 (2/3 of $3,000).

Tip: The tax law allows you to use more than one vehicle for business purposes. So you can still deduct business-related expenses for your other car attributable to the first four months of the year.

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