Casulty Loss

[joelgilb]

First I want to say thank you for bringing this community back, it was an invaluable source at the ATX site. Shame they had to discontinue it.

FACTS:

Anyway, have a client that has a schedule c law practice. A car drove through her office building (she owned it), and totally destroyed her storefront office. She filed insurance claims and repaired and replaced all the damage over a 2 year period (under the 2 year conversion statute). She received an insurance reimbursment, but it was only for 80% of the total cost of repairs. The majority of the assets (major ones anyway) had a zero (0) basis. Total damage was roughly 100k.

QUESTIONS:

1. Do we have to report the casulty loss on her 1040 on the tax return to take advantage of the 2 year postponment of gain on the conversion, or make any elections to get the benefit of the postponment and basis carryover?

2. How do we write off the additional out of pocket cost to her of roughly 20K, which was for what would normally be Fixed assets as she replaced equipment and structural components of the building.

I thought I would have to depreciate the additional cost using the standard MACRS lives for each class, but was wondering if there was a way to get a faster write - off due to the casulty.

THX in advance for the help.

Joel Gilbert CPA JD

[OldJack]

Obviously when you fill out form 4684, Part B, insurance reimbursement reduces the casualty loss deduction for 1040 Sch-C. In Chief Counsel Advice 199903030, the IRS said the cost of repairs to restore property for which a casualty loss was deducted could be expensed currently if the repairs only restored the property to its pre-casualty state. Only repairs that materially enhanced the value, use or life expectancy or such property beyond its pre-casualty state would be capitalized [Quickfinder 1040 Handbook, page 5-16].

[joelgilb]

Obviously when you fill out form 4684, Part B, insurance reimbursement reduces the casualty loss deduction for 1040 Sch-C. In Chief Counsel Advice 199903030, the IRS said the cost of repairs to restore property for which a casualty loss was deducted could be expensed currently if the repairs only restored the property to its pre-casualty state. Only repairs that materially enhanced the value, use or life expectancy or such property beyond its pre-casualty state would be capitalized [Quickfinder 1040 Handbook, page 5-16].

Pretty much what I expected, but always helps to get a second opinion.

Thx

Joel

[jainen]

>>what I expected<<

I don't understand your numbers. There was no question of liability, only of the amount of damages. So how come she is claiming a loss that is 25% higher than the insurance adjuster? You would think as a lawyer she could prove the higher amount if it were legitimate.