By: Kenneth Rivera-Robles
Certified Public Accountant
The January 2020 earthquakes could have tax consequences for you. Deductions for the losses you experienced should be included on your 2020 tax return—which you will file in April 2021.
Whether as a business or an individual, you can deduct the losses sustained, less any insurance payment. In other words, if you had losses amounting to $3,000 and an insurance policy paid you $1,000 to cover them, then you can deduct $2,000.
What can you deduct from your business?
If you have a business or are self-employed you can deduct all losses associated to the assets you use to conduct the commercial operation. Remember, that you need to subtract the amount paid by any insurance coverage from the deductible loss.
It is important to know that if an asset was destroyed and the insurance paid for it, this could become a taxable gain. The gain would be the excess of what you were paid over the adjusted cost of the asset. However, if you used the insurance money to replace that asset, it can be classified as an involuntary conversion and taxation is deferred temporarily, subject to meeting certain requirements.
Losses you can deduct as an individual
There are two kinds. The first is any loss within a property that is your primary residence. This deduction has no amount limit. The second is a personal property loss. Here the maximum you can deduct is $5,000, and has the following requirements:
• The sector must have been declared a disaster zone by the Governor.
• Loss of cash and jewelry is not included. In order to make this deduction you have to prove that you have applied for assistance from approved disaster assistance programs. Any amount that you do not include in that tax return as a deduction can be carried over to the following year or up to two years.
In disaster situations it is very common for people to make donations to help those affected by the disaster. If you made any donations, be aware that you will only be able to deduct those made to non-profit entities registered with the Department of the Treasury. If you made a donation directly to the people affected, it is considered a gift that will be exempt for the recipient; but you will not be able to deduct it.
The deduction amount will depend on whether the donation was made as an individual or as a company. In the first case, the deductible amount will be that of the donation up to 50% of your adjusted gross income. Did you donate through your corporation? The amount you may deduct will be up to 10% of the corporation’s net income (without considering that donation), and any excess not taken by the limitation may be carried forward for the next five years.
Banco Popular de Puerto Rico (“Popular”) has no affiliation or relationship Kenneth Rivera, CPA. This article is for informational purposes only and does not represent any endorsement or guarantee of its accuracy. Popular, or any of its affiliates, subsidiaries or related entities, are, nor will be responsible for any special, direct or indirect, incidental or consequential damages, including, but not limited to loss of earnings arising from or related to communications, articles or counseling provided by Kenneth Rivera, CPA or that may arise from the information contained in this article, which was not prepared by Popular. Popular provides banking services, so it is not dedicated (directly or indirectly) in providing any type of services related to those illustrated in this article. If you require tax advice, you should seek advice from a competent professional of your choice. Popular is not, nor will be responsible in any way for the outcome of any related endeavor if you decide to voluntarily communicate with Kenneth Rivera, CPA.