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Q: Tax advice: Is uninsured damage to a rental car tax-deductible? ( Answered 5 out of 5 stars,   2 Comments )
Question  
Subject: Tax advice: Is uninsured damage to a rental car tax-deductible?
Category: Business and Money > Accounting
Asked by: nkr31-ga
List Price: $15.00
Posted: 20 Aug 2004 12:45 PDT
Expires: 19 Sep 2004 12:45 PDT
Question ID: 390528
I am looking for an answer about tax deductions. Please cite sources
in your reply. Please also note how I would like to pay for this
question. The initial price is $15.00. If you find that the answer to
question 1 is "yes" and cite clear sources, then continue on and
answer part 2, I will add a $10 tip.

Background:
I rented a truck earlier this year and declined insurance on it. I
paid in cash as well, so I did not have credit card-supplied
insurance. I subsequently got in an accident (bad driving conditions,
swerved to avoid a deer, hit a fence -- I want to clarify that it was
not "willful negligence".)

Here's where it gets confusing.

Part 1 of my question: Is this expense (which I had to cover from my
pocket) tax-deductible? IRS Form 4684 refers to "property", "date
acquired", etc. Is the truck considered my "property" for the duration
of the rental? If the answer to part 1 is yes, then on to...

Part 2: After the accident, the rental company hired an auto repair
shop to assess the damage. Their estimate came in at about $9,000. (I
have a copy of this estimate.) However, the company came back and said
they could not repair it and wanted to assess me the cost of the
entire vehicle. After a lot of negotiation, we settled at $10,500,
which I paid in cash.

Which of these two numbers do I use to complete form 4684?

Thanks for your help. Looking forward to a clear and well-cited answer!
Answer  
Subject: Re: Tax advice: Is uninsured damage to a rental car tax-deductible?
Answered By: markj-ga on 20 Aug 2004 15:15 PDT
Rated:5 out of 5 stars
 
nkr31 --

At the outset, I must  emphasize that Google researchers are not
authorized to give legal or accounting advice, so please understand
that this answer is intended to be informational only.

Having said that, information on the issue raised by your first
question is addressed quite directly by the IRS in Chapter 27 of
Publication 17, which generally deals with "nonbusiness casualty and
theft losses."  Here is what it has to say about the deductibility of
losses for leased property:

"Casualty loss proof. For a casualty loss, your records should show
all the following.
? The type of casualty (car accident, fire, storm, etc.) and when it occurred.
? That the loss was a direct result of the casualty.
? That you were the owner of the property or, if you leased the
property from someone else, that you were contractually liable to the
owner for the damage. "

Here is a link to the full text of Chapter 27 of that IRS document:
IRS: Publication 17, Chapter 27
http://www.irs.gov/publications/p17/ch27.html

If you have any doubt about your ability to document your "contractual
liability" to the rental car company, you should seek professional
advice, but that liability is likely addressed quite clearly in the
terms of your car rental agreement.

The notion that the IRS will recognize the deductibility of a casualty
loss for damage to a rented car if all of the other requirements for
such a deduction met is supported by this statement of a prominent
risk management consultant:

"Finally, people who rent autos need to be told that collision damage
coverage should not be waived unless the person renting the auto also
maintains collision coverage on his or her own auto. When the waiver
is selected, the renter will then have to assume the difference
between the deductible applicable to the rental and to the renter's
own auto policy. When an individual waives the collision coverage and
there is no other collision coverage available under the renter's auto
policy, the entire amount of the deductible must be assumed. At least
it may be tax deductible."

Rough Notes: Risk Management, by Donald S. Malecki, CPCU
http://www.roughnotes.com/rnmag/april/p38.htm 


As for your second question, I must remind you again that we
researchers are not authorized to give legal or accounting advice, but
I think that you will find the same IRS document to be helpful to you
in determining which number it would be reasonable for you to use for
your Form 4684.  Here is what it has to say:

"Leased property. If you are liable for casualty damage to property
you lease, your loss is the amount you must pay to repair the property
minus any insurance or other reimbursement you receive or expect to
receive."
IRS: Publication 17, Chapter 27
http://www.irs.gov/publications/p17/ch27.html
 

Note that the IRS's published advice indicates that the deductible
amount is "the amount you must pay to repair" the vehicle.  The IRS,
of course, will decide (if you are audited) whether you have
documented satisfactorily the company's conclusion that the car was in
fact a "total loss" and whether the amount you paid was reasonable. 
If you need or want a judgment as to of what IRS staff might decide on
your particular facts (which might be difficult to do in advance), you
might want to consider a brief consultation with an accountant on that
question alone.



Search Strategy:

I used various Google searches to find the information and to develop
reasonable confidence  that the information is correct.  The most
useful of these searches, among many others, was this one:

"casualty loss OR losses" property deduct OR deductible lease OR rent
://www.google.com/search?hl=en&lr=&ie=UTF-8&safe=off&c2coff=1&q=%22casualty+loss+OR+losses%22++property+deduct+OR+deductible+lease+OR+rent



I am hopeful that this information is useful to you.  If anything is
unclear, please ask for clarification before rating the answer.


markj-ga

Clarification of Answer by markj-ga on 20 Aug 2004 18:44 PDT
nkr31--

It occurs to me that one aspect of my answer may not have been
self-explanatory and that I failed to explain it.

The IRS document that I provided for you uses the term "lease" with
regard to casualty losses on non-owned property that are tax
deductible.  The terms "lease" and "rent" are essentially synonymous,
although "lease" is sometimes used to refer to an agreement for a
fixed term, while "rent" is sometimes used to denote an agreement of
shorter duration and for a non-fixed term.

The essential rationale of the IRS's recognition of deductions for
casualty losses for non-owned property (i.e. the contractual
obligation on the temporary possessor of property to pay for losses)
does not depend on this distinction.

The interchangeabilty of these terms is recognized in this excerpt
from a Defense Department Q. and A. on vehicle acquisition:

"What is the difference between a Lease and Rental?
 
"The Scenario?
"We have a requirement for lease and rental of vehicles as described
by the customer. After defining both of these it seems that in
government terms both are the same. The only difference typically is
the length of the term.

"The Question?
What is the difference between a lease vs rental? 
  
"The terms lease and rental have similar uses and meanings. .  .  .

"The dictionary uses the term rental in reference to listing something
like an apartment or the payment periodically for use of something.
The definition of lease is basically a contract granting use or
occupation of property or use of property during a specified time for
a specified payment. A contract that specifies the terms under which
the owner of an asset (the lessor) agrees to transfer the right to use
the asset to another party (the lessee). .  .   .

"Since you are specifically acquiring vehicles the definition in FAR
Part 8.11, Leased Vehicles is the most useful. ?Leasing? means the
acquisition of motor vehicles, other than by purchase from private or
commercial sources, and includes the synonyms 'hire' and 'rent.'"

Defense Acquisition Univesity: 
http://akss.dau.mil/askaprof-akss/normal/qdetail2.asp?cgiSubjectAreaID=7&cgiQuestionID=12727


markj-ga
nkr31-ga rated this answer:5 out of 5 stars and gave an additional tip of: $10.00
Very well-written, well-cited, and clear. Thanks for your assistance!

Comments  
Subject: Re: Tax advice: Is uninsured damage to a rental car tax-deductible?
From: research_help-ga on 20 Aug 2004 13:01 PDT
 
I guess you'll be taking the full insurance for $20 a day from now on.
Subject: Re: Tax advice: Is uninsured damage to a rental car tax-deductible?
From: markj-ga on 21 Aug 2004 12:18 PDT
 
nkr31 --

Thanks much for the kind words, the five stars and the nice tip.

markj-ga

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