WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby Losses, We’ve Got Losses - and Tax Write-Offs Casualty losses are the damages or complete destruction of property caused by fire, theft, vandalism, floods, earthquakes, terrorism, or some other sudden, unexpected, or unusual event. To be tax deductible, there must be some external force involved for a loss to be a casualty loss. Generally, casualty losses must be deducted in the year in which the loss event occurred. However, to help cushion losses suffered by drilling, and other businesses, there is a special rule for disaster losses in an area subsequently determined by the President of the U.S. to warrant federal assistance. The drilling business has the option of: Deducting the loss on the tax return for the year in which the loss occurred, or Deducting the loss on the preceding year’s tax return. To claim a casualty loss deduction, a drilling contractor must be prepared to prove the property was lost in a casualty, the amount of the loss, and a number of factors including: The business owned the property; The basis in the property. Adjusted basis for property is generally equal to the cost of acquiring it, plus the cost of any improve- ments, and minus any depreciation deductions or earlier casualty losses; Predisaster value of the asset; The reduction in value caused by the disaster; The lack or insufficiency of reimbursement to cover the loss; and most importantly, The one bearing the risk of loss, must be the owner or co-owner of the property. To help when records have been lost or destroyed, the Internal Revenue Service (IRS) has an excellent tool - “Disaster Assistance Self-Study - Record Reconstruction” available at: https://www.irs.gov/businesses/small-businesses-self- employed/disaster-assistance-self-study-record-reconstruction Surprisingly, some businesses actually profit from casualty losses. Where the amount of the insurance reimbursement received is more than the book value or adjusted basis of the destroyed or damaged property, there may actually be a gain. Most drilling oper- ations are able to defer the gain to a later year (or perhaps indefinitely) simply by acquiring “qualified replacement property.” Under our tax rules, any loss sustained during the taxable year, or a loss not covered or "made good" by insurance can be claimed as a tax deduction. Answers to questions about the complex, and often confusing, casualty loss tax rules can be found in IRS Publication 547, Casualties, Disasters, andThefts ( https://www.irs.gov/pub/irs-pdf/p547.pdf ) . Making themost of lossesmay also require professional assistance. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com February 8 - 9, 2018 Aquarius Casino Resort - Laughlin, NV For more information visit us online: mountainstatesgroundwater.com E-mail: info@mountainstatesgroundwater.com (480) 609-3999 WHY ATTEND??? • It’s a great opportunity to visit with manufacturers & suppliers, drilling contractors & pump installers, technical & consulting firms, state groundwater officials, etc. • Attend the seminars • Visit the exhibits • Earn CEU’s • Participate in the Buck Lively Scholarship auction & raffle No membership is required to attend – Everyone is welcome! It’s casual & inexpensive: Bring your employees! 35 WorldWide Drilling Resource ® JANUARY 2018