Commercial Property Insurance Tax-Deductions: Everything You Need to Know

By Stephen Robert Morse

As the actress Helen Mirren said, “I don’t believe that if you do good, good things will happen. Everything is completely accidental and random. Sometimes bad things happen to very good people and sometimes good things happen to bad people.”

Whether you’re a good person or not, bad things can potentially happen to you… and to your commercial property. For example, you may wake up in the morning to discover there was a fire at your commercial property in the middle of the night. You may be away on vacation when you learn the eye of a hurricane is heading straight toward your business. Or you may sit down to dinner when you hear that a vehicle was stolen from your property’s parking lot.

Even while there is great reward in being a commercial property owner, these are the inherent risks of property ownership. Due of the risks involved, many businesses prefer to rent their space rather than own it. This means that, for those who are willing to bear the risk of owning property, renting out commercial property can reap serious benefits.

Economic and Tax Implications of Commercial Property Insurance
One way to mitigate the risk of commercial property ownership is to procure commercial property insurance. Fire, theft and natural disasters have the potential to quickly wipe out gains made by your business. Commercial property insurance can provide you with more than just piece of mind; it can help you retain your hard-earned rental income rather than having to pay it out in lawsuits or rebuilding fees.
Protections Offered by Commercial Property Insurance
Commercial property insurance protects you when you rent your property for use by a third party. While your tenants are allowed to legally inhabit your property, you as the owner are still liable in many situations if and when things go wrong.

Though at times overlooked by commercial landlords, commercial property insurance is necessary. Why? Very few contracts with tenants explicitly say that the owner isn’t liable in the event of a problem. Below are specific protections offered:

Indemnity period. This is the amount of time you would be able to claim back lost rent in the event that a fire or natural disaster makes your property uninhabitable by your tenants.
Damage from natural disasters. In the event that your property falls in line with the path of a hurricane or tornado, you as the property owner are typically responsible for such expenses as debris removal, building demolition, and even rebuilding costs. Few people think such situations will happen to them, but you needn’t look much farther than the major storms that have hit the U.S. in recent years causing massive amounts of property loss to understand that this threat is real: 2005’s Hurricane Katrina caused an inflation-adjusted economic loss of $119 billion and 2012’s Hurricane Sandy cost an inflation-adjusted economic loss of $77.3 billion.
Tenant law suits. Commercial property insurance may also offer protection if you need to sue a tenant who has not paid rent or has destroyed your property with malicious intent.
Injury liability. Such insurance can also cover if, for instance, a visitor slips on ice in your parking lot, requires expensive surgery and subsequently sues you.
Break-ins. If someone forcibly enters your building, causing damage and stealing property, you’ll want to have a commercial property insurance policy on your side.
Additional Benefits: Greetings, Tax Man!
More good news: commercial property insurance is tax deductible. Yes, you read that correctly. By protecting yourself and your property, you can write this expense off to save on taxes.

No matter where you live or where your property is located, you can take advantage of many federal tax deductions available to commercial property owners across the U.S. For example, you can deduct the premiums you pay for nearly every insurance option for your commercial rental activity, including:

Fire, theft and flood insurance
Landlord liability insurance.
The cost of health and workers’ compensation plans for any employees who work on premises.
A major benefit of commercial property insurance is that it allows you to combine the many types of insurance covered into a single, cost-effective plan that can help you get far better deals than if you purchased your insurance plans needed for your property a piecemeal manner.

Furthermore, in the event that your commercial property is adversely affected by a rare weather event like a flood, you can obtain a tax deduction for all or part of your loss. These losses are typically called casualty losses, so it is unlikely that you will bear a substantial burden when all is said and done.

Next Steps
If you already own commercial property, double check that have ample insurance to cover you if a hazardous event occurs. And if you already have commercial property insurance, consider rolling multiple insurance vehicles into one plan so you can save money and receive more comprehensive offerings.

Contact me and I can help!

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