18.7 Deducting Damage to Your Car

Damage to your car in an accident may be a deductible casualty loss unless caused by your willful conduct, such as drunken driving.

Filing Tip

Auto Damage

Unreimbursed accident damage may be a deductible casualty loss.

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You may not deduct legal fees and costs of a court action for damages or money paid for damages to another’s property because of your negligence while driving for commuting or other personal purposes. But if at the time of the accident you were using your car on business, you may deduct as a business loss a payment of damages to the other party’s car. For purposes of a business loss deduction, driving between two locations of the same business is considered business driving but driving between locations of two separate businesses is considered personal driving. Therefore, the payment of damages arising from an accident while driving between two separate businesses is not deductible as a business expense.

A court has allowed casualty deductions for damage resulting from a child starting a car and from flying stones while driving over a temporary road. In a private letter ruling, the IRS disallowed a loss for damage to a race car by an amateur racer on the ground that in races, crashes are not an unusual event and so do not constitute a casualty.

If the deduction is questioned, be prepared to show the amount, if any, of your insurance recovery. A deduction is allowed only for uninsured losses. Not only must the loss be proved, but also that it was not compensated by insurance.

Towing costs are not included as part of the casualty loss.

A parent may not claim a casualty loss deduction for damage to a car registered in a child’s name, although the parent provided funds for the purchase of the car.

Expenses of personal injuries arising from a car accident are not a deductible casualty loss.

Automobile used partly for business.

When you use an automobile partly for personal use and partly for business, your loss is computed as though two separate pieces of property were damaged—one business and the other personal. The $100 and 10% floors (18.12) reduce only the loss on the part used for personal purposes.

Court Decision

Failure To Winterize Car

The Tax Court held that the loss of an engine because of a failure to use antifreeze is not deductible as a casualty loss since the damage is not the result of a destructive force or accident but of personal neglect.

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