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

Stephen Robert Morse and Ben Gran

[This article has been updated to reflect the new tax law that went into effect on January 1, 2018]

As the actress Helen Mirren has 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 that the eye of a hurricane is heading straight toward your business. Or you may just be sitting down to dinner when you hear that a vehicle was stolen from your property’s parking lot.

Even while there can be great rewards for being a commercial property owner, these are the inherent risks of property ownership. Due to 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 purchase 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 peace 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, as the owner you are still responsible 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 state that the owner isn’t responsible in the event of a problem. Below are specific protections offered:

  • Indemnity period. This is the time period specified in your policy during which your insurance benefits are payable and during which claims must be made after a loss. It begins from the date the loss occurred. Claim payments end at the end of the indemnity period so it is important to confirm that your policy specifies an adequate indemnity period.
  • 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 further than the major storms that have hit the U.S. in recent months and years, causing massive amounts of property loss, to understand that this threat is real: 2005’s record-breaking Hurricane Katrina caused an inflation-adjusted economic loss of $119 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 help cover the costs if for example, 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 several types of coverage into a single, cost-effective policy that may help you get a far better deal than if you purchased the different coverages needed to adequately protect your property separately. Furthermore, in the event that your commercial property is adversely affected by a rare weather event like a hurricane, you can obtain a tax deduction for all or part of your loss.

There has been some recent discussion and confusion about the impact of the new tax law on casualty loss deductions, so it’s important to clarify this issue. Under the new tax law that took effect on Jan. 1, 2018, in order for personal casualty losses to be claimed, they must be attributed to a disaster as declared by the president.

However, the new tax law does not affect the deductibility of business casualty losses. You can continue to deduct disaster-related losses to your business/commercial property. But, if you experience disaster losses to both your business and personal property, you might not be able to claim a deduction for your personal losses.

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15 Responses to "Commercial Property Insurance Tax-Deductions: Everything You Need to Know"
    • Buyers Agent Sydney | March 21, 2022 at 12:28 am

      Great tips! Thanks for sharing your article.

      • Small Biz Ahead | March 21, 2022 at 1:44 pm

        You’re welcome! We’re so glad you thought they were good tips.

    • Levi Armstrong | March 4, 2021 at 12:52 am

      It’s great to know that one of the benefits of commercial property insurance is you would be eligible for many federal tax reductions. My friend Alice plans on buying a couple of commercial properties downtown for investment. I’ll tell her about what you said, so she’ll contact a commercial insurance provider once she purchases commercial properties. Thanks.

      • Small Biz Ahead | March 5, 2021 at 6:02 pm

        Glad the article helped, Levi!

    • Vivian Black | December 9, 2019 at 7:27 pm

      You made a great point about how you will be protected when you rent and in many situations, you can be responsible for situations. My husband just started a small business and he isn’t sure what it will take to cover insurance wise. We will keep these tips in mind and make sure he finds a professional that can help him.

      • Chloe Silverman | December 10, 2019 at 8:55 am

        Thank you for the comment, Vivian! Congratulations to you and your husband! Here are some tips for small business owners who are just starting up.

    • John mark | September 18, 2019 at 12:54 am

      I like how you mentioned the damage from natural disasters typically a property insurance policy covers direct physical damage from a windstorm. If direct physical damage is obvious, such as entire roofs/walls or portions of roofs/walls blown away, then a coverage determination becomes easy. Then the major concern of the property owner becomes, “What is the full value of repair or replacement to make me whole again?” Business owners will suffer downtime creating the need to document business interruption losses. Homeowners will want to know where they will live while their home is being repaired. Not only is the building loss a concern, but business inventory losses and personal property damage frequently become a major portion of the windstorm damage insurance claim. Sometimes, however, the damage from a covered peril is not so obvious.

    • Ashley | September 13, 2019 at 12:50 pm

      I thought that it was interesting when you said that one benefit of acquiring good commercial insurance is that there are sometimes federal tax deductions issued. I have been thinking about starting my own business but I have been worried about the protection of my employees and the amount we would give in taxes. I would be sure to find an insurance company that offered federal tax deductions so that I could get help paying taxes and receive protection for my employees at the same time.

    • Dean Phillips | February 19, 2019 at 7:47 pm

      It had never occurred to me that commercial property insurance protects you when you rent your property for use by a third party. My brother has been considering building some apartment homes that he can rent out to tenants. He has been thinking about whether or not he would need insurance on those properties if he were to build them. It seems like if he talked to an insurance agent about the pros of insurance, he would go ahead and get them protected.

      • Hannah Sullivan | February 20, 2019 at 7:54 am

        Hi Dean, we are glad you found our article helpful! Thanks for reading.

    • Dave Anderson | January 31, 2019 at 4:40 pm

      It would be good to hire someone to do property protection. Then I wouldn’t have to worry about anything happening. As well, the insurance wouldn’t have to ever get involved.

      • Hannah Sullivan | February 1, 2019 at 2:25 pm

        Thank you Dave.

    • Rosie Beckett | June 18, 2018 at 3:23 pm

      You make a great point that property insurance for your business provides help if there is damage from a natural disaster or any injuries that happen on the property. If I was a business owner, I would definitely get property insurance because it would give me peace of mind that I would be protected if anything happened on my business property. Also, the fact that there are extra options like fire and theft insurance that you can add is a great benefit because you can customize the insurance that you need.

    • Todd Stauffer | January 23, 2018 at 12:14 pm

      I like how you mentioned that even though you are a good person, bad things could still happen to you or your business. Having the proper business insurance whether you are using it or are renting it out would be really important. That way no matter what happens you would be prepared and protected, even from your renters.

    • Kylie Dotts | November 30, 2017 at 10:20 am

      It’s really interesting that some business insurance will even allow you to get back your rent if your property were damaged by a tenant. My husband and I have been considering buying some property to build an apartment complex on to rent out. I don’t know if we will actually do it, but it’s good to know that there are ways to ensure that no damage could be too damaging to us and our financial situation if something were to go wrong.

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