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Filing Amended Tax Return

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Filing Amended Tax Return

Filing amended tax return 11. Filing amended tax return   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Filing amended tax return Nondeductible losses. Filing amended tax return Family pet. Filing amended tax return Progressive deterioration. Filing amended tax return Decline in market value of stock. Filing amended tax return Mislaid or lost property. Filing amended tax return Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. Filing amended tax return Related persons. Filing amended tax return Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Filing amended tax return Covered disaster area. Filing amended tax return Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Filing amended tax return A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Filing amended tax return A theft occurs when property is stolen. Filing amended tax return A condemnation occurs when private property is legally taken for public use without the owner's consent. Filing amended tax return A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Filing amended tax return You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. Filing amended tax return An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. Filing amended tax return If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. Filing amended tax return For more information, see Postponing Gain , later. Filing amended tax return Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Filing amended tax return Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Filing amended tax return If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. Filing amended tax return Casualty. Filing amended tax return   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Filing amended tax return A sudden event is one that is swift, not gradual or progressive. Filing amended tax return An unexpected event is one that is ordinarily unanticipated and unintended. Filing amended tax return An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Filing amended tax return Deductible losses. Filing amended tax return   Deductible casualty losses can result from a number of different causes, including the following. Filing amended tax return Airplane crashes. Filing amended tax return Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Filing amended tax return Earthquakes. Filing amended tax return Fires (but see Nondeductible losses next for exceptions). Filing amended tax return Floods. Filing amended tax return Freezing. Filing amended tax return Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses, in Publication 547. Filing amended tax return Lightning. Filing amended tax return Storms, including hurricanes and tornadoes. Filing amended tax return Terrorist attacks. Filing amended tax return Vandalism. Filing amended tax return Volcanic eruptions. Filing amended tax return Nondeductible losses. Filing amended tax return   A casualty loss is not deductible if the damage or destruction is caused by the following. Filing amended tax return Accidentally breaking articles such as glassware or china under normal conditions. Filing amended tax return A family pet (explained below). Filing amended tax return A fire if you willfully set it, or pay someone else to set it. Filing amended tax return A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Filing amended tax return The same is true if the willful act or willful negligence of someone acting for you caused the accident. Filing amended tax return Progressive deterioration (explained below). Filing amended tax return Family pet. Filing amended tax return   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. Filing amended tax return Example. Filing amended tax return You keep your horse in your yard. Filing amended tax return The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Filing amended tax return Some of the trees were completely girdled and died. Filing amended tax return Because the damage was not unexpected or unusual, the loss is not deductible. Filing amended tax return Progressive deterioration. Filing amended tax return   Loss of property due to progressive deterioration is not deductible as a casualty loss. Filing amended tax return This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Filing amended tax return Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Filing amended tax return However, weather-related conditions or disease may cause another type of involuntary conversion. Filing amended tax return See Other Involuntary Conversions , later. Filing amended tax return Theft. Filing amended tax return   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Filing amended tax return The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. Filing amended tax return You do not need to show a conviction for theft. Filing amended tax return   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Filing amended tax return The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Filing amended tax return Decline in market value of stock. Filing amended tax return   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Filing amended tax return However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Filing amended tax return You report a capital loss on Schedule D (Form 1040). Filing amended tax return For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Filing amended tax return Mislaid or lost property. Filing amended tax return   The simple disappearance of money or property is not a theft. Filing amended tax return However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Filing amended tax return Example. Filing amended tax return A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Filing amended tax return The diamond falls from the ring and is never found. Filing amended tax return The loss of the diamond is a casualty. Filing amended tax return Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Filing amended tax return The following is a discussion of some losses you can deduct and some you cannot deduct. Filing amended tax return Livestock or produce bought for resale. Filing amended tax return   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Filing amended tax return If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. Filing amended tax return You cannot take a separate deduction. Filing amended tax return Livestock, plants, produce, and crops raised for sale. Filing amended tax return   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Filing amended tax return You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Filing amended tax return   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. Filing amended tax return You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Filing amended tax return The uniform capitalization rules are discussed in chapter 6. Filing amended tax return   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. Filing amended tax return You get the deduction by omitting the item from your inventory at the close of your tax year. Filing amended tax return You cannot take a separate casualty or theft deduction. Filing amended tax return Income loss. Filing amended tax return   A loss of future income is not deductible. Filing amended tax return Example. Filing amended tax return A severe flood destroyed your crops. Filing amended tax return Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . Filing amended tax return You estimate that the crop loss will reduce your farm income by $25,000. Filing amended tax return This loss of future income is also not deductible. Filing amended tax return Loss of timber. Filing amended tax return   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Filing amended tax return If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Filing amended tax return See Postponing Gain , later. Filing amended tax return Property used in farming. Filing amended tax return   Casualty and theft losses of property used in your farm business usually result in deductible losses. Filing amended tax return If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. Filing amended tax return See How To Figure a Loss , later. Filing amended tax return Raised draft, breeding, dairy, or sporting animals. Filing amended tax return   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. Filing amended tax return However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. Filing amended tax return You use inventories to determine your income and you included the animals in your inventory. Filing amended tax return You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. Filing amended tax return When you include livestock in inventory, its last inventory value is its basis. Filing amended tax return When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. Filing amended tax return You cannot take a separate deduction. Filing amended tax return How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. Filing amended tax return Farm property. Filing amended tax return   Farm property is the property you use in your farming business. Filing amended tax return If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. Filing amended tax return   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Filing amended tax return However, the deduction limits, discussed later, do not apply to farm property. Filing amended tax return Personal-use property. Filing amended tax return   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. Filing amended tax return The following items are examples of personal-use property: Your main home. Filing amended tax return Furniture and electronics used in your main home and not used in a home office or for business purposes. Filing amended tax return Clothing and jewelry. Filing amended tax return An automobile used for nonbusiness purposes. Filing amended tax return You figure the casualty or theft loss on this property by taking the following steps. Filing amended tax return Determine your adjusted basis in the property before the casualty or theft. Filing amended tax return Determine the decrease in fair market value of the property as a result of the casualty or theft. Filing amended tax return From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Filing amended tax return You must apply the deduction limits, discussed later, to determine your deductible loss. Filing amended tax return    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Filing amended tax return It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Filing amended tax return Adjusted basis. Filing amended tax return   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Filing amended tax return For more information about adjusted basis, see chapter 6. Filing amended tax return Decrease in fair market value (FMV). Filing amended tax return   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Filing amended tax return FMV is defined in chapter 10 under Payments Received or Considered Received . Filing amended tax return Appraisal. Filing amended tax return   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Filing amended tax return But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Filing amended tax return   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Filing amended tax return The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Filing amended tax return This information is needed to limit any deduction to the actual loss resulting from damage to the property. Filing amended tax return Cost of cleaning up or making repairs. Filing amended tax return   The cost of cleaning up after a casualty is not part of a casualty loss. Filing amended tax return Neither is the cost of repairing damaged property after a casualty. Filing amended tax return But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Filing amended tax return The repairs are actually made. Filing amended tax return The repairs are necessary to bring the property back to its condition before the casualty. Filing amended tax return The amount spent for repairs is not excessive. Filing amended tax return The repairs fix the damage only. Filing amended tax return The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Filing amended tax return Related expenses. Filing amended tax return   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. Filing amended tax return However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Filing amended tax return Separate computations for more than one item of property. Filing amended tax return   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Filing amended tax return Then combine the losses to determine your total loss. Filing amended tax return    There is an exception to this rule for personal-use real property. Filing amended tax return See Exception for personal-use real property, later. Filing amended tax return Example. Filing amended tax return A fire on your farm damaged a tractor and the barn in which it was stored. Filing amended tax return The tractor had an adjusted basis of $3,300. Filing amended tax return Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Filing amended tax return The barn had an adjusted basis of $28,000. Filing amended tax return Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Filing amended tax return You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Filing amended tax return Figure your deductible casualty loss separately for the two items of property. Filing amended tax return     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. Filing amended tax return   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Filing amended tax return Figure the loss using the smaller of the following. Filing amended tax return The decrease in FMV of the entire property. Filing amended tax return The adjusted basis of the entire property. Filing amended tax return Example. Filing amended tax return You bought a farm in 1990 for $160,000. Filing amended tax return The adjusted basis of the residential part is now $128,000. Filing amended tax return In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Filing amended tax return The adjusted basis of the residential part includes the $7,500. Filing amended tax return The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Filing amended tax return The trees were not covered by insurance. Filing amended tax return 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. Filing amended tax return   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Filing amended tax return You do not have a casualty or theft loss to the extent you are reimbursed. Filing amended tax return   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Filing amended tax return You must reduce your loss even if you do not receive payment until a later tax year. Filing amended tax return    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. Filing amended tax return You may have to include a portion of these payments in your income. Filing amended tax return See Insurance payments for living expenses in Publication 547 for details. Filing amended tax return Disaster relief. Filing amended tax return   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. Filing amended tax return Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Filing amended tax return   Generally, disaster relief grants received under the Robert T. Filing amended tax return Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Filing amended tax return See Federal disaster relief grants , later, under Disaster Area Losses . Filing amended tax return   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Filing amended tax return See Qualified disaster relief payments , later, under Disaster Area Losses . Filing amended tax return Reimbursement received after deducting loss. Filing amended tax return   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Filing amended tax return Actual reimbursement less than expected. Filing amended tax return   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Filing amended tax return Actual reimbursement more than expected. Filing amended tax return   If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Filing amended tax return However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Filing amended tax return Do not refigure your tax for the year you claimed the deduction. Filing amended tax return See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Filing amended tax return If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Filing amended tax return See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. Filing amended tax return Actual reimbursement same as expected. Filing amended tax return   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Filing amended tax return Lump-sum reimbursement. Filing amended tax return   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. Filing amended tax return Figure the gain or loss separately for each asset that has a separate basis. Filing amended tax return Adjustments to basis. Filing amended tax return   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. Filing amended tax return The result is your adjusted basis in the property. Filing amended tax return Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Filing amended tax return See Adjusted Basis in chapter 6 for more information. Filing amended tax return Example. Filing amended tax return You built a new silo for $25,000. Filing amended tax return This is the basis in your silo because that is the total cost you incurred to build it. Filing amended tax return During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Filing amended tax return In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. Filing amended tax return Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Filing amended tax return Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). Filing amended tax return There are two limits on the deduction for casualty or theft loss of personal-use property. Filing amended tax return You figure these limits on Form 4684. Filing amended tax return $100 rule. Filing amended tax return   You must reduce each casualty or theft loss on personal-use property by $100. Filing amended tax return This rule applies after you have subtracted any reimbursement. Filing amended tax return 10% rule. Filing amended tax return   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Filing amended tax return Apply this rule after you reduce each loss by $100. Filing amended tax return Adjusted gross income is on line 38 of Form 1040. Filing amended tax return Example. Filing amended tax return In June, you discovered that your house had been burglarized. Filing amended tax return Your loss after insurance reimbursement was $2,000. Filing amended tax return Your adjusted gross income for the year you discovered the burglary is $57,000. Filing amended tax return Figure your theft loss deduction as follows: 1. Filing amended tax return Loss after insurance $2,000 2. Filing amended tax return Subtract $100 100 3. Filing amended tax return Loss after $100 rule $1,900 4. Filing amended tax return Subtract 10% (. Filing amended tax return 10) × $57,000 AGI $5,700 5. Filing amended tax return Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). Filing amended tax return    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. Filing amended tax return See 10% Rule in Publication 547. Filing amended tax return When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Filing amended tax return You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Filing amended tax return However, losses in federally declared disaster areas are subject to different rules. Filing amended tax return See Disaster Area Losses , later, for an exception. Filing amended tax return If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Filing amended tax return Leased property. Filing amended tax return   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. Filing amended tax return This is true even if the loss occurred or the liability was paid in a different year. Filing amended tax return You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Filing amended tax return Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Filing amended tax return Example. Filing amended tax return Robert leased a tractor from First Implement, Inc. Filing amended tax return , for use in his farm business. Filing amended tax return The tractor was destroyed by a tornado in June 2012. Filing amended tax return The loss was not insured. Filing amended tax return First Implement billed Robert for the fair market value of the tractor on the date of the loss. Filing amended tax return Robert disagreed with the bill and refused to pay it. Filing amended tax return First Implement later filed suit in court against Robert. Filing amended tax return In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. Filing amended tax return Robert paid $20,000 in June 2013. Filing amended tax return He can claim the $20,000 as a loss on his 2013 tax return. Filing amended tax return Net operating loss (NOL). Filing amended tax return   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Filing amended tax return An NOL can be carried back or carried forward and deducted from income in other years. Filing amended tax return See Publication 536 for more information on NOLs. Filing amended tax return Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Filing amended tax return You must have records to support the amount you claim for the loss. Filing amended tax return Casualty loss proof. Filing amended tax return   For a casualty loss, your records should show all the following information. Filing amended tax return The type of casualty (car accident, fire, storm, etc. Filing amended tax return ) and when it occurred. Filing amended tax return That the loss was a direct result of the casualty. Filing amended tax return 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. Filing amended tax return Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Filing amended tax return Theft loss proof. Filing amended tax return   For a theft loss, your records should show all the following information. Filing amended tax return When you discovered your property was missing. Filing amended tax return That your property was stolen. Filing amended tax return That you were the owner of the property. Filing amended tax return Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Filing amended tax return Figuring a Gain A casualty or theft may result in a taxable gain. Filing amended tax return If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. Filing amended tax return You generally report your gain as income in the year you receive the reimbursement. Filing amended tax return However, depending on the type of property you receive, you may not have to report your gain. Filing amended tax return See Postponing Gain , later. Filing amended tax return Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. Filing amended tax return Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. Filing amended tax return Amount you receive. Filing amended tax return   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Filing amended tax return It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Filing amended tax return Example. Filing amended tax return A tornado severely damaged your barn. Filing amended tax return The adjusted basis of the barn was $25,000. Filing amended tax return Your insurance company reimbursed you $40,000 for the damaged barn. Filing amended tax return However, you had legal expenses of $2,000 to collect that insurance. Filing amended tax return Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Filing amended tax return 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. Filing amended tax return Some of these are discussed in the following paragraphs. Filing amended tax return Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Filing amended tax return You report the gain or deduct the loss on your tax return for the year you realize it. Filing amended tax return However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Filing amended tax return See Postponing Gain , later. Filing amended tax return Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Filing amended tax return The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. Filing amended tax return The owner receives a condemnation award (money or property) in exchange for the property taken. Filing amended tax return A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Filing amended tax return Threat of condemnation. Filing amended tax return   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. Filing amended tax return Main home condemned. Filing amended tax return   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Filing amended tax return For information on this exclusion, see Publication 523. Filing amended tax return If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. Filing amended tax return See Postponing Gain , later. Filing amended tax return (You cannot deduct a loss from the condemnation of your main home. Filing amended tax return ) More information. Filing amended tax return   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Filing amended tax return Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Filing amended tax return Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. Filing amended tax return Livestock Losses Diseased livestock. Filing amended tax return   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. Filing amended tax return If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Filing amended tax return Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Filing amended tax return If you replace the livestock, you may be able to postpone reporting the gain. Filing amended tax return See Postponing Gain below. Filing amended tax return Reporting dispositions of diseased livestock. Filing amended tax return   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. Filing amended tax return You must also include other information on this statement. Filing amended tax return See How To Postpone Gain , later, under Postponing Gain . Filing amended tax return Weather-related sales of livestock. Filing amended tax return   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. Filing amended tax return Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. Filing amended tax return Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Filing amended tax return If you replace the livestock, you may be able to postpone reporting the gain. Filing amended tax return See Postponing Gain below. Filing amended tax return Example. Filing amended tax return It is your usual business practice to sell five of your dairy animals during the year. Filing amended tax return This year you sold 20 dairy animals because of drought. Filing amended tax return The sale of 15 animals is treated as an involuntary conversion. Filing amended tax return    If you do not replace the livestock, you may be able to report the gain in the following year's income. Filing amended tax return This rule also applies to other livestock (including poultry). Filing amended tax return See Sales Caused by Weather-Related Conditions in chapter 3. Filing amended tax return Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. Filing amended tax return Treat the loss as a loss from an involuntary conversion. Filing amended tax return The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Filing amended tax return You deduct the loss on the return for the year the seedlings died. Filing amended tax return Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. Filing amended tax return Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Filing amended tax return You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Filing amended tax return However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. Filing amended tax return If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Filing amended tax return To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Filing amended tax return If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. Filing amended tax return Example 1. Filing amended tax return In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Filing amended tax return In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Filing amended tax return In May of this year, the property was worth $100,000. Filing amended tax return In June the barn and silo were destroyed by a tornado. Filing amended tax return At the time of the tornado, you had an adjusted basis of $0 in the property. Filing amended tax return You received $85,000 from the insurance company. Filing amended tax return You had a gain of $85,000 ($85,000 – $0). Filing amended tax return You spent $80,000 to rebuild the barn and silo. Filing amended tax return Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Filing amended tax return Example 2. Filing amended tax return In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Filing amended tax return You made no further improvements or additions to it. Filing amended tax return When a storm destroyed the cabin this January, the cabin was worth $250,000. Filing amended tax return You received $146,000 from the insurance company in March. Filing amended tax return You had a gain of $128,000 ($146,000 − $18,000). Filing amended tax return You spent $144,000 to rebuild the cabin. Filing amended tax return Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Filing amended tax return Buying replacement property from a related person. Filing amended tax return   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). Filing amended tax return This rule applies to the following taxpayers. Filing amended tax return C corporations. Filing amended tax return Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Filing amended tax return Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. Filing amended tax return For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Filing amended tax return If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Filing amended tax return If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Filing amended tax return Exception. Filing amended tax return   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. Filing amended tax return Related persons. Filing amended tax return   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. Filing amended tax return For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Filing amended tax return Death of a taxpayer. Filing amended tax return   If a taxpayer dies after having a gain, but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. Filing amended tax return The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. Filing amended tax return Replacement Property You must buy replacement property for the specific purpose of replacing your property. Filing amended tax return Your replacement property must be similar or related in service or use to the property it replaces. Filing amended tax return You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Filing amended tax return If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. Filing amended tax return Property you acquire by gift or inheritance does not qualify as replacement property. Filing amended tax return Owner-user. Filing amended tax return   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Filing amended tax return Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. Filing amended tax return A grinding mill that replaces a tractor does not qualify. Filing amended tax return Neither does a breeding or draft animal that replaces a dairy cow. Filing amended tax return Soil or other environmental contamination. Filing amended tax return   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. Filing amended tax return Weather-related conditions. Filing amended tax return   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. Filing amended tax return Example. Filing amended tax return Each year you normally sell 25 cows from your beef herd. Filing amended tax return However, this year you had to sell 50 cows. Filing amended tax return This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. Filing amended tax return Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. Filing amended tax return Standing crop destroyed by casualty. Filing amended tax return   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. Filing amended tax return The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). Filing amended tax return In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. Filing amended tax return Timber loss. Filing amended tax return   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. Filing amended tax return If you bought the standing timber within the replacement period, you can postpone reporting the gain. Filing amended tax return Business or income-producing property located in a federally declared disaster area. Filing amended tax return   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. Filing amended tax return For more information, see Disaster Area Losses in Publication 547. Filing amended tax return Substituting replacement property. Filing amended tax return   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. Filing amended tax return This is true even if you acquire the other property within the replacement period. Filing amended tax return However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. Filing amended tax return Basis of replacement property. Filing amended tax return   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Filing amended tax return In this way, tax on the gain is postponed until you dispose of the replacement property. Filing amended tax return Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Filing amended tax return This is the replacement period. Filing amended tax return The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Filing amended tax return The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Filing amended tax return Example. Filing amended tax return You are a calendar year taxpayer. Filing amended tax return While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Filing amended tax return You discovered the theft when you returned to your farm on November 11, 2012. Filing amended tax return Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Filing amended tax return You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Filing amended tax return Main home in disaster area. Filing amended tax return   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Filing amended tax return See Disaster Area Losses , later. Filing amended tax return Property in the Midwestern disaster areas. Filing amended tax return   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Filing amended tax return This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Filing amended tax return Property in the Kansas disaster area. Filing amended tax return   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Filing amended tax return This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Filing amended tax return Property in the Hurricane Katrina disaster area. Filing amended tax return   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Filing amended tax return This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Filing amended tax return Weather-related sales of livestock in an area eligible for federal assistance. Filing amended tax return   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Filing amended tax return The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Filing amended tax return   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Filing amended tax return R. Filing amended tax return B. Filing amended tax return 529, available at  www. Filing amended tax return irs. Filing amended tax return gov/irb/2006-39_IRB/ar11. Filing amended tax return html. Filing amended tax return For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. Filing amended tax return gov. Filing amended tax return Condemnation. Filing amended tax return   The replacement period for a condemnation begins on the earlier of the following dates. Filing amended tax return The date on which you disposed of the condemned property. Filing amended tax return The date on which the threat of condemnation began. Filing amended tax return The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Filing amended tax return But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. Filing amended tax return Business or investment real property. Filing amended tax return   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Filing amended tax return Extension. Filing amended tax return   You can apply for an extension of the replacement period. Filing amended tax return Send your written application to the Internal Revenue Service Center where you file your tax return. Filing amended tax return See your tax return instructions for the address. Filing amended tax return Include all the details about your need for an extension. Filing amended tax return Make your application before the end of the replacement period. Filing amended tax return However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. Filing amended tax return You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Filing amended tax return How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Filing amended tax return You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Filing amended tax return Required statement. Filing amended tax return   You should attach a statement to your return for the year you have the gain. Filing amended tax return This statement should include all the following information. Filing amended tax return The date and details of the casualty, theft, or other involuntary conversion. Filing amended tax return The insurance or other reimbursement you received. Filing amended tax return How you figured the gain. Filing amended tax return Replacement property acquired before return filed. Filing amended tax return   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. Filing amended tax return The replacement property. Filing amended tax return The postponed gain. Filing amended tax return The basis adjustment that reflects the postponed gain. Filing amended tax return Any gain you are reporting as income. Filing amended tax return Replacement property acquired after return filed. Filing amended tax return   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. Filing amended tax return   You should then attach another statement to your return for the year in which you buy the replacement property. Filing amended tax return This statement should contain detailed information on the replacement property. Filing amended tax return If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. Filing amended tax return Include in the statement detailed information on the replacement property bought in that year. Filing amended tax return Reporting weather-related sales of livestock. Filing amended tax return   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. Filing amended tax return Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Filing amended tax return The gain realized on the sale or exchange. Filing amended tax return The number and kind of livestock sold or exchanged. Filing amended tax return The number of livestock of each kind you would have sold or exchanged under your usual business practice. Filing amended tax return   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Filing amended tax return The dates you bought the replacement property. Filing amended tax return The cost of the replacement property. Filing amended tax return Description of the replacement property (for example, the number and kind of the replacement livestock). Filing amended tax return Amended return. Filing amended tax return   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Filing amended tax return You do not acquire replacement property within the replacement period, plus extensions. Filing amended tax return On this amended return, you must report the gain and pay any additional tax due. Filing amended tax return You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. Filing amended tax return On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Filing amended tax return Disaster Area Losses Special rules apply to federally declared disaster area losses. Filing amended tax return A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Filing amended tax return Stafford Disaster Relief and Emergency Assistance Act. Filing amended tax return It includes a major disaster or emergency declaration under the act. Filing amended tax return A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. Filing amended tax return fema. Filing amended tax return gov. Filing amended tax return This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Filing amended tax return For other special rules, see Disaster Area Losses in Publication 547. Filing amended tax return When to deduct the loss. Filing amended tax return   You generally must deduct a casualty loss in the year it occurred. Filing amended tax return However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. Filing amended tax return If you make this choice, the loss is treated as having occurred in the preceding year. Filing amended tax return    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. Filing amended tax return   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Filing amended tax return The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Filing amended tax return The due date (with extensions) for the return for the preceding tax year. Filing amended tax return Federal disaster relief grants. Filing amended tax return   Do not include post-disaster relief grants received under the Robert T. Filing amended tax return Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Filing amended tax return Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Filing amended tax return If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. Filing amended tax return Unemployment assistance payments under the Act are taxable unemployment compensation. Filing amended tax return Qualified disaster relief payments. Filing amended tax return   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. Filing amended tax return These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Filing amended tax return No withholding applies to these payments. Filing amended tax return   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Filing amended tax return Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Filing amended tax return Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Filing amended tax return (A personal residence can be a rented residence or one you own. Filing amended tax return ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Filing amended tax return   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. Filing amended tax return    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Filing amended tax return Qualified disaster mitigation payments. Filing amended tax return   Qualified disaster mitigation payments made under the Robert T. Filing amended tax return Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. Filing amended tax return These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Filing amended tax return You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Filing amended tax return Sale of property under hazard mitigation program. Filing amended tax return   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. Filing amended tax return You report the gain or deduct the loss on your tax return for the year you realize it. Filing amended tax return (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Filing amended tax return ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. Filing amended tax return See Postponing Gain , earlier, for the rules that apply. Filing amended tax return Other federal assistance programs. Filing amended tax return    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Filing amended tax return Postponed tax deadlines. Filing amended tax return   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Filing amended tax return The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. Filing amended tax return   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Filing amended tax return Go to http://www. Filing amended tax return irs. Filing amended tax return gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Filing amended tax return Who is eligible. Filing amended tax return   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Filing amended tax return Any individual whose main home is located in a covered disaster area (defined next). Filing amended tax return Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Filing amended tax return Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Filing amended tax return Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Filing amended tax return The main home or principal place of business does not have to be located in the covered disaster area. Filing amended tax return Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Filing amended tax return The spouse on a joint return with a taxpayer who is eligible for postponements. Filing amended tax return Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. Filing amended tax return Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Filing amended tax return Any other person determined by the IRS to be affected by a federally declared disaster. Filing amended tax return Covered disaster area. Filing amended tax return   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. Filing amended tax return Abatement of interest and penalties. Filing amended tax return   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Filing amended tax return Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. Filing amended tax return Form 4684. Filing amended tax return   Use this form to report your gains and losses from casualties and thefts. Filing amended tax return Form 4797. Filing amended tax return   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Filing amended tax return Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. Filing amended tax return Form 8949. Filing amended tax return   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Filing amended tax return Schedule A (Form 1040). Filing amended tax return   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. Filing amended tax return Schedule D (Form 1040). Filing amended tax return   Use this form to carry over the following gains. Filing amended tax return Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Filing amended tax return Net gain shown on Form 4684 from the casualty or theft of personal-use property. Filing amended tax return    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Filing amended tax return Schedule F (Form 1040). Filing amended tax return   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. Filing amended tax return Prev  Up  Next   Home   More Online Publications
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Understanding Your CP232A Notice

We approved your request for an extension to file your Form 5330.


What you need to do

  • Keep this notice for your records.
  • File your required form by your new due date shown on the notice.

You may want to


Answers to Common Questions

Q. Where can I go for more information about Employee Benefit Plans?

A. For more information on Employee Benefit Plans, see Retirement Plans Community.

Q. Can I get help over the phone?

A. If you have questions and/or need help, please call 1-877-829-5500. Personal assistance is available Monday through Friday, 7:00 a.m. to 7:00 p.m. CT.

 


Tips for next year

Be sure to mail your Form 5558 on or before the due date of your return.

Page Last Reviewed or Updated: 27-Jan-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Filing Amended Tax Return

Filing amended tax return 4. Filing amended tax return   Transportation Table of Contents Parking fees. Filing amended tax return Advertising display on car. Filing amended tax return Car pools. Filing amended tax return Hauling tools or instruments. Filing amended tax return Union members' trips from a union hall. Filing amended tax return Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. Filing amended tax return These expenses include the cost of transportation by air, rail, bus, taxi, etc. Filing amended tax return , and the cost of driving and maintaining your car. Filing amended tax return Transportation expenses include the ordinary and necessary costs of all of the following. Filing amended tax return Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Filing amended tax return Tax home is defined in chapter 1. Filing amended tax return Visiting clients or customers. Filing amended tax return Going to a business meeting away from your regular workplace. Filing amended tax return Getting from your home to a temporary workplace when you have one or more regular places of work. Filing amended tax return These temporary workplaces can be either within the area of your tax home or outside that area. Filing amended tax return Transportation expenses do not include expenses you have while traveling away from home overnight. Filing amended tax return Those expenses are travel expenses discussed in chapter 1 . Filing amended tax return However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Filing amended tax return See Car Expenses , later. Filing amended tax return Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Filing amended tax return However, there may be exceptions to this general rule. Filing amended tax return You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Filing amended tax return Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. Filing amended tax return Illustration of transportation expenses. Filing amended tax return    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Filing amended tax return You may want to refer to it when deciding whether you can deduct your transportation expenses. Filing amended tax return Temporary work location. Filing amended tax return   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Filing amended tax return   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Filing amended tax return   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Filing amended tax return   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Filing amended tax return It will not be treated as temporary after the date you determine it will last more than 1 year. Filing amended tax return   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Filing amended tax return You may have deductible travel expenses as discussed in chapter 1 . Filing amended tax return No regular place of work. Filing amended tax return   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Filing amended tax return   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Filing amended tax return   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Filing amended tax return These are nondeductible commuting expenses. Filing amended tax return Two places of work. Filing amended tax return   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Filing amended tax return However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Filing amended tax return   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Filing amended tax return You cannot deduct them. Filing amended tax return Armed Forces reservists. Filing amended tax return   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Filing amended tax return You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Filing amended tax return   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Filing amended tax return In this case, your transportation generally is a nondeductible commuting expense. Filing amended tax return However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Filing amended tax return   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Filing amended tax return   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Filing amended tax return These expenses are discussed in chapter 1 . Filing amended tax return   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. Filing amended tax return For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Filing amended tax return Commuting expenses. Filing amended tax return   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Filing amended tax return These costs are personal commuting expenses. Filing amended tax return You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Filing amended tax return You cannot deduct commuting expenses even if you work during the commuting trip. Filing amended tax return Example. Filing amended tax return You sometimes use your cell phone to make business calls while commuting to and from work. Filing amended tax return Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Filing amended tax return These activities do not change the trip from personal to business. Filing amended tax return You cannot deduct your commuting expenses. Filing amended tax return Parking fees. Filing amended tax return    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Filing amended tax return You can, however, deduct business-related parking fees when visiting a customer or client. Filing amended tax return Advertising display on car. Filing amended tax return   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Filing amended tax return If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Filing amended tax return Car pools. Filing amended tax return   You cannot deduct the cost of using your car in a nonprofit car pool. Filing amended tax return Do not include payments you receive from the passengers in your income. Filing amended tax return These payments are considered reimbursements of your expenses. Filing amended tax return However, if you operate a car pool for a profit, you must include payments from passengers in your income. Filing amended tax return You can then deduct your car expenses (using the rules in this publication). Filing amended tax return Hauling tools or instruments. Filing amended tax return   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Filing amended tax return However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Filing amended tax return Union members' trips from a union hall. Filing amended tax return   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Filing amended tax return Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Filing amended tax return Office in the home. Filing amended tax return   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Filing amended tax return (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Filing amended tax return ) Examples of deductible transportation. Filing amended tax return   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Filing amended tax return Example 1. Filing amended tax return You regularly work in an office in the city where you live. Filing amended tax return Your employer sends you to a 1-week training session at a different office in the same city. Filing amended tax return You travel directly from your home to the training location and return each day. Filing amended tax return You can deduct the cost of your daily round-trip transportation between your home and the training location. Filing amended tax return Example 2. Filing amended tax return Your principal place of business is in your home. Filing amended tax return You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Filing amended tax return Example 3. Filing amended tax return You have no regular office, and you do not have an office in your home. Filing amended tax return In this case, the location of your first business contact inside the metropolitan area is considered your office. Filing amended tax return Transportation expenses between your home and this first contact are nondeductible commuting expenses. Filing amended tax return Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Filing amended tax return While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Filing amended tax return Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Filing amended tax return You generally can use one of the two following methods to figure your deductible expenses. Filing amended tax return Standard mileage rate. Filing amended tax return Actual car expenses. Filing amended tax return If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Filing amended tax return See Leasing a Car , later. Filing amended tax return In this publication, “car” includes a van, pickup, or panel truck. Filing amended tax return For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Filing amended tax return Rural mail carriers. Filing amended tax return   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Filing amended tax return Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Filing amended tax return   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Filing amended tax return You must complete Form 2106 and attach it to your Form 1040, U. Filing amended tax return S. Filing amended tax return Individual Income Tax Return. Filing amended tax return   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Filing amended tax return It is given as an equipment maintenance allowance (EMA) to employees of the U. Filing amended tax return S. Filing amended tax return Postal Service. Filing amended tax return It is at the rate contained in the 1991 collective bargaining agreement. Filing amended tax return Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Filing amended tax return See your employer for information on your reimbursement. Filing amended tax return    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Filing amended tax return Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Filing amended tax return For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Filing amended tax return If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Filing amended tax return You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Filing amended tax return See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Filing amended tax return You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Filing amended tax return See chapter 6 for more information on reimbursements . Filing amended tax return Choosing the standard mileage rate. Filing amended tax return   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Filing amended tax return Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Filing amended tax return   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Filing amended tax return For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. Filing amended tax return   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Filing amended tax return You cannot revoke the choice. Filing amended tax return However, in later years, you can switch from the standard mileage rate to the actual expenses method. Filing amended tax return If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Filing amended tax return Example. Filing amended tax return Larry is an employee who occasionally uses his own car for business purposes. Filing amended tax return He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Filing amended tax return Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. Filing amended tax return   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Filing amended tax return Standard mileage rate not allowed. Filing amended tax return   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Filing amended tax return (See Rural mail carriers , earlier. Filing amended tax return ) Note. Filing amended tax return You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. Filing amended tax return Five or more cars. Filing amended tax return   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. Filing amended tax return However, you may be able to deduct your actual expenses for operating each of the cars in your business. Filing amended tax return See Actual Car Expenses , later, for information on how to figure your deduction. Filing amended tax return   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. Filing amended tax return   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Filing amended tax return Example 1. Filing amended tax return Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Filing amended tax return She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. Filing amended tax return Example 2. Filing amended tax return Tony and his employees use his four pickup trucks in his landscaping business. Filing amended tax return During the year, he traded in two of his old trucks for two newer ones. Filing amended tax return Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Filing amended tax return Example 3. Filing amended tax return Chris owns a repair shop and an insurance business. Filing amended tax return He and his employees use his two pickup trucks and van for the repair shop. Filing amended tax return Chris alternates using his two cars for the insurance business. Filing amended tax return No one else uses the cars for business purposes. Filing amended tax return Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. Filing amended tax return Example 4. Filing amended tax return Maureen owns a car and four vans that are used in her housecleaning business. Filing amended tax return Her employees use the vans, and she uses the car to travel to various customers. Filing amended tax return Maureen cannot use the standard mileage rate for the car or the vans. Filing amended tax return This is because all five vehicles are used in Maureen's business at the same time. Filing amended tax return She must use actual expenses for all vehicles. Filing amended tax return Interest. Filing amended tax return   If you are an employee, you cannot deduct any interest paid on a car loan. Filing amended tax return This applies even if you use the car 100% for business as an employee. Filing amended tax return   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. Filing amended tax return For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Filing amended tax return You cannot deduct the part of the interest expense that represents your personal use of the car. Filing amended tax return    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Filing amended tax return See Publication 936, Home Mortgage Interest Deduction, for more information. Filing amended tax return Personal property taxes. Filing amended tax return   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. Filing amended tax return You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Filing amended tax return   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Filing amended tax return If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Filing amended tax return Parking fees and tolls. Filing amended tax return   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Filing amended tax return (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Filing amended tax return ) Sale, trade-in, or other disposition. Filing amended tax return   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. Filing amended tax return See Disposition of a Car , later. Filing amended tax return Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Filing amended tax return If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Filing amended tax return Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Filing amended tax return Continue to keep records, as explained later in chapter 5 . Filing amended tax return Business and personal use. Filing amended tax return   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Filing amended tax return You can divide your expense based on the miles driven for each purpose. Filing amended tax return Example. Filing amended tax return You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. Filing amended tax return You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Filing amended tax return Employer-provided vehicle. Filing amended tax return   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Filing amended tax return You cannot use the standard mileage rate. Filing amended tax return See Vehicle Provided by Your Employer in chapter 6. Filing amended tax return Interest on car loans. Filing amended tax return   If you are an employee, you cannot deduct any interest paid on a car loan. Filing amended tax return This interest is treated as personal interest and is not deductible. Filing amended tax return If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Filing amended tax return Taxes paid on your car. Filing amended tax return   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Filing amended tax return Enter the amount paid on line 7 of Schedule A (Form 1040). Filing amended tax return Sales taxes. Filing amended tax return   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Filing amended tax return Fines and collateral. Filing amended tax return   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Filing amended tax return Casualty and theft losses. Filing amended tax return   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Filing amended tax return See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Filing amended tax return Depreciation and section 179 deductions. Filing amended tax return   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Filing amended tax return Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Filing amended tax return However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Filing amended tax return Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Filing amended tax return The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Filing amended tax return   Generally, there are limits on these deductions. Filing amended tax return Special rules apply if you use your car 50% or less in your work or business. Filing amended tax return   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. Filing amended tax return   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. Filing amended tax return Car defined. Filing amended tax return   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Filing amended tax return Its unloaded gross vehicle weight must not be more than 6,000 pounds. Filing amended tax return A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Filing amended tax return   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. Filing amended tax return Qualified nonpersonal use vehicles. Filing amended tax return   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Filing amended tax return They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Filing amended tax return Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Filing amended tax return More information. Filing amended tax return   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Filing amended tax return Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. Filing amended tax return If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. Filing amended tax return There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. Filing amended tax return See Depreciation Limits, later. Filing amended tax return You can claim the section 179 deduction only in the year you place the car in service. Filing amended tax return For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. Filing amended tax return Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Filing amended tax return A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Filing amended tax return Example. Filing amended tax return In 2012, you bought a new car and used it for personal purposes. Filing amended tax return In 2013, you began to use it for business. Filing amended tax return Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Filing amended tax return However, you can claim a depreciation deduction for the business use of the car starting in 2013. Filing amended tax return See Depreciation Deduction , later. Filing amended tax return More than 50% business use requirement. Filing amended tax return   You must use the property more than 50% for business to claim any section 179 deduction. Filing amended tax return If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Filing amended tax return The result is the cost of the property that can qualify for the section 179 deduction. Filing amended tax return Example. Filing amended tax return Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Filing amended tax return Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). Filing amended tax return But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Filing amended tax return Limits. Filing amended tax return   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. Filing amended tax return Limit on the amount of the section 179 deduction. Filing amended tax return   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Filing amended tax return   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. Filing amended tax return If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Filing amended tax return   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. Filing amended tax return   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Filing amended tax return   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Filing amended tax return You must allocate the dollar limit (after any reduction) between you. Filing amended tax return   For more information on the above section 179 deduction limits, see Publication 946. Filing amended tax return Limit for sport utility and certain other vehicles. Filing amended tax return   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. Filing amended tax return This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. Filing amended tax return However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Filing amended tax return    Limit on total section 179, special depreciation allowance, and depreciation deduction. Filing amended tax return   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. Filing amended tax return The limit is reduced if your business use of the car is less than 100%. Filing amended tax return See Depreciation Limits , later, for more information. Filing amended tax return Example. Filing amended tax return In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. Filing amended tax return However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). Filing amended tax return Cost of car. Filing amended tax return   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. Filing amended tax return For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. Filing amended tax return Your cost includes only the cash you paid. Filing amended tax return Basis of car for depreciation. Filing amended tax return   The amount of the section 179 deduction reduces your basis in your car. Filing amended tax return If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Filing amended tax return The resulting amount is the basis in your car you use to figure your depreciation deduction. Filing amended tax return When to choose. Filing amended tax return   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. Filing amended tax return How to choose. Filing amended tax return    Employees use Form 2106 to make this choice and report the section 179 deduction. Filing amended tax return All others use Form 4562. Filing amended tax return   File the appropriate form with either of the following. Filing amended tax return Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Filing amended tax return An amended return filed within the time prescribed by law. Filing amended tax return An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Filing amended tax return The amended return must also include any resulting adjustments to taxable income. Filing amended tax return    You must keep records that show the specific identification of each piece of qualifying section 179 property. Filing amended tax return These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Filing amended tax return Revoking an election. Filing amended tax return   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. Filing amended tax return Recapture of section 179 deduction. Filing amended tax return   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. Filing amended tax return If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Filing amended tax return Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Filing amended tax return For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Filing amended tax return Dispositions. Filing amended tax return   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. Filing amended tax return You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). Filing amended tax return For information on the disposition of a car, see Disposition of a Car , later. Filing amended tax return Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. Filing amended tax return The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). Filing amended tax return The special depreciation allowance applies only for the first year the car is placed in service. Filing amended tax return To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). Filing amended tax return Combined depreciation. Filing amended tax return   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Filing amended tax return For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Filing amended tax return See Depreciation Limits , later in this chapter. Filing amended tax return Qualified car. Filing amended tax return   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Filing amended tax return You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. Filing amended tax return Election not to claim the special depreciation allowance. Filing amended tax return   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Filing amended tax return If you make this election, it applies to all 5-year property placed in service during the year. Filing amended tax return   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. Filing amended tax return    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Filing amended tax return Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. Filing amended tax return This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Filing amended tax return You generally need to know the following things about the car you intend to depreciate. Filing amended tax return Your basis in the car. Filing amended tax return The date you place the car in service. Filing amended tax return The method of depreciation and recovery period you will use. Filing amended tax return Basis. Filing amended tax return   Your basis in a car for figuring depreciation is generally its cost. Filing amended tax return This includes any amount you borrow or pay in cash, other property, or services. Filing amended tax return   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Filing amended tax return However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Filing amended tax return For one of these situations see Exception under Methods of depreciation, later. Filing amended tax return   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Filing amended tax return Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Filing amended tax return Placed in service. Filing amended tax return   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Filing amended tax return Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Filing amended tax return   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. Filing amended tax return Car placed in service and disposed of in the same year. Filing amended tax return   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. Filing amended tax return Methods of depreciation. Filing amended tax return   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Filing amended tax return MACRS is discussed later in this chapter. Filing amended tax return Exception. Filing amended tax return   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. Filing amended tax return You must use straight line depreciation over the estimated remaining useful life of the car. Filing amended tax return   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. Filing amended tax return The rate per mile varies depending on the year(s) you used the standard mileage rate. Filing amended tax return For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Filing amended tax return   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Filing amended tax return You must use your adjusted basis in your car to figure your depreciation deduction. Filing amended tax return For additional information on the straight line method of depreciation, see Publication 946. Filing amended tax return More-than-50%-use test. Filing amended tax return   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Filing amended tax return You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Filing amended tax return   If your business use is 50% or less, you must use the straight line method to depreciate your car. Filing amended tax return This is explained later under Car Used 50% or Less for Business . Filing amended tax return Qualified business use. Filing amended tax return   A qualified business use is any use in your trade or business. Filing amended tax return It does not include use for the production of income (investment use). Filing amended tax return However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Filing amended tax return Use of your car by another person. Filing amended tax return   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. Filing amended tax return It is directly connected with your business. Filing amended tax return It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Filing amended tax return It results in a payment of fair market rent. Filing amended tax return This includes any payment to you for the use of your car. Filing amended tax return Business use changes. Filing amended tax return   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. Filing amended tax return See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Filing amended tax return    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Filing amended tax return Use for more than one purpose. Filing amended tax return   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Filing amended tax return You do this on the basis of mileage. Filing amended tax return Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. Filing amended tax return Change from personal to business use. Filing amended tax return   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. Filing amended tax return In this case, you figure the percentage of business use for the year as follows. Filing amended tax return Determine the percentage of business use for the period following the change. Filing amended tax return Do this by dividing business miles by total miles driven during that period. Filing amended tax return Multiply the percentage in (1) by a fraction. Filing amended tax return The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Filing amended tax return Example. Filing amended tax return You use a car only for personal purposes during the first 6 months of the year. Filing amended tax return During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. Filing amended tax return This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Filing amended tax return Your business use for the year is 40% (80% × 6/12). Filing amended tax return Limits. Filing amended tax return   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Filing amended tax return The maximum amount you can claim depends on the year in which you placed your car in service. Filing amended tax return You have to reduce the maximum amount if you did not use the car exclusively for business. Filing amended tax return See Depreciation Limits , later. Filing amended tax return Unadjusted basis. Filing amended tax return   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Filing amended tax return Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Filing amended tax return   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Filing amended tax return Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Filing amended tax return Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Filing amended tax return Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. Filing amended tax return 1, 2006), and alternative motor vehicle credit. Filing amended tax return   See Form 8910 for information on the alternative motor vehicle credit. Filing amended tax return If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Filing amended tax return See Car Used 50% or Less for Business, later, for more information. Filing amended tax return If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Filing amended tax return Improvements. Filing amended tax return   A major improvement to a car is treated as a new item of 5-year recovery property. Filing amended tax return It is treated as placed in service in the year the improvement is made. Filing amended tax return It does not matter how old the car is when the improvement is added. Filing amended tax return Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Filing amended tax return However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Filing amended tax return Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. Filing amended tax return See Depreciation Limits , later. Filing amended tax return Car trade-in. Filing amended tax return   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. Filing amended tax return You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Filing amended tax return If you make this election, you treat the old car as disposed of at the time of the trade-in. Filing amended tax return The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. Filing amended tax return You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Filing amended tax return You make this election by completing Form 2106, Part II, Section D. Filing amended tax return This method is explained later, beginning at Effect of trade-in on basis . Filing amended tax return If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. Filing amended tax return You must apply two depreciation limits (see Depreciation Limits , later). Filing amended tax return The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. Filing amended tax return The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. Filing amended tax return You must use Form 4562 to compute your depreciation deduction. Filing amended tax return You cannot use Form 2106, Part II, Section D. Filing amended tax return This method is explained in Publication 946. Filing amended tax return   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Filing amended tax return Otherwise, you must use the method described in (2). Filing amended tax return Effect of trade-in on basis. Filing amended tax return   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Filing amended tax return For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. Filing amended tax return 168(i)-6(d)(3). Filing amended tax return Traded car used only for business. Filing amended tax return   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. Filing amended tax return Example. Filing amended tax return Paul trades in a car that has an adjusted basis of $5,000 for a new car. Filing amended tax return In addition, he pays cash of $20,000 for the new car. Filing amended tax return His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). Filing amended tax return Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. Filing amended tax return Traded car used partly in business. Filing amended tax return   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. Filing amended tax return This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. Filing amended tax return (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Filing amended tax return See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Filing amended tax return )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Filing amended tax return Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. Filing amended tax return For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Filing amended tax return Modified Accelerated Cost Recovery System (MACRS). Filing amended tax return   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Filing amended tax return   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Filing amended tax return See Depreciation Limits , later. Filing amended tax return Recovery period. Filing amended tax return   Under MACRS, cars are classified as 5-year property. Filing amended tax return You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Filing amended tax return This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. Filing amended tax return Depreciation deduction for certain Indian reservation property. Filing amended tax return   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Filing amended tax return The recovery that applies for a business-use car is 3 years instead of 5 years. Filing amended tax return However, the depreciation limits, discussed later, will still apply. Filing amended tax return   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. Filing amended tax return Depreciation methods. Filing amended tax return   You can use one of the following methods to depreciate your car. Filing amended tax return The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Filing amended tax return The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Filing amended tax return The straight line method (SL) over a 5-year recovery period. Filing amended tax return    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. Filing amended tax return This is because the chart has the switch to the straight line method built into its rates. Filing amended tax return   Before choosing a method, you may wish to consider the following facts. Filing amended tax return Using the straight line method provides equal yearly deductions throughout the recovery period. Filing amended tax return Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Filing amended tax return MACRS depreciation chart. Filing amended tax return   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Filing amended tax return Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Filing amended tax return A similar chart appears in the Instructions for Form 2106. Filing amended tax return    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Filing amended tax return   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. Filing amended tax return You file your return on a fiscal year basis. Filing amended tax return You file your return for a short tax year (less than 12 months). Filing amended tax return During the year, all of the following conditions apply. Filing amended tax return You placed some property in service from January through September. Filing amended tax return You placed some property in service from October through December. Filing amended tax return Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. Filing amended tax return   You placed qualified property in service on an Indian reservation. Filing amended tax return Depreciation in future years. Filing amended tax return   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Filing amended tax return However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Filing amended tax return In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. Filing amended tax return See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Filing amended tax return    In future years, do not use the chart in this edition of the publication. Filing amended tax return Instead, use the chart in the publication or the form instructions for those future years. Filing amended tax return Disposition of car during recovery period. Filing amended tax return   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. Filing amended tax return See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. Filing amended tax return How to use the 2013 chart. Filing amended tax return   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Filing amended tax return Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Filing amended tax return If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Filing amended tax return    Your deduction cannot be more than the maximum depreciation limit for cars. Filing amended tax return See Depreciation Limits, later. Filing amended tax return Example. Filing amended tax return Phil bought a used truck in February 2012 to use exclusively in his landscape business. Filing amended tax return He paid $9,200 for the truck with no trade-in. Filing amended tax return Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. Filing amended tax return Phil used the MACRS depreciation chart in 2012 to find his percentage. Filing amended tax return The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Filing amended tax return He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. Filing amended tax return In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Filing amended tax return His records show that the business use of his truck was 90% in 2013. Filing amended tax return Phil used Table 4-1 to find his percentage. Filing amended tax return Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Filing amended tax return He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. Filing amended tax return Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Filing amended tax return The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Filing amended tax return The maximum amount you can deduct each year depends on the year you place the car in service. Filing amended tax return These limits are shown in the following tables. Filing amended tax return   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing amended tax return 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing amended tax return 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing amended tax return 4$7,660 if you acquired the car before 5/6/2003. Filing amended tax return $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Filing amended tax return 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. Filing amended tax return Trucks and vans. Filing amended tax return   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Filing amended tax return A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. Filing amended tax return For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Filing amended tax return Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. Filing amended tax return 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. Filing amended tax return Car used less than full year. Filing amended tax return   The depreciation limits are not reduced if you use a car for less than a full year. Filing amended tax return This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. Filing amended tax return However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Filing amended tax return See Reduction for personal use , next. Filing amended tax return Reduction for personal use. Filing amended tax return   The depreciation limits are reduced based on your percentage of personal use. Filing amended tax return If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. Filing amended tax return Section 179 deduction. Filing amended tax return   The section 179 deduction is treated as a depreciation deduction. Filing amended tax return If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. Filing amended tax return Example. Filing amended tax return On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Filing amended tax return He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Filing amended tax return The car is not qualified property for purposes of the special depreciation allowance. Filing amended tax return Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Filing amended tax return This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Filing amended tax return Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Filing amended tax return He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Filing amended tax return Jack has reached his maximum depreciation deduction for 2013. Filing amended tax return For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Filing amended tax return Deductions in years after the recovery period. Filing amended tax return   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. Filing amended tax return If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Filing amended tax return Unrecovered basis. Filing amended tax return   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. Filing amended tax return The recovery period. Filing amended tax return   For 5-year property, your recovery period is 6 calendar years. Filing amended tax return A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. Filing amended tax return   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Filing amended tax return You determine your unrecovered basis in the 7th year after you placed the car in service. Filing amended tax return How to treat unrecovered basis. Filing amended tax return   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. Filing amended tax return The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Filing amended tax return For example, no deduction is allowed for a year you use your car 100% for personal purposes. Filing amended tax return Example. Filing amended tax return In April 2007, Bob bought and placed in service a car he used exclusively in his business. Filing amended tax return The car cost $31,500. Filing amended tax return Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Filing amended tax return He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Filing amended tax return For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. Filing amended tax return Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. Filing amended tax return      MACRS     Deprec. Filing amended tax return Year % Amount Limit Allowed 2007 20. Filing amended tax return 00 $6,300 $3,060 $ 3,060 2008 32. Filing amended tax return 00 10,080 4,900 4,900 2009 19. Filing amended tax return 20 6,048 2,850 2,850 2010 11. Filing amended tax return 52 3,629 1,775 1,775 2011 11. Filing amended tax return 52 3,629 1,775 1,775 2012 5. Filing amended tax return 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. Filing amended tax return   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Filing amended tax return If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. Filing amended tax return   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. Filing amended tax return However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. Filing amended tax return For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. Filing amended tax return Table 4-1. Filing amended tax return 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Filing amended tax return ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. Filing amended tax return   First, using the left column, find the date you first placed the car in service in 2013. Filing amended tax return Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Filing amended tax return For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. Filing amended tax return Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Filing amended tax return (See Car Used 50% or Less for Business . Filing amended tax return )  Multiply the unadjusted basis of your car by your business use percentage. Filing amended tax return Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Filing amended tax return (Also see Depreciation Limits . Filing amended tax return )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. Filing amended tax return 1—Sept. Filing amended tax return 30 percentage instead of the Oct. Filing amended tax return 1—Dec. Filing amended tax return 31 percentage for your car. Filing amended tax return               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. Filing amended tax return If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. Filing amended tax return 1—Sept. Filing amended tax return 30 for figuring depreciation for your car. Filing amended tax return See Which Convention Applies? in chapter 4 of Publication 946 for more details. Filing amended tax return               Example. Filing amended tax return You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. Filing amended tax return You