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Free file Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Free file Property not disposed of or abandoned. Free file Special rule for normal retirements from item accounts. Free file Abandoned property. Free file Single item accounts. Free file Multiple property account. Free file Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Free file If your property qualified for MACRS, you must depreciate it under MACRS. Free file See Publication 946. Free file However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Free file Also, you can elect to exclude certain property from being depreciated under MACRS. Free file Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Free file Intangible property. Free file   You cannot depreciate intangible property under ACRS or MACRS. Free file You depreciate intangible property using any other reasonable method, usually, the straight line method. Free file Note. Free file The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Free file For more information, see chapter 12 of Publication 535. Free file Public utility property. Free file   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Free file This type of property is subject to depreciation under a special rule. Free file Videocassettes. Free file   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Free file You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Free file The straight line method, salvage value, and useful life are discussed later under Methods To Use. Free file You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Free file How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Free file These methods are straight line and declining balance. Free file To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Free file They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Free file The amount of the deduction in any year also depends on which method of depreciation you choose. Free file Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Free file The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Free file Your original basis is usually the purchase price. Free file However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Free file Adjusted basis. Free file   Events will often change the basis of property. Free file When this occurs, the changed basis is called the adjusted basis. Free file Some events, such as improvements you make, increase basis. Free file Events such as deducting casualty losses and depreciation decrease basis. Free file If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Free file   Publication 551 explains how to figure basis for property acquired in different ways. Free file It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Free file Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Free file It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Free file It is how long it will continue to be useful to you, not how long the property will last. Free file Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Free file The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Free file Consider all these factors before you arrive at a useful life for your property. Free file The useful life of the same type of property varies from user to user. Free file When you determine the useful life of your property, keep in mind your own experience with similar property. Free file You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Free file Change in useful life. Free file   You base your estimate of useful life on certain facts. Free file If these facts change significantly, you can adjust your estimate of the remaining useful life. Free file However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Free file Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Free file You generally cannot depreciate property below a reasonable salvage value. Free file Determining salvage value. Free file   Salvage value is the estimated value of property at the end of its useful life. Free file It is what you expect to get for the property if you sell it after you can no longer use it productively. Free file You must estimate the salvage value of a piece of property when you first acquire it. Free file   Salvage value is affected both by how you use the property and how long you use it. Free file If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Free file However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Free file Changing salvage value. Free file   Once you determine the salvage value for property, you should not change it merely because prices have changed. Free file However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Free file When you redetermine the salvage value, take into account the facts that exist at the time. Free file Net salvage. Free file   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Free file You can choose either salvage value or net salvage when you figure depreciation. Free file You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Free file However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Free file Your salvage value can never be less than zero. Free file Ten percent rule. Free file   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Free file You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Free file If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Free file Methods To Use Two methods of depreciation are the straight line and declining balance methods. Free file If ACRS or MACRS does not apply, you can use one of these methods. Free file The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Free file Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Free file One of these methods was the straight line method. Free file This method was also used for intangible property. Free file It lets you deduct the same amount of depreciation each year. Free file To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Free file Subtract the salvage value, if any, from the adjusted basis. Free file The balance is the total amount of depreciation you can take over the useful life of the property. Free file Divide the balance by the number of years remaining in the useful life. Free file This gives you the amount of your yearly depreciation deduction. Free file Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Free file If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Free file Example. Free file In April 1994, Frank bought a franchise for $5,600. Free file It expires in 10 years. Free file This property is intangible property that cannot be depreciated under MACRS. Free file Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Free file He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Free file He must prorate the $560 for his 9 months of use in 1994. Free file This gives him a deduction of $420 ($560 ÷ 9/12). Free file In 1995, Frank can deduct $560 for the full year. Free file Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Free file The rate cannot be more than twice the straight line rate. Free file Rate of depreciation. Free file   Under this method, you must determine your declining balance rate of depreciation. Free file The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Free file (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Free file ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Free file Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Free file Depreciation deductions. Free file   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Free file This gives you the amount of your deduction. Free file For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Free file To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Free file Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Free file Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Free file Your depreciation deduction for the second year is $1,600. Free file   As you can see from this example, your adjusted basis in the property gets smaller each year. Free file Also, under this method, deductions are larger in the earlier years and smaller in the later years. Free file You can make a change to the straight line method without consent. Free file Salvage value. Free file   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Free file However, you cannot depreciate the property below its reasonable salvage value. Free file Determine salvage value using the rules discussed earlier, including the special 10% rule. Free file Example. Free file If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Free file But if your estimate of salvage value was $900, you can only deduct $100. Free file This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Free file Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Free file You can group the videocassettes by title for making this projection. Free file You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Free file The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Free file For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Free file How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Free file If you change your method of depreciation, it is generally a change in your method of accounting. Free file You must get IRS consent before making the change. Free file However, you do not need permission for certain changes in your method of depreciation. Free file The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Free file For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Free file Change to the straight line method. Free file   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Free file However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Free file When the change is made, figure depreciation based on your adjusted basis in the property at that time. Free file Your adjusted basis takes into account all previous depreciation deductions. Free file Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Free file   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Free file You cannot make the change on an amended return filed after the due date of the original return (including extensions). Free file   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Free file   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Free file Changes that require permission. Free file   For most other changes in method of depreciation, you must get permission from the IRS. Free file To request a change in method of depreciation, file Form 3115. Free file File the application within the first 180 days of the tax year the change is to become effective. Free file In most cases, there is a user fee that must accompany Form 3115. Free file See the instructions for Form 3115 to determine if a fee is required. Free file Changes granted automatically. Free file   The IRS automatically approves certain changes of a method of depreciation. Free file But, you must file Form 3115 for these automatic changes. Free file   However, IRS can deny permission if Form 3115 is not filed on time. Free file For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Free file B. Free file 420. Free file Changes for which approval is not automatic. Free file   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Free file   You must request and receive permission for these changes. Free file To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Free file Change from an improper method. Free file   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Free file You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Free file If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Free file However, you must file the amended return before the filing date for the next tax year. Free file Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Free file You can do this by selling, exchanging, or abandoning the item of property. Free file You can also withdraw it from use without disposing of it. Free file For example, you could place it in a supplies or scrap account. Free file Retirements can be either normal or abnormal depending on all facts and circumstances. Free file The rules discussed next do not apply to MACRS and ACRS property. Free file Normal retirement. Free file   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Free file A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Free file Abnormal retirement. Free file   A retirement can be abnormal if you withdraw the property early or under other circumstances. Free file For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Free file Gain or loss on retirement. Free file   There are special rules for figuring the gain or loss on retirement of property. Free file The gain or loss will depend on several factors. Free file These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Free file A single property account contains only one item of property. Free file A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Free file Sale or exchange. Free file   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Free file See Publication 544. Free file Property not disposed of or abandoned. Free file   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Free file You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Free file However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Free file   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Free file Special rule for normal retirements from item accounts. Free file   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Free file However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Free file   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Free file Abandoned property. Free file   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Free file However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Free file Basis of property retired. Free file   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Free file Single item accounts. Free file   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Free file This is generally the cost or other basis of the item of property less depreciation. Free file See Publication 551. Free file Multiple property account. Free file   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Free file If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Free file   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Free file The method of depreciation used for the multiple property account is used. Free file You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Free file Prev  Up  Next   Home   More Online Publications
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Free file 25. Free file   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Free file Progressive deterioration. Free file Damage from corrosive drywall. Free file Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Free file  Section C of Form 4684 is new for 2013. Free file You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Free file Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Free file You do not need to complete Appendix A. Free file For details, see Losses from Ponzi-type investment schemes , in this chapter. Free file Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Free file The chapter also explains the following  topics. Free file How to figure the amount of your loss. Free file How to treat insurance and other reimbursements you receive. Free file The deduction limits. Free file When and how to report a casualty or theft. Free file Forms to file. Free file    When you have a casualty or theft, you have to file Form 4684. Free file You will also have to file one or more of the following forms. Free file Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Free file   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Free file Workbook for casualties and thefts. Free file    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Free file It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Free file Business or investment-related losses. Free file   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Free file Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Free file A sudden event is one that is swift, not gradual or progressive. Free file An unexpected event is one that is ordinarily unanticipated and unintended. Free file 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. Free file Deductible losses. Free file   Deductible casualty losses can result from a number of different causes, including the following. Free file Car accidents (but see Nondeductible losses , next, for exceptions). Free file Earthquakes. Free file Fires (but see Nondeductible losses , next, for exceptions). Free file Floods. Free file 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. Free file Mine cave-ins. Free file Shipwrecks. Free file Sonic booms. Free file Storms, including hurricanes and tornadoes. Free file Terrorist attacks. Free file Vandalism. Free file Volcanic eruptions. Free file Nondeductible losses. Free file   A casualty loss is not deductible if the damage or destruction is caused by the following. Free file Accidentally breaking articles such as glassware or china under normal conditions. Free file A family pet (explained below). Free file A fire if you willfully set it or pay someone else to set it. Free file A car accident if your willful negligence or willful act caused it. Free file The same is true if the willful act or willful negligence of someone acting for you caused the accident. Free file Progressive deterioration (explained later). Free file Family pet. Free file   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. Free file Example. Free file Your antique oriental rug was damaged by your new puppy before it was housebroken. Free file Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Free file Progressive deterioration. Free file    Loss of property due to progressive deterioration is not deductible as a casualty loss. Free file This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Free file The following are examples of damage due to progressive deterioration. Free file The steady weakening of a building due to normal wind and weather conditions. Free file The deterioration and damage to a water heater that bursts. Free file However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Free file Most losses of property caused by droughts. Free file To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Free file Termite or moth damage. Free file The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Free file However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Free file Damage from corrosive drywall. Free file   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Free file For details, see Publication 547. Free file Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Free file The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Free file You do not need to show a conviction for theft. Free file Theft includes the taking of money or property by the following means. Free file Blackmail. Free file Burglary. Free file Embezzlement. Free file Extortion. Free file Kidnapping for ransom. Free file Larceny. Free file Robbery. Free file The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Free file Decline in market value of stock. Free file   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. Free file 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. Free file You report a capital loss on Schedule D (Form 1040). Free file For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Free file Mislaid or lost property. Free file   The simple disappearance of money or property is not a theft. Free file 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. Free file Sudden, unexpected, and unusual events are defined earlier. Free file Example. Free file A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Free file The diamond falls from the ring and is never found. Free file The loss of the diamond is a casualty. Free file Losses from Ponzi-type investment schemes. Free file   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Free file R. Free file B. Free file 735 (available at www. Free file irs. Free file gov/irb/2009-14_IRB/ar07. Free file html). Free file Revenue Procedure 2009-20, 2009-14 I. Free file R. Free file B. Free file 749 (available at www. Free file irs. Free file gov/irb/2009-14_IRB/ar11. Free file html). Free file Revenue Procedure 2011-58, 2011-50 I. Free file R. Free file B. Free file 849 (available at www. Free file irs. Free file gov/irb/2011-50_IRB/ar11. Free file html). Free file If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Free file Skip lines 19 to 27. Free file Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Free file You do not need to complete Appendix A. Free file For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Free file   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Free file Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Free file If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Free file As a casualty loss. Free file As an ordinary loss. Free file As a nonbusiness bad debt. Free file Casualty loss or ordinary loss. Free file   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. Free file The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Free file If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. Free file However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Free file Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Free file   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Free file The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Free file Your loss is subject to the 2%-of-adjusted-gross-income limit. Free file You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Free file Nonbusiness bad debt. Free file   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. Free file How to report. Free file   The kind of deduction you choose for your loss on deposits determines how you report your loss. Free file If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Free file Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Free file Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Free file More information. Free file   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Free file Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Free file You also must be able to support the amount you take as a deduction. Free file Casualty loss proof. Free file   For a casualty loss, your records should show all the following. Free file The type of casualty (car accident, fire, storm, etc. Free file ) and when it occurred. Free file That the loss was a direct result of the casualty. Free file 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. Free file Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Free file Theft loss proof. Free file   For a theft loss, your records should show all the following. Free file When you discovered that your property was missing. Free file That your property was stolen. Free file That you were the owner of the property. Free file Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Free file It is important that you have records that will prove your deduction. Free file If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Free file Figuring a Loss Figure the amount of your loss using the following steps. Free file Determine your adjusted basis in the property before the casualty or theft. Free file Determine the decrease in fair market value of the property as a result of the casualty or theft. Free file From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Free file For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. Free file Gain from reimbursement. Free file   If your reimbursement is more than your adjusted basis in the property, you have a gain. Free file This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Free file If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Free file See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Free file Leased property. Free file   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. Free file Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. Free file The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. Free file FMV of stolen property. Free file   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Free file Example. Free file Several years ago, you purchased silver dollars at face value for $150. Free file This is your adjusted basis in the property. Free file Your silver dollars were stolen this year. Free file The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Free file Your theft loss is $150. Free file Recovered stolen property. Free file   Recovered stolen property is your property that was stolen and later returned to you. Free file If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Free file Use this amount to refigure your total loss for the year in which the loss was deducted. Free file   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Free file But report the difference only up to the amount of the loss that reduced your tax. Free file For more information on the amount to report, see Recoveries in chapter 12. Free file Figuring Decrease in FMV— Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Free file However, other measures can also be used to establish certain decreases. Free file Appraisal. Free file   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. Free file The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Free file This information is needed to limit any deduction to the actual loss resulting from damage to the property. Free file   Several factors are important in evaluating the accuracy of an appraisal, including the following. Free file The appraiser's familiarity with your property before and after the casualty or theft. Free file The appraiser's knowledge of sales of comparable property in the area. Free file The appraiser's knowledge of conditions in the area of the casualty. Free file The appraiser's method of appraisal. Free file    You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. Free file For more information on disasters, see Disaster Area Losses, in Pub. Free file 547. Free file Cost of cleaning up or making repairs. Free file   The cost of repairing damaged property is not part of a casualty loss. Free file Neither is the cost of cleaning up after a casualty. Free file 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. Free file The repairs are actually made. Free file The repairs are necessary to bring the property back to its condition before the casualty. Free file The amount spent for repairs is not excessive. Free file The repairs take care of the damage only. Free file The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Free file Landscaping. Free file   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Free file You may be able to measure your loss by what you spend on the following. Free file Removing destroyed or damaged trees and shrubs minus any salvage you receive. Free file Pruning and other measures taken to preserve damaged trees and shrubs. Free file Replanting necessary to restore the property to its approximate value before the casualty. Free file Car value. Free file    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Free file You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Free file The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. Free file If your car is not listed in the books, determine its value from other sources. Free file A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Free file Figuring Decrease in FMV— Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. Free file Cost of protection. Free file   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Free file The amount you spend on insurance or to board up your house against a storm is not part of your loss. Free file   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. Free file An example would be the cost of a dike to prevent flooding. Free file Exception. Free file   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments. Free file See Disaster Area Losses in Publication 547. Free file Incidental expenses. Free file   Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Free file Replacement cost. Free file   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Free file Sentimental value. Free file   Do not consider sentimental value when determining your loss. Free file If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. Free file Decline in market value of property in or near casualty area. Free file   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. Free file You have a loss only for actual casualty damage to your property. Free file However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Free file Costs of photographs and appraisals. Free file    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Free file Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Free file    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Free file See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Free file   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. Free file You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Free file For information about miscellaneous deductions, see chapter 28. Free file Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Free file For more information, see chapter 13. Free file Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Free file You do not have a casualty or theft loss to the extent you are reimbursed. Free file If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Free file You must reduce your loss even if you do not receive payment until a later tax year. Free file See Reimbursement Received After Deducting Loss , later. Free file Failure to file a claim for reimbursement. Free file   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Free file Otherwise, you cannot deduct this loss as a casualty or theft loss. Free file However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Free file Example. Free file You have a car insurance policy with a $1,000 deductible. Free file Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Free file This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Free file Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Free file Other types of reimbursements are discussed next. Free file Also see the Instructions for Form 4684. Free file Employer's emergency disaster fund. Free file   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Free file Take into consideration only the amount you used to replace your destroyed or damaged property. Free file Example. Free file Your home was extensively damaged by a tornado. Free file Your loss after reimbursement from your insurance company was $10,000. Free file Your employer set up a disaster relief fund for its employees. Free file Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Free file You received $4,000 from the fund and spent the entire amount on repairs to your home. Free file In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Free file Your casualty loss before applying the deduction limits discussed later is $6,000. Free file Cash gifts. Free file   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. Free file This applies even if you use the money to pay for repairs to property damaged in the disaster. Free file Example. Free file Your home was damaged by a hurricane. Free file Relatives and neighbors made cash gifts to you that were excludable from your income. Free file You used part of the cash gifts to pay for repairs to your home. Free file There were no limits or restrictions on how you could use the cash gifts. Free file Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Free file Insurance payments for living expenses. Free file   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Free file You lose the use of your main home because of a casualty. Free file Government authorities do not allow you access to your main home because of a casualty or threat of one. Free file Inclusion in income. Free file   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Free file Report this amount on Form 1040, line 21. Free file However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Free file See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Free file   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Free file Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Free file Generally, these expenses include the amounts you pay for the following. Free file Rent for suitable housing. Free file Transportation. Free file Food. Free file Utilities. Free file Miscellaneous services. Free file Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. Free file Example. Free file As a result of a fire, you vacated your apartment for a month and moved to a motel. Free file You normally pay $525 a month for rent. Free file None was charged for the month the apartment was vacated. Free file Your motel rent for this month was $1,200. Free file You normally pay $200 a month for food. Free file Your food expenses for the month you lived in the motel were $400. Free file You received $1,100 from your insurance company to cover your living expenses. Free file You determine the payment you must include in income as follows. Free file 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Free file   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. Free file Example. Free file Your main home was destroyed by a tornado in August 2011. Free file You regained use of your home in November 2012. Free file The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Free file You include this amount in income on your 2012 Form 1040. Free file If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. Free file Disaster relief. Free file   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. Free file Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Free file For more information, see Disaster Area Losses in Publication 547. Free file Disaster unemployment assistance payments are unemployment benefits that are taxable. Free file Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Free file Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Free file See Disaster Area Losses in Publication 547. Free file Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Free file This section explains the adjustment you may have to make. Free file Actual reimbursement less than expected. Free file   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. Free file Example. Free file Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Free file The accident was due to the negligence of the other driver. Free file At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Free file You did not have a deductible loss in 2012. Free file In January 2013, the court awarded you a judgment of $2,000. Free file However, in July it became apparent that you will be unable to collect any amount from the other driver. Free file You can deduct the loss in 2013 subject to the limits discussed later. Free file Actual reimbursement more than expected. Free file   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Free file However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Free file You do not refigure your tax for the year you claimed the deduction. Free file For more information, see Recoveries in chapter 12. Free file 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. Free file If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Free file Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Free file See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Free file Actual reimbursement same as expected. Free file   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. Free file Example. Free file In December 2013, you had a collision while driving your personal car. Free file Repairs to the car cost $950. Free file You had $100 deductible collision insurance. Free file Your insurance company agreed to reimburse you for the rest of the damage. Free file Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Free file Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Free file When you receive the $850 from the insurance company in 2014, do not report it as income. Free file Single Casualty on Multiple Properties Personal property. Free file   Personal property is any property that is not real property. Free file If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. Free file Then combine these separate losses to figure the total loss from that casualty or theft. Free file Example. Free file A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Free file You did not have fire insurance to cover your loss. Free file (This was the only casualty or theft you had during the year. Free file ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Free file The rug cost $3,000 and had an FMV of $2,500 just before the fire. Free file You bought the table at an auction for $100 before discovering it was an antique. Free file It had been appraised at $900 before the fire. Free file You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Free file   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Free file Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Free file Example. Free file You bought your home a few years ago. Free file You paid $160,000 ($20,000 for the land and $140,000 for the house). Free file You also spent $2,000 for landscaping. Free file This year a fire destroyed your home. Free file The fire also damaged the shrubbery and trees in your yard. Free file The fire was your only casualty or theft loss this year. Free file Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Free file (The loss to your household furnishings is not shown in this example. Free file It would be figured separately on each item, as explained earlier under Personal property . Free file ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Free file You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Free file If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Free file You must reduce each casualty or theft loss by $100 ($100 rule). Free file You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Free file You make these reductions on Form 4684. Free file These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Free file For more detailed explanations and examples, see Publication 547. Free file Table 25-1. Free file How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Free file Apply this rule after you have figured the amount of your loss. Free file You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Free file Apply this rule after you reduce each loss by $100 (the $100 rule). Free file Single Event Apply this rule only once, even if many pieces of property are affected. Free file Apply this rule only once, even if many pieces of property are affected. Free file More Than One Event Apply to the loss from each event. Free file Apply to the total of all your losses from all events. Free file More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Free file Apply separately to each person. Free file Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Free file Apply as if you were one person. Free file Filing Separately Apply separately to each spouse. Free file Apply separately to each spouse. Free file More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Free file Apply separately to each owner of jointly owned property. Free file Property used partly for business and partly for personal purposes. Free file   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. Free file You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Free file $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Free file This reduction applies to each total casualty or theft loss. Free file It does not matter how many pieces of property are involved in an event. Free file Only a single $100 reduction applies. Free file Example. Free file A hailstorm damages your home and your car. Free file Determine the amount of loss, as discussed earlier, for each of these items. Free file Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Free file Single event. Free file   Generally, events closely related in origin cause a single casualty. Free file It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. Free file 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Free file Apply this rule after you reduce each loss by $100. Free file For more information, see the Form 4684 instructions. Free file If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Free file Example 1. Free file In June, you discovered that your house had been burglarized. Free file Your loss after insurance reimbursement was $2,000. Free file Your adjusted gross income for the year you discovered the theft is $29,500. Free file You first apply the $100 rule and then the 10% rule. Free file Figure your theft loss deduction as follows. Free file 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Free file Example 2. Free file In March, you had a car accident that totally destroyed your car. Free file You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Free file Your loss on the car was $1,800. Free file In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Free file Your loss on the basement items after reimbursement was $2,100. Free file Your adjusted gross income for the year that the accident and fire occurred is $25,000. Free file You figure your casualty loss deduction as follows. Free file       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Free file   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Free file Do this after you have reduced each loss by any reimbursements and by $100, but before you have reduced the losses by 10% of your adjusted gross income. Free file Casualty or theft gains do not include gains you choose to postpone. Free file See Publication 547 for information on the postponement of gain. Free file Losses more than gains. Free file   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. Free file The rest, if any, is your deductible loss from personal-use property. Free file Gains more than losses. Free file   If your recognized gains are more than your losses, subtract your losses from your gains. Free file The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Free file The 10% rule does not apply to your gains. Free file When To Report Gains and Losses Gains. Free file   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Free file You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Free file If you have a loss, see Table 25-2 . Free file Table 25-2. Free file When To Deduct a Loss IF you have a loss. Free file . Free file . Free file THEN deduct it in the year. Free file . Free file . Free file from a casualty, the loss occurred. Free file in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Free file from a theft, the theft was discovered. Free file on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Free file • bad debt, deposits are totally worthless. Free file Losses. Free file   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Free file This is true even if you do not repair or replace the damaged property until a later year. Free file   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Free file   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. Free file Loss on deposits. Free file   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Free file Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Free file However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Free file The year the disaster occurred. Free file The year immediately preceding the year the disaster occurred. Free file Gains. Free file    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Free file For those special rules, see Publication 547. Free file Postponed tax deadlines. Free file   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Free file The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Free file   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Free file Go to www. Free file irs. Free file gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Free file Who is eligible. Free file   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Free file Any individual whose main home is located in a covered disaster area (defined next). Free file Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Free file Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Free file 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. Free file The main home or principal place of business does not have to be located in the covered disaster area. Free file 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. Free file The spouse on a joint return with a taxpayer who is eligible for postponements. Free file Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Free file Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Free file Any other person determined by the IRS to be affected by a federally declared disaster. Free file Covered disaster area. Free file   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Free file Abatement of interest and penalties. Free file   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Free file More information. Free file   For more information, see Disaster Area Losses in Publication 547. Free file How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Free file If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Free file Combine the gains and losses on one Form 4684. Free file Follow the form instructions as to which lines to fill out. Free file In addition, you must use the appropriate schedule to report a gain or loss. Free file The schedule you use depends on whether you have a gain or loss. Free file If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Free file   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. Free file Amounts you spend to restore your property after a casualty increase your adjusted basis. Free file See Adjusted Basis in chapter 13 for more information. Free file Net operating loss (NOL). Free file    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Free file You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Free file Or, you can use it to lower your tax in a later year. Free file You do not have to be in business to have an NOL from a casualty or theft loss. Free file For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Free file Prev  Up  Next   Home   More Online Publications