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H&rblock free online Index A Additional Medicare Tax, Reminder, Social Security and Medicare Taxes, Withholding the employee's share. H&rblock free online Assistance (see Tax help) B Baby sitters (see Household employee) Baby-sitting costs (see Child and dependent care expenses) Business employers, employment tax payment option, Payment option for business employers. H&rblock free online C Caretakers (see Household employee) Child and dependent care expenses, credit for, Can You Claim a Credit for Child and Dependent Care Expenses? Comments on publication, Comments and suggestions. H&rblock free online Correcting Schedule H Schedule H attached to another form, How Can You Correct Schedule H? Schedule H filed by itself, How Can You Correct Schedule H? D Dependent care expenses, Can You Claim a Credit for Child and Dependent Care Expenses? Disability payments, state, State disability payments treated as wages. H&rblock free online Domestic worker (see Household employee) Drivers (see Household employee) E Earned income credit (EIC), What Do You Need To Know About the Earned Income Credit? EIC notice, Notice about the EIC. H&rblock free online Employer identification number (EIN), Employer identification number (EIN). H&rblock free online Employing an alien legally (see Legal employee) Employment eligibility verification form, Can Your Employee Legally Work in the United States? Employment taxes Need to pay, Do You Need To Pay Employment Taxes? Payment options, Payment option for business employers. H&rblock free online Tax returns, Business employment tax returns. H&rblock free online Estimated tax, paying, Paying estimated tax. H&rblock free online F Federal income tax withholding, increasing (see How to increase withholding) Federal unemployment (FUTA) tax, Federal Unemployment (FUTA) Tax Form 1040-ES, Paying estimated tax. H&rblock free online 940, Business employment tax returns. H&rblock free online 941, Business employment tax returns. H&rblock free online 943, Business employment tax returns. H&rblock free online 944, Business employment tax returns. H&rblock free online I-9, Can Your Employee Legally Work in the United States? M-274, Can Your Employee Legally Work in the United States? SS-4, Employer identification number (EIN). H&rblock free online SS-5, Employee's social security number. H&rblock free online W-2, Notice about the EIC. H&rblock free online , Form W-2. H&rblock free online W-4, Do You Need To Withhold Federal Income Tax?, Asking for more federal income tax withholding. H&rblock free online W-4P, Asking for more federal income tax withholding. H&rblock free online Forms you must file, What Forms Must You File? Free tax services, Free help with your tax return. H&rblock free online FUTA (see Federal Unemployment (FUTA)Tax) H Handbook for Employers, Can Your Employee Legally Work in the United States? Health aides (see Household employee) Help (see Tax help) House cleaning workers (see Household employee) Household employee, Do You Have a Household Employee? Housekeepers (see Household employee) How to increase withholding, Asking for more federal income tax withholding. H&rblock free online How to pay estimated tax, Paying estimated tax. H&rblock free online I Income tax withholding, increasing (see How to increase withholding) L Legal employee, Can Your Employee Legally Work in the United States? M Maids (see Household employee) Medicare (see Social security and Medicare taxes) N Nannies (see Household employee) Nonemployees, Workers who are not your employees. H&rblock free online Nurses, private (see Household employee) P Publications (see Tax help) R Records you must keep, What Records Must You Keep? S Schedule H (Form 1040), How Do You Make Tax Payments?, Schedule H. H&rblock free online Self-employed workers (see Nonemployees) Social security and Medicare Taxes, Social Security and Medicare Taxes Wages, Social security and Medicare wages. H&rblock free online Social security number, employee's, Employee's social security number. H&rblock free online State Disability payments, State disability payments treated as wages. H&rblock free online Employment taxes, State employment taxes. H&rblock free online Suggestions for publication, Comments and suggestions. H&rblock free online T Tax credits Child and dependent care expenses, Can You Claim a Credit for Child and Dependent Care Expenses? Earned income, What Do You Need To Know About the Earned Income Credit? FUTA, Credit for 2013. H&rblock free online Tax help, How To Get Tax Help Taxes How to make payments, How Do You Make Tax Payments? Medicare, Social Security and Medicare Taxes Social security, Social Security and Medicare Taxes U Unemployment taxes Federal, Federal Unemployment (FUTA) Tax State, State employment taxes. H&rblock free online USCIS website, Can Your Employee Legally Work in the United States? W Wages Cash, Cash wages. H&rblock free online FUTA, FUTA wages. H&rblock free online Medicare, Social security and Medicare wages. H&rblock free online Social security, Social security and Medicare wages. H&rblock free online State disability payments, State disability payments treated as wages. H&rblock free online Withholding Employee's share, Withholding the employee's share. H&rblock free online Federal income tax, Do You Need To Withhold Federal Income Tax? How to increase, Asking for more federal income tax withholding. H&rblock free online Wages, Wages. H&rblock free online Y Yard workers (see Household employee) Prev  Up     Home   More Online Publications
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H&rblock free online 11. H&rblock free online   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. H&rblock free online Nondeductible losses. H&rblock free online Family pet. H&rblock free online Progressive deterioration. H&rblock free online Decline in market value of stock. H&rblock free online Mislaid or lost property. H&rblock free online 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. H&rblock free online Related persons. H&rblock free online Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. H&rblock free online Covered disaster area. H&rblock free online Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. H&rblock free online A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. H&rblock free online A theft occurs when property is stolen. H&rblock free online A condemnation occurs when private property is legally taken for public use without the owner's consent. H&rblock free online A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. H&rblock free online 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. H&rblock free online 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. H&rblock free online 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. H&rblock free online For more information, see Postponing Gain , later. H&rblock free online 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. H&rblock free online Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. H&rblock free online 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. H&rblock free online Casualty. H&rblock free online   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. H&rblock free online A sudden event is one that is swift, not gradual or progressive. H&rblock free online An unexpected event is one that is ordinarily unanticipated and unintended. H&rblock free online 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. H&rblock free online Deductible losses. H&rblock free online   Deductible casualty losses can result from a number of different causes, including the following. H&rblock free online Airplane crashes. H&rblock free online Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. H&rblock free online Earthquakes. H&rblock free online Fires (but see Nondeductible losses next for exceptions). H&rblock free online Floods. H&rblock free online Freezing. H&rblock free online 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. H&rblock free online Lightning. H&rblock free online Storms, including hurricanes and tornadoes. H&rblock free online Terrorist attacks. H&rblock free online Vandalism. H&rblock free online Volcanic eruptions. H&rblock free online Nondeductible losses. H&rblock free online   A casualty loss is not deductible if the damage or destruction is caused by the following. H&rblock free online Accidentally breaking articles such as glassware or china under normal conditions. H&rblock free online A family pet (explained below). H&rblock free online A fire if you willfully set it, or pay someone else to set it. H&rblock free online A car, truck, or farm equipment accident if your willful negligence or willful act caused it. H&rblock free online The same is true if the willful act or willful negligence of someone acting for you caused the accident. H&rblock free online Progressive deterioration (explained below). H&rblock free online Family pet. H&rblock free online   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. H&rblock free online Example. H&rblock free online You keep your horse in your yard. H&rblock free online The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. H&rblock free online Some of the trees were completely girdled and died. H&rblock free online Because the damage was not unexpected or unusual, the loss is not deductible. H&rblock free online Progressive deterioration. H&rblock free online   Loss of property due to progressive deterioration is not deductible as a casualty loss. H&rblock free online This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. H&rblock free online Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. H&rblock free online However, weather-related conditions or disease may cause another type of involuntary conversion. H&rblock free online See Other Involuntary Conversions , later. H&rblock free online Theft. H&rblock free online   A theft is the taking and removing of money or property with the intent to deprive the owner of it. H&rblock free online 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. H&rblock free online You do not need to show a conviction for theft. H&rblock free online   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. H&rblock free online The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. H&rblock free online Decline in market value of stock. H&rblock free online   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. H&rblock free online 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. H&rblock free online You report a capital loss on Schedule D (Form 1040). H&rblock free online For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. H&rblock free online Mislaid or lost property. H&rblock free online   The simple disappearance of money or property is not a theft. H&rblock free online 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. H&rblock free online Example. H&rblock free online A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. H&rblock free online The diamond falls from the ring and is never found. H&rblock free online The loss of the diamond is a casualty. H&rblock free online Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. H&rblock free online The following is a discussion of some losses you can deduct and some you cannot deduct. H&rblock free online Livestock or produce bought for resale. H&rblock free online   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. H&rblock free online 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. H&rblock free online You cannot take a separate deduction. H&rblock free online Livestock, plants, produce, and crops raised for sale. H&rblock free online   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. H&rblock free online You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. H&rblock free online   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. H&rblock free online You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. H&rblock free online The uniform capitalization rules are discussed in chapter 6. H&rblock free online   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. H&rblock free online You get the deduction by omitting the item from your inventory at the close of your tax year. H&rblock free online You cannot take a separate casualty or theft deduction. H&rblock free online Income loss. H&rblock free online   A loss of future income is not deductible. H&rblock free online Example. H&rblock free online A severe flood destroyed your crops. H&rblock free online 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 . H&rblock free online You estimate that the crop loss will reduce your farm income by $25,000. H&rblock free online This loss of future income is also not deductible. H&rblock free online Loss of timber. H&rblock free online   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. H&rblock free online If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. H&rblock free online See Postponing Gain , later. H&rblock free online Property used in farming. H&rblock free online   Casualty and theft losses of property used in your farm business usually result in deductible losses. H&rblock free online 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. H&rblock free online See How To Figure a Loss , later. H&rblock free online Raised draft, breeding, dairy, or sporting animals. H&rblock free online   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. H&rblock free online 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. H&rblock free online You use inventories to determine your income and you included the animals in your inventory. H&rblock free online 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. H&rblock free online When you include livestock in inventory, its last inventory value is its basis. H&rblock free online 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. H&rblock free online You cannot take a separate deduction. H&rblock free online 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. H&rblock free online Farm property. H&rblock free online   Farm property is the property you use in your farming business. H&rblock free online 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. H&rblock free online   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. H&rblock free online However, the deduction limits, discussed later, do not apply to farm property. H&rblock free online Personal-use property. H&rblock free online   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. H&rblock free online The following items are examples of personal-use property: Your main home. H&rblock free online Furniture and electronics used in your main home and not used in a home office or for business purposes. H&rblock free online Clothing and jewelry. H&rblock free online An automobile used for nonbusiness purposes. H&rblock free online You figure the casualty or theft loss on this property by taking the following steps. H&rblock free online Determine your adjusted basis in the property before the casualty or theft. H&rblock free online Determine the decrease in fair market value of the property as a result of the casualty or theft. H&rblock free online From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. H&rblock free online You must apply the deduction limits, discussed later, to determine your deductible loss. H&rblock free online    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. H&rblock free online It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. H&rblock free online Adjusted basis. H&rblock free online   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. H&rblock free online For more information about adjusted basis, see chapter 6. H&rblock free online Decrease in fair market value (FMV). H&rblock free online   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. H&rblock free online FMV is defined in chapter 10 under Payments Received or Considered Received . H&rblock free online Appraisal. H&rblock free online   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. H&rblock free online But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. H&rblock free online   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. H&rblock free online The appraiser must recognize the effects of any general market decline that may occur along with the casualty. H&rblock free online This information is needed to limit any deduction to the actual loss resulting from damage to the property. H&rblock free online Cost of cleaning up or making repairs. H&rblock free online   The cost of cleaning up after a casualty is not part of a casualty loss. H&rblock free online Neither is the cost of repairing damaged property after a casualty. H&rblock free online 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. H&rblock free online The repairs are actually made. H&rblock free online The repairs are necessary to bring the property back to its condition before the casualty. H&rblock free online The amount spent for repairs is not excessive. H&rblock free online The repairs fix the damage only. H&rblock free online The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. H&rblock free online Related expenses. H&rblock free online   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. H&rblock free online However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. H&rblock free online Separate computations for more than one item of property. H&rblock free online   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. H&rblock free online Then combine the losses to determine your total loss. H&rblock free online    There is an exception to this rule for personal-use real property. H&rblock free online See Exception for personal-use real property, later. H&rblock free online Example. H&rblock free online A fire on your farm damaged a tractor and the barn in which it was stored. H&rblock free online The tractor had an adjusted basis of $3,300. H&rblock free online Its FMV was $28,000 just before the fire and $10,000 immediately afterward. H&rblock free online The barn had an adjusted basis of $28,000. H&rblock free online Its FMV was $55,000 just before the fire and $25,000 immediately afterward. H&rblock free online You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. H&rblock free online Figure your deductible casualty loss separately for the two items of property. H&rblock free online     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. H&rblock free online   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. H&rblock free online Figure the loss using the smaller of the following. H&rblock free online The decrease in FMV of the entire property. H&rblock free online The adjusted basis of the entire property. H&rblock free online Example. H&rblock free online You bought a farm in 1990 for $160,000. H&rblock free online The adjusted basis of the residential part is now $128,000. H&rblock free online In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. H&rblock free online The adjusted basis of the residential part includes the $7,500. H&rblock free online The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. H&rblock free online The trees were not covered by insurance. H&rblock free online 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. H&rblock free online   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. H&rblock free online You do not have a casualty or theft loss to the extent you are reimbursed. H&rblock free online   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. H&rblock free online You must reduce your loss even if you do not receive payment until a later tax year. H&rblock free online    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. H&rblock free online You may have to include a portion of these payments in your income. H&rblock free online See Insurance payments for living expenses in Publication 547 for details. H&rblock free online Disaster relief. H&rblock free online   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. H&rblock free online Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. H&rblock free online   Generally, disaster relief grants received under the Robert T. H&rblock free online Stafford Disaster Relief and Emergency Assistance Act are not included in your income. H&rblock free online See Federal disaster relief grants , later, under Disaster Area Losses . H&rblock free online   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. H&rblock free online See Qualified disaster relief payments , later, under Disaster Area Losses . H&rblock free online Reimbursement received after deducting loss. H&rblock free online   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. H&rblock free online Actual reimbursement less than expected. H&rblock free online   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. H&rblock free online Actual reimbursement more than expected. H&rblock free online   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. H&rblock free online 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. H&rblock free online Do not refigure your tax for the year you claimed the deduction. H&rblock free online See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. H&rblock free online 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. H&rblock free online 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. H&rblock free online Actual reimbursement same as expected. H&rblock free online   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. H&rblock free online Lump-sum reimbursement. H&rblock free online   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. H&rblock free online Figure the gain or loss separately for each asset that has a separate basis. H&rblock free online Adjustments to basis. H&rblock free online   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. H&rblock free online The result is your adjusted basis in the property. H&rblock free online Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. H&rblock free online See Adjusted Basis in chapter 6 for more information. H&rblock free online Example. H&rblock free online You built a new silo for $25,000. H&rblock free online This is the basis in your silo because that is the total cost you incurred to build it. H&rblock free online During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. H&rblock free online 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. H&rblock free online Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). H&rblock free online 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). H&rblock free online There are two limits on the deduction for casualty or theft loss of personal-use property. H&rblock free online You figure these limits on Form 4684. H&rblock free online $100 rule. H&rblock free online   You must reduce each casualty or theft loss on personal-use property by $100. H&rblock free online This rule applies after you have subtracted any reimbursement. H&rblock free online 10% rule. H&rblock free online   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. H&rblock free online Apply this rule after you reduce each loss by $100. H&rblock free online Adjusted gross income is on line 38 of Form 1040. H&rblock free online Example. H&rblock free online In June, you discovered that your house had been burglarized. H&rblock free online Your loss after insurance reimbursement was $2,000. H&rblock free online Your adjusted gross income for the year you discovered the burglary is $57,000. H&rblock free online Figure your theft loss deduction as follows: 1. H&rblock free online Loss after insurance $2,000 2. H&rblock free online Subtract $100 100 3. H&rblock free online Loss after $100 rule $1,900 4. H&rblock free online Subtract 10% (. H&rblock free online 10) × $57,000 AGI $5,700 5. H&rblock free online 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). H&rblock free online    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. H&rblock free online See 10% Rule in Publication 547. H&rblock free online When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. H&rblock free online You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. H&rblock free online However, losses in federally declared disaster areas are subject to different rules. H&rblock free online See Disaster Area Losses , later, for an exception. H&rblock free online 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. H&rblock free online Leased property. H&rblock free online   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. H&rblock free online This is true even if the loss occurred or the liability was paid in a different year. H&rblock free online You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. H&rblock free online Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. H&rblock free online Example. H&rblock free online Robert leased a tractor from First Implement, Inc. H&rblock free online , for use in his farm business. H&rblock free online The tractor was destroyed by a tornado in June 2012. H&rblock free online The loss was not insured. H&rblock free online First Implement billed Robert for the fair market value of the tractor on the date of the loss. H&rblock free online Robert disagreed with the bill and refused to pay it. H&rblock free online First Implement later filed suit in court against Robert. H&rblock free online 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. H&rblock free online Robert paid $20,000 in June 2013. H&rblock free online He can claim the $20,000 as a loss on his 2013 tax return. H&rblock free online Net operating loss (NOL). H&rblock free online   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. H&rblock free online An NOL can be carried back or carried forward and deducted from income in other years. H&rblock free online See Publication 536 for more information on NOLs. H&rblock free online Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. H&rblock free online You must have records to support the amount you claim for the loss. H&rblock free online Casualty loss proof. H&rblock free online   For a casualty loss, your records should show all the following information. H&rblock free online The type of casualty (car accident, fire, storm, etc. H&rblock free online ) and when it occurred. H&rblock free online That the loss was a direct result of the casualty. H&rblock free online 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. H&rblock free online Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. H&rblock free online Theft loss proof. H&rblock free online   For a theft loss, your records should show all the following information. H&rblock free online When you discovered your property was missing. H&rblock free online That your property was stolen. H&rblock free online That you were the owner of the property. H&rblock free online Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. H&rblock free online Figuring a Gain A casualty or theft may result in a taxable gain. H&rblock free online 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. H&rblock free online You generally report your gain as income in the year you receive the reimbursement. H&rblock free online However, depending on the type of property you receive, you may not have to report your gain. H&rblock free online See Postponing Gain , later. H&rblock free online 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. H&rblock free online 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. H&rblock free online Amount you receive. H&rblock free online   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. H&rblock free online It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. H&rblock free online Example. H&rblock free online A tornado severely damaged your barn. H&rblock free online The adjusted basis of the barn was $25,000. H&rblock free online Your insurance company reimbursed you $40,000 for the damaged barn. H&rblock free online However, you had legal expenses of $2,000 to collect that insurance. H&rblock free online Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. H&rblock free online 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. H&rblock free online Some of these are discussed in the following paragraphs. H&rblock free online Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. H&rblock free online You report the gain or deduct the loss on your tax return for the year you realize it. H&rblock free online However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. H&rblock free online See Postponing Gain , later. H&rblock free online Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. H&rblock free online 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. H&rblock free online The owner receives a condemnation award (money or property) in exchange for the property taken. H&rblock free online A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. H&rblock free online Threat of condemnation. H&rblock free online   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. H&rblock free online Main home condemned. H&rblock free online   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. H&rblock free online For information on this exclusion, see Publication 523. H&rblock free online 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. H&rblock free online See Postponing Gain , later. H&rblock free online (You cannot deduct a loss from the condemnation of your main home. H&rblock free online ) More information. H&rblock free online   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. H&rblock free online Also see Postponing Gain , later, to find out if you can postpone reporting the gain. H&rblock free online 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. H&rblock free online Livestock Losses Diseased livestock. H&rblock free online   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. H&rblock free online If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . H&rblock free online Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. H&rblock free online If you replace the livestock, you may be able to postpone reporting the gain. H&rblock free online See Postponing Gain below. H&rblock free online Reporting dispositions of diseased livestock. H&rblock free online   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. H&rblock free online You must also include other information on this statement. H&rblock free online See How To Postpone Gain , later, under Postponing Gain . H&rblock free online Weather-related sales of livestock. H&rblock free online   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. H&rblock free online 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. H&rblock free online Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. H&rblock free online If you replace the livestock, you may be able to postpone reporting the gain. H&rblock free online See Postponing Gain below. H&rblock free online Example. H&rblock free online It is your usual business practice to sell five of your dairy animals during the year. H&rblock free online This year you sold 20 dairy animals because of drought. H&rblock free online The sale of 15 animals is treated as an involuntary conversion. H&rblock free online    If you do not replace the livestock, you may be able to report the gain in the following year's income. H&rblock free online This rule also applies to other livestock (including poultry). H&rblock free online See Sales Caused by Weather-Related Conditions in chapter 3. H&rblock free online 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. H&rblock free online Treat the loss as a loss from an involuntary conversion. H&rblock free online The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. H&rblock free online You deduct the loss on the return for the year the seedlings died. H&rblock free online 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. H&rblock free online Your basis in the new property is generally the same as your adjusted basis in the property it replaces. H&rblock free online You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. H&rblock free online 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. H&rblock free online If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. H&rblock free online To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. H&rblock free online 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. H&rblock free online Example 1. H&rblock free online In 1985, you constructed a barn to store farm equipment at a cost of $20,000. H&rblock free online In 1987, you added a silo to the barn at a cost of $15,000 to store grain. H&rblock free online In May of this year, the property was worth $100,000. H&rblock free online In June the barn and silo were destroyed by a tornado. H&rblock free online At the time of the tornado, you had an adjusted basis of $0 in the property. H&rblock free online You received $85,000 from the insurance company. H&rblock free online You had a gain of $85,000 ($85,000 – $0). H&rblock free online You spent $80,000 to rebuild the barn and silo. H&rblock free online Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. H&rblock free online Example 2. H&rblock free online In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. H&rblock free online You made no further improvements or additions to it. H&rblock free online When a storm destroyed the cabin this January, the cabin was worth $250,000. H&rblock free online You received $146,000 from the insurance company in March. H&rblock free online You had a gain of $128,000 ($146,000 − $18,000). H&rblock free online You spent $144,000 to rebuild the cabin. H&rblock free online Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. H&rblock free online Buying replacement property from a related person. H&rblock free online   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). H&rblock free online This rule applies to the following taxpayers. H&rblock free online C corporations. H&rblock free online Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. H&rblock free online 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. H&rblock free online 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. H&rblock free online If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. H&rblock free online If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. H&rblock free online Exception. H&rblock free online   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. H&rblock free online Related persons. H&rblock free online   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. H&rblock free online For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. H&rblock free online Death of a taxpayer. H&rblock free online   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. H&rblock free online 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. H&rblock free online Replacement Property You must buy replacement property for the specific purpose of replacing your property. H&rblock free online Your replacement property must be similar or related in service or use to the property it replaces. H&rblock free online You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. H&rblock free online 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. H&rblock free online Property you acquire by gift or inheritance does not qualify as replacement property. H&rblock free online Owner-user. H&rblock free online   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. H&rblock free online 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. H&rblock free online A grinding mill that replaces a tractor does not qualify. H&rblock free online Neither does a breeding or draft animal that replaces a dairy cow. H&rblock free online Soil or other environmental contamination. H&rblock free online   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. H&rblock free online Weather-related conditions. H&rblock free online   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. H&rblock free online Example. H&rblock free online Each year you normally sell 25 cows from your beef herd. H&rblock free online However, this year you had to sell 50 cows. H&rblock free online 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. H&rblock free online 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. H&rblock free online Standing crop destroyed by casualty. H&rblock free online   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. H&rblock free online 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). H&rblock free online 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. H&rblock free online Timber loss. H&rblock free online   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. H&rblock free online If you bought the standing timber within the replacement period, you can postpone reporting the gain. H&rblock free online Business or income-producing property located in a federally declared disaster area. H&rblock free online   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. H&rblock free online For more information, see Disaster Area Losses in Publication 547. H&rblock free online Substituting replacement property. H&rblock free online   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. H&rblock free online This is true even if you acquire the other property within the replacement period. H&rblock free online 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. H&rblock free online Basis of replacement property. H&rblock free online   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. H&rblock free online In this way, tax on the gain is postponed until you dispose of the replacement property. H&rblock free online Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. H&rblock free online This is the replacement period. H&rblock free online The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. H&rblock free online 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. H&rblock free online Example. H&rblock free online You are a calendar year taxpayer. H&rblock free online While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. H&rblock free online You discovered the theft when you returned to your farm on November 11, 2012. H&rblock free online Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. H&rblock free online You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. H&rblock free online Main home in disaster area. H&rblock free online   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. H&rblock free online See Disaster Area Losses , later. H&rblock free online Property in the Midwestern disaster areas. H&rblock free online   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. H&rblock free online This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. H&rblock free online Property in the Kansas disaster area. H&rblock free online   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. H&rblock free online This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. H&rblock free online Property in the Hurricane Katrina disaster area. H&rblock free online   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. H&rblock free online This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. H&rblock free online Weather-related sales of livestock in an area eligible for federal assistance. H&rblock free online   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. H&rblock free online The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. H&rblock free online   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. H&rblock free online R. H&rblock free online B. H&rblock free online 529, available at  www. H&rblock free online irs. H&rblock free online gov/irb/2006-39_IRB/ar11. H&rblock free online html. H&rblock free online 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. H&rblock free online gov. H&rblock free online Condemnation. H&rblock free online   The replacement period for a condemnation begins on the earlier of the following dates. H&rblock free online The date on which you disposed of the condemned property. H&rblock free online The date on which the threat of condemnation began. H&rblock free online 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. H&rblock free online 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. H&rblock free online Business or investment real property. H&rblock free online   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. H&rblock free online Extension. H&rblock free online   You can apply for an extension of the replacement period. H&rblock free online Send your written application to the Internal Revenue Service Center where you file your tax return. H&rblock free online See your tax return instructions for the address. H&rblock free online Include all the details about your need for an extension. H&rblock free online Make your application before the end of the replacement period. H&rblock free online 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. H&rblock free online You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. H&rblock free online How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. H&rblock free online You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. H&rblock free online Required statement. H&rblock free online   You should attach a statement to your return for the year you have the gain. H&rblock free online This statement should include all the following information. H&rblock free online The date and details of the casualty, theft, or other involuntary conversion. H&rblock free online The insurance or other reimbursement you received. H&rblock free online How you figured the gain. H&rblock free online Replacement property acquired before return filed. H&rblock free online   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. H&rblock free online The replacement property. H&rblock free online The postponed gain. H&rblock free online The basis adjustment that reflects the postponed gain. H&rblock free online Any gain you are reporting as income. H&rblock free online Replacement property acquired after return filed. H&rblock free online   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. H&rblock free online   You should then attach another statement to your return for the year in which you buy the replacement property. H&rblock free online This statement should contain detailed information on the replacement property. H&rblock free online 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. H&rblock free online Include in the statement detailed information on the replacement property bought in that year. H&rblock free online Reporting weather-related sales of livestock. H&rblock free online   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. H&rblock free online Evidence of the weather-related conditions that forced the sale or exchange of the livestock. H&rblock free online The gain realized on the sale or exchange. H&rblock free online The number and kind of livestock sold or exchanged. H&rblock free online The number of livestock of each kind you would have sold or exchanged under your usual business practice. H&rblock free online   Show all the following information and the preceding information on the return for the year in which you replace the livestock. H&rblock free online The dates you bought the replacement property. H&rblock free online The cost of the replacement property. H&rblock free online Description of the replacement property (for example, the number and kind of the replacement livestock). H&rblock free online Amended return. H&rblock free online   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. H&rblock free online You do not acquire replacement property within the replacement period, plus extensions. H&rblock free online On this amended return, you must report the gain and pay any additional tax due. H&rblock free online 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. H&rblock free online On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. H&rblock free online Disaster Area Losses Special rules apply to federally declared disaster area losses. H&rblock free online 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. H&rblock free online Stafford Disaster Relief and Emergency Assistance Act. H&rblock free online It includes a major disaster or emergency declaration under the act. H&rblock free online 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. H&rblock free online fema. H&rblock free online gov. H&rblock free online This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. H&rblock free online For other special rules, see Disaster Area Losses in Publication 547. H&rblock free online When to deduct the loss. H&rblock free online   You generally must deduct a casualty loss in the year it occurred. H&rblock free online 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. H&rblock free online If you make this choice, the loss is treated as having occurred in the preceding year. H&rblock free online    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. H&rblock free online   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. H&rblock free online The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. H&rblock free online The due date (with extensions) for the return for the preceding tax year. H&rblock free online Federal disaster relief grants. H&rblock free online   Do not include post-disaster relief grants received under the Robert T. H&rblock free online 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. H&rblock free online Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. H&rblock free online 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. H&rblock free online Unemployment assistance payments under the Act are taxable unemployment compensation. H&rblock free online Qualified disaster relief payments. H&rblock free online   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. H&rblock free online These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). H&rblock free online No withholding applies to these payments. H&rblock free online   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. H&rblock free online Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. H&rblock free online Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. H&rblock free online (A personal residence can be a rented residence or one you own. H&rblock free online ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. H&rblock free online   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. H&rblock free online    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. H&rblock free online Qualified disaster mitigation payments. H&rblock free online   Qualified disaster mitigation payments made under the Robert T. H&rblock free online 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. H&rblock free online These are payments you, as a property owner, receive to reduce the risk of future damage to your property. H&rblock free online You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. H&rblock free online Sale of property under hazard mitigation program. H&rblock free online   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. H&rblock free online You report the gain or deduct the loss on your tax return for the year you realize it. H&rblock free online (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. H&rblock free online ) 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. H&rblock free online See Postponing Gain , earlier, for the rules that apply. H&rblock free online Other federal assistance programs. H&rblock free online    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. H&rblock free online Postponed tax deadlines. H&rblock free online   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. H&rblock free online 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. H&rblock free online   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). H&rblock free online Go to http://www. H&rblock free online irs. H&rblock free online gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. H&rblock free online Who is eligible. H&rblock free online   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. H&rblock free online Any individual whose main home is located in a covered disaster area (defined next). H&rblock free online Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. H&rblock free online Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. H&rblock free online 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. H&rblock free online The main home or principal place of business does not have to be located in the covered disaster area. H&rblock free online 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. H&rblock free online The spouse on a joint return with a taxpayer who is eligible for postponements. H&rblock free online 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. H&rblock free online Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. H&rblock free online Any other person determined by the IRS to be affected by a federally declared disaster. H&rblock free online Covered disaster area. H&rblock free online   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. H&rblock free online Abatement of interest and penalties. H&rblock free online   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. H&rblock free online 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. H&rblock free online Form 4684. H&rblock free online   Use this form to report your gains and losses from casualties and thefts. H&rblock free online Form 4797. H&rblock free online   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. H&rblock free online 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. H&rblock free online Form 8949. H&rblock free online   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. H&rblock free online Schedule A (Form 1040). H&rblock free online   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. H&rblock free online Schedule D (Form 1040). H&rblock free online   Use this form to carry over the following gains. H&rblock free online Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. H&rblock free online Net gain shown on Form 4684 from the casualty or theft of personal-use property. H&rblock free online    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. H&rblock free online Schedule F (Form 1040). H&rblock free online   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. H&rblock free online Prev  Up  Next   Home   More Online Publications