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Online Tax Amendment

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Online Tax Amendment

Online tax amendment Publication 547 - Main Content Table of Contents CasualtyFamily pet. Online tax amendment Progressive deterioration. Online tax amendment Special Procedure for Damage From Corrosive Drywall Theft Loss on Deposits Proof of Loss Figuring a LossGain from reimbursement. Online tax amendment Business or income-producing property. Online tax amendment Loss of inventory. Online tax amendment Leased property. Online tax amendment Exception for personal-use real property. Online tax amendment Decrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Deduction Limits2% Rule $100 Rule 10% Rule Figuring the Deduction Figuring a GainPostponement of Gain When To Report Gains and LossesLoss on deposits. Online tax amendment Lessee's loss. Online tax amendment Disaster Area LossesDisaster loss to inventory. Online tax amendment Main home in disaster area. Online tax amendment Unsafe home. Online tax amendment Time limit for making choice. Online tax amendment Revoking your choice. Online tax amendment Figuring the loss deduction. Online tax amendment How to report the loss on Form 1040X. Online tax amendment Records. Online tax amendment Need a copy of your tax return for the preceding year? Postponed Tax Deadlines Contacting the Federal Emergency Management Agency (FEMA) How To Report Gains and LossesProperty held 1 year or less. Online tax amendment Property held more than 1 year. Online tax amendment Depreciable property. Online tax amendment Adjustments to Basis If Deductions Are More Than Income How To Get Tax HelpLow Income Taxpayer Clinics Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Online tax amendment A sudden event is one that is swift, not gradual or progressive. Online tax amendment An unexpected event is one that is ordinarily unanticipated and unintended. Online tax amendment 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. Online tax amendment Generally, casualty losses are deductible during the taxable year that the loss occurred. Online tax amendment See Table 3, later. Online tax amendment Deductible losses. Online tax amendment   Deductible casualty losses can result from a number of different causes, including the following. Online tax amendment Car accidents (but see Nondeductible losses , next, for exceptions). Online tax amendment Earthquakes. Online tax amendment Fires (but see Nondeductible losses , next, for exceptions). Online tax amendment Floods. Online tax amendment Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses , later. Online tax amendment Mine cave-ins. Online tax amendment Shipwrecks. Online tax amendment Sonic booms. Online tax amendment Storms, including hurricanes and tornadoes. Online tax amendment Terrorist attacks. Online tax amendment Vandalism. Online tax amendment Volcanic eruptions. Online tax amendment Nondeductible losses. Online tax amendment   A casualty loss is not deductible if the damage or destruction is caused by the following. Online tax amendment Accidentally breaking articles such as glassware or china under normal conditions. Online tax amendment A family pet (explained below). Online tax amendment A fire if you willfully set it, or pay someone else to set it. Online tax amendment A car accident if your willful negligence or willful act caused it. Online tax amendment The same is true if the willful act or willful negligence of someone acting for you caused the accident. Online tax amendment Progressive deterioration (explained below). Online tax amendment However, see Special Procedure for Damage From Corrosive Drywall , later. Online tax amendment Family pet. Online tax amendment   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. Online tax amendment Example. Online tax amendment Your antique oriental rug was damaged by your new puppy before it was housebroken. Online tax amendment Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Online tax amendment Progressive deterioration. Online tax amendment   Loss of property due to progressive deterioration is not deductible as a casualty loss. Online tax amendment This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Online tax amendment The following are examples of damage due to progressive deterioration. Online tax amendment The steady weakening of a building due to normal wind and weather conditions. Online tax amendment The deterioration and damage to a water heater that bursts. Online tax amendment However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Online tax amendment Most losses of property caused by droughts. Online tax amendment To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Online tax amendment Termite or moth damage. Online tax amendment The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Online tax amendment However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Online tax amendment Special Procedure for Damage From Corrosive Drywall Under a special procedure, you can deduct the amounts you paid to repair damage to your home and household appliances due to corrosive drywall. Online tax amendment Under this procedure, you treat the amounts paid for repairs as a casualty loss in the year of payment. Online tax amendment For example, amounts you paid for repairs in 2013 are deductible on your 2013 tax return and amounts you paid for repairs in 2012 are deductible on your 2012 tax return. Online tax amendment Note. Online tax amendment If you paid for any repairs before 2013 and you choose to follow this special procedure, you can amend your return for the earlier year by filing Form 1040X, Amended U. Online tax amendment S. Online tax amendment Individual Income Tax Return, and attaching a completed Form 4684 for the appropriate year. Online tax amendment Form 4684 for the appropriate year can be found at IRS. Online tax amendment gov. Online tax amendment Generally, Form 1040X must be filed within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Online tax amendment Corrosive drywall. Online tax amendment   For purposes of this special procedure, “corrosive drywall” means drywall that is identified as problem drywall under the two-step identification method published by the Consumer Product Safety Commission (CPSC) and the Department of Housing and Urban Development (HUD) in their interim guidance dated January 28, 2010, as revised by the CPSC and HUD. Online tax amendment The revised identification guidance and remediation guidelines are available at www. Online tax amendment cpsc. Online tax amendment gov/Safety-Education/Safety-Education-Centers/Drywall. Online tax amendment Special instructions for completing Form 4684. Online tax amendment   If you choose to follow this special procedure, complete Form 4684, Section A, according to the instructions below. Online tax amendment The IRS will not challenge your treatment of damage resulting from corrosive drywall as a casualty loss if you determine and report the loss as explained below. Online tax amendment Top margin of Form 4684. Online tax amendment   Enter “Revenue Procedure 2010-36”. Online tax amendment Line 1. Online tax amendment   Enter the information required by the line 1 instructions. Online tax amendment Line 2. Online tax amendment   Skip this line. Online tax amendment Line 3. Online tax amendment   Enter the amount of insurance or other reimbursements you received (including through litigation). Online tax amendment If none, enter -0-. Online tax amendment Lines 4–7. Online tax amendment   Skip these lines. Online tax amendment Line 8. Online tax amendment   Enter the amount you paid to repair the damage to your home and household appliances due to corrosive drywall. Online tax amendment Enter only the amounts you paid to restore your home to the condition existing immediately before the damage. Online tax amendment Do not enter any amounts you paid for improvements or additions that increased the value of your home above its pre-loss value. Online tax amendment If you replaced a household appliance instead of repairing it, enter the lesser of: The current cost to replace the original appliance, or The basis of the original appliance (generally its cost). Online tax amendment Line 9. Online tax amendment   If line 8 is more than line 3, do one of the following. Online tax amendment If you have a pending claim for reimbursement (or you intend to pursue reimbursement), enter 75% of the difference between lines 3 and 8. Online tax amendment If item (1) does not apply to you, enter the full amount of the difference between lines 3 and 8. Online tax amendment If line 8 is less than or equal to line 3, you cannot claim a casualty loss deduction using this special procedure. Online tax amendment    If you have a pending claim for reimbursement (or you intend to pursue reimbursement), you may have income or an additional deduction in a later tax year depending on the actual amount of reimbursement received. Online tax amendment See Reimbursement Received After Deducting Loss, later. Online tax amendment Lines 10–18. Online tax amendment   Complete these lines according to the Instructions for Form 4684. Online tax amendment Choosing not to follow this special procedure. Online tax amendment   If you choose not to follow this special procedure, you are subject to all of the provisions that apply to the deductibility of casualty losses, and you must complete lines 1–9 according to the Instructions for Form 4684. Online tax amendment This means, for example, that you must establish that the damage, destruction, or loss of property resulted from an identifiable event as defined earlier under Casualty . Online tax amendment Furthermore, you must have proof that shows the following. Online tax amendment The loss is properly deductible in the tax year you claimed it and not in some other year. Online tax amendment See When To Report Gains and Losses , later. Online tax amendment The amount of the claimed loss. Online tax amendment See Proof of Loss , later. Online tax amendment No claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery. Online tax amendment See When To Report Gains and Losses , later. Online tax amendment Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Online tax amendment 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. Online tax amendment You do not need to show a conviction for theft. Online tax amendment Theft includes the taking of money or property by the following means. Online tax amendment Blackmail. Online tax amendment Burglary. Online tax amendment Embezzlement. Online tax amendment Extortion. Online tax amendment Kidnapping for ransom. Online tax amendment Larceny. Online tax amendment Robbery. Online tax amendment The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Online tax amendment Decline in market value of stock. Online tax amendment   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. Online tax amendment 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. Online tax amendment You report a capital loss on Schedule D (Form 1040). Online tax amendment For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Online tax amendment Mislaid or lost property. Online tax amendment    The simple disappearance of money or property is not a theft. Online tax amendment 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. Online tax amendment Sudden, unexpected, and unusual events were defined earlier under Casualty . Online tax amendment Example. Online tax amendment A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Online tax amendment The diamond falls from the ring and is never found. Online tax amendment The loss of the diamond is a casualty. Online tax amendment Losses from Ponzi-type investment schemes. Online tax amendment   The IRS has issued the following guidance to assist taxpayers who are victims of losses from Ponzi-type investment schemes: Revenue Ruling 2009-9, 2009-14 I. Online tax amendment R. Online tax amendment B. Online tax amendment 735 (available at www. Online tax amendment irs. Online tax amendment gov/irb/2009-14_IRB/ar07. Online tax amendment html). Online tax amendment Revenue Procedure 2009-20, 2009-14 I. Online tax amendment R. Online tax amendment B. Online tax amendment 749 (available at www. Online tax amendment irs. Online tax amendment gov/irb/2009-14_IRB/ar11. Online tax amendment html). Online tax amendment Revenue Procedure 2011-58, 2011-50 I. Online tax amendment R. Online tax amendment B. Online tax amendment 847 (available at www. Online tax amendment irs. Online tax amendment gov/irb/2011-50_IRB/ar11. Online tax amendment html). Online tax amendment 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. Online tax amendment Skip lines 19 to 27, but you must fill out Section B, lines 29 to 39, as appropriate. Online tax amendment Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Online tax amendment You do not need to complete Appendix A. Online tax amendment For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Online tax amendment   If you choose not to use the procedures in Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Online tax amendment Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Online tax amendment If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Online tax amendment As a casualty loss. Online tax amendment As an ordinary loss. Online tax amendment As a nonbusiness bad debt. Online tax amendment Casualty loss or ordinary loss. Online tax amendment   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. Online tax amendment The choice generally is 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. Online tax amendment 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. Online tax amendment 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. Online tax amendment Once you make the choice, you cannot change it without permission from the Internal Revenue Service. Online tax amendment   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Online tax amendment The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Online tax amendment Your loss is subject to the 2%-of-adjusted-gross-income limit. Online tax amendment You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Online tax amendment Nonbusiness bad debt. Online tax amendment   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. Online tax amendment How to report. Online tax amendment   The kind of deduction you choose for your loss on deposits determines how you report your loss. Online tax amendment See Table 1. Online tax amendment More information. Online tax amendment   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684. Online tax amendment Deducted loss recovered. Online tax amendment   If you recover an amount you deducted as a loss in an earlier year, you may have to include the amount recovered in your income for the year of recovery. Online tax amendment If any part of the original deduction did not reduce your tax in the earlier year, you do not have to include that part of the recovery in your income. Online tax amendment For more information, see Recoveries in Publication 525. Online tax amendment Proof of Loss To deduct a casualty or theft loss, you must be able to show that there was a casualty or theft. Online tax amendment You also must be able to support the amount you take as a deduction. Online tax amendment Casualty loss proof. Online tax amendment   For a casualty loss, you should be able to show all of the following. Online tax amendment The type of casualty (car accident, fire, storm, etc. Online tax amendment ) and when it occurred. Online tax amendment That the loss was a direct result of the casualty. Online tax amendment 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. Online tax amendment Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Online tax amendment Theft loss proof. Online tax amendment   For a theft loss, you should be able to show all of the following. Online tax amendment When you discovered that your property was missing. Online tax amendment That your property was stolen. Online tax amendment That you were the owner of the property. Online tax amendment Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Online tax amendment    It is important that you have records that will prove your deduction. Online tax amendment If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Online tax amendment Figuring a Loss To determine your deduction for a casualty or theft loss, you must first figure your loss. Online tax amendment Table 1. Online tax amendment Reporting Loss on Deposits IF you choose to report the loss as a(n). Online tax amendment . Online tax amendment . Online tax amendment   THEN report it on. Online tax amendment . Online tax amendment . Online tax amendment casualty loss   Form 4684 and Schedule A  (Form 1040). Online tax amendment ordinary loss   Schedule A (Form 1040). Online tax amendment nonbusiness bad debt   Form 8949 and Schedule D (Form 1040). Online tax amendment Amount of loss. Online tax amendment   Figure the amount of your loss using the following steps. Online tax amendment Determine your adjusted basis in the property before the casualty or theft. Online tax amendment Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. Online tax amendment From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Online tax amendment 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. Online tax amendment Gain from reimbursement. Online tax amendment   If your reimbursement is more than your adjusted basis in the property, you have a gain. Online tax amendment This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Online tax amendment If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Online tax amendment See Figuring a Gain , later. Online tax amendment Business or income-producing property. Online tax amendment   If you have business or income-producing property, such as rental property, and it is stolen or completely destroyed, the decrease in FMV is not considered. Online tax amendment 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   Loss of inventory. Online tax amendment   There are two ways you can deduct a casualty or theft loss of inventory, including items you hold for sale to customers. Online tax amendment   One way is to deduct the loss through the increase in the cost of goods sold by properly reporting your opening and closing inventories. Online tax amendment Do not claim this loss again as a casualty or theft loss. Online tax amendment If you take the loss through the increase in the cost of goods sold, include any insurance or other reimbursement you receive for the loss in gross income. Online tax amendment   The other way is to deduct the loss separately. Online tax amendment If you deduct it separately, eliminate the affected inventory items from the cost of goods sold by making a downward adjustment to opening inventory or purchases. Online tax amendment Reduce the loss by the reimbursement you received. Online tax amendment Do not include the reimbursement in gross income. Online tax amendment If you do not receive the reimbursement by the end of the year, you may not claim a loss to the extent you have a reasonable prospect of recovery. Online tax amendment Leased property. Online tax amendment   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. Online tax amendment Separate computations. Online tax amendment   Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Online tax amendment Then combine the losses to determine the total loss from that casualty or theft. Online tax amendment Exception for personal-use real property. Online tax amendment   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. Online tax amendment Figure the loss using the smaller of the following. Online tax amendment The decrease in FMV of the entire property. Online tax amendment The adjusted basis of the entire property. Online tax amendment   See Real property under Figuring the Deduction, later. Online tax amendment 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. Online tax amendment 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. Online tax amendment FMV of stolen property. Online tax amendment   The FMV of property immediately after a theft is considered to be zero because you no longer have the property. Online tax amendment Example. Online tax amendment Several years ago, you purchased silver dollars at face value for $150. Online tax amendment This is your adjusted basis in the property. Online tax amendment Your silver dollars were stolen this year. Online tax amendment The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Online tax amendment Your theft loss is $150. Online tax amendment Recovered stolen property. Online tax amendment   Recovered stolen property is your property that was stolen and later returned to you. Online tax amendment 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. Online tax amendment Use this amount to refigure your total loss for the year in which the loss was deducted. Online tax amendment   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Online tax amendment But report the difference only up to the amount of the loss that reduced your tax. Online tax amendment For more information on the amount to report, see Recoveries in Publication 525. Online tax amendment 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. Online tax amendment However, other measures also can be used to establish certain decreases. Online tax amendment See Appraisal and Cost of cleaning up or making repairs , next. Online tax amendment Appraisal. Online tax amendment   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterwards should be made by a competent appraiser. Online tax amendment The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Online tax amendment This information is needed to limit any deduction to the actual loss resulting from damage to the property. Online tax amendment   Several factors are important in evaluating the accuracy of an appraisal, including the following. Online tax amendment The appraiser's familiarity with your property before and after the casualty or theft. Online tax amendment The appraiser's knowledge of sales of comparable property in the area. Online tax amendment The appraiser's knowledge of conditions in the area of the casualty. Online tax amendment The appraiser's method of appraisal. Online tax amendment 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. Online tax amendment For more information on disasters, see Disaster Area Losses, later. Online tax amendment Cost of cleaning up or making repairs. Online tax amendment   The cost of repairing damaged property is not part of a casualty loss. Online tax amendment Neither is the cost of cleaning up after a casualty. Online tax amendment But you can use the cost of cleaning up or of making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Online tax amendment The repairs are actually made. Online tax amendment The repairs are necessary to bring the property back to its condition before the casualty. Online tax amendment The amount spent for repairs is not excessive. Online tax amendment The repairs take care of the damage only. Online tax amendment The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Online tax amendment Landscaping. Online tax amendment   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Online tax amendment You may be able to measure your loss by what you spend on the following. Online tax amendment Removing destroyed or damaged trees and shrubs, minus any salvage you receive. Online tax amendment Pruning and other measures taken to preserve damaged trees and shrubs. Online tax amendment Replanting necessary to restore the property to its approximate value before the casualty. Online tax amendment Car value. Online tax amendment   Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Online tax amendment You can use the books' retail values and modify them by factors such as the mileage and condition of your car to figure its value. Online tax amendment 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. Online tax amendment If your car is not listed in the books, determine its value from other sources. Online tax amendment A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Online tax amendment 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. Online tax amendment Cost of protection. Online tax amendment   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Online tax amendment The amount you spend on insurance or to board up your house against a storm is not part of your loss. Online tax amendment If the property is business property, these expenses are deductible as business expenses. Online tax amendment   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. Online tax amendment An example would be the cost of a dike to prevent flooding. Online tax amendment Exception. Online tax amendment   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 (discussed later under Disaster Area Losses ). Online tax amendment Related expenses. Online tax amendment   The incidental expenses 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. Online tax amendment However, they may be deductible as business expenses if the damaged or stolen property is business property. Online tax amendment Replacement cost. Online tax amendment   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Online tax amendment Example. Online tax amendment You bought a new chair 4 years ago for $300. Online tax amendment In April, a fire destroyed the chair. Online tax amendment You estimate that it would cost $500 to replace it. Online tax amendment If you had sold the chair before the fire, you estimate that you could have received only $100 for it because it was 4 years old. Online tax amendment The chair was not insured. Online tax amendment Your loss is $100, the FMV of the chair before the fire. Online tax amendment It is not $500, the replacement cost. Online tax amendment Sentimental value. Online tax amendment   Do not consider sentimental value when determining your loss. Online tax amendment 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. Online tax amendment Decline in market value of property in or near casualty area. Online tax amendment   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. Online tax amendment You have a loss only for actual casualty damage to your property. Online tax amendment However, if your home is in a federally declared disaster area, see Disaster Area Losses , later. Online tax amendment Costs of photographs and appraisals. Online tax amendment   Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Online tax amendment Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Online tax amendment   Appraisals are used to figure the decrease in FMV because of a casualty or theft. Online tax amendment See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Online tax amendment   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. Online tax amendment They are expenses in determining your tax liability. Online tax amendment You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Online tax amendment Adjusted Basis The measure of your investment in the property you own is its basis. Online tax amendment For property you buy, your basis is usually its cost to you. Online tax amendment For property you acquire in some other way, such as inheriting it, receiving it as a gift, or getting it in a nontaxable exchange, you must figure your basis in another way, as explained in Publication 551. Online tax amendment If you inherited the property from someone who died in 2010 and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Online tax amendment Adjustments to basis. Online tax amendment    While you own the property, various events may take place that change your basis. Online tax amendment Some events, such as additions or permanent improvements to the property, increase basis. Online tax amendment Others, such as earlier casualty losses and depreciation deductions, decrease basis. Online tax amendment When you add the increases to the basis and subtract the decreases from the basis, the result is your adjusted basis. Online tax amendment See Publication 551 for more information on figuring the basis of your property. Online tax amendment Insurance and Other Reimbursements If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Online tax amendment You do not have a casualty or theft loss to the extent you are reimbursed. Online tax amendment If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Online tax amendment You must reduce your loss even if you do not receive payment until a later tax year. Online tax amendment See Reimbursement Received After Deducting Loss , later. Online tax amendment Failure to file a claim for reimbursement. Online tax amendment   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Online tax amendment Otherwise, you cannot deduct this loss as a casualty or theft. Online tax amendment The portion of the loss usually not covered by insurance (for example, a deductible) is not subject to this rule. Online tax amendment Example. Online tax amendment You have a car insurance policy with a $1,000 deductible. Online tax amendment Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the $100 and 10% rules, discussed later). Online tax amendment This is true, even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Online tax amendment Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Online tax amendment Other types of reimbursements are discussed next. Online tax amendment Also see the Instructions for Form 4684. Online tax amendment Employer's emergency disaster fund. Online tax amendment   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. Online tax amendment Take into consideration only the amount you used to replace your destroyed or damaged property. Online tax amendment Example. Online tax amendment Your home was extensively damaged by a tornado. Online tax amendment Your loss after reimbursement from your insurance company was $10,000. Online tax amendment Your employer set up a disaster relief fund for its employees. Online tax amendment Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Online tax amendment You received $4,000 from the fund and spent the entire amount on repairs to your home. Online tax amendment In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Online tax amendment Your casualty loss before applying the deduction limits (discussed later) is $6,000. Online tax amendment Cash gifts. Online tax amendment   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. Online tax amendment This applies even if you use the money to pay for repairs to property damaged in the disaster. Online tax amendment Example. Online tax amendment Your home was damaged by a hurricane. Online tax amendment Relatives and neighbors made cash gifts to you that were excludable from your income. Online tax amendment You used part of the cash gifts to pay for repairs to your home. Online tax amendment There were no limits or restrictions on how you could use the cash gifts. Online tax amendment It was an excludable gift, so the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Online tax amendment Insurance payments for living expenses. Online tax amendment   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Online tax amendment You lose the use of your main home because of a casualty. Online tax amendment Government authorities do not allow you access to your main home because of a casualty or threat of one. Online tax amendment Inclusion in income. Online tax amendment   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Online tax amendment Report this amount on Form 1040, line 21. Online tax amendment However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Online tax amendment See Qualified disaster relief payments , later, under Disaster Area Losses. Online tax amendment   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. Online tax amendment Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Online tax amendment Generally, these expenses include the amounts you pay for the following. Online tax amendment Renting suitable housing. Online tax amendment Transportation. Online tax amendment Food. Online tax amendment Utilities. Online tax amendment Miscellaneous services. Online tax amendment 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. Online tax amendment Example. Online tax amendment As a result of a fire, you vacated your apartment for a month and moved to a motel. Online tax amendment You normally pay $525 a month for rent. Online tax amendment None was charged for the month the apartment was vacated. Online tax amendment Your motel rent for this month was $1,200. Online tax amendment You normally pay $200 a month for food. Online tax amendment Your food expenses for the month you lived in the motel were $400. Online tax amendment You received $1,100 from your insurance company to cover your living expenses. Online tax amendment You determine the payment you must include in income as follows. Online tax amendment 1. Online tax amendment Insurance payment for living expenses $1,100 2. Online tax amendment Actual expenses during the month you are unable to use your home because of the fire $1,600   3. Online tax amendment Normal living expenses 725   4. Online tax amendment Temporary increase in living expenses: Subtract line 3  from line 2 875 5. Online tax amendment Amount of payment includible in income: Subtract line 4 from line 1 $ 225 Tax year of inclusion. Online tax amendment   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. Online tax amendment Example. Online tax amendment Your main home was destroyed by a tornado in August 2011. Online tax amendment You regained use of your home in November 2012. Online tax amendment The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Online tax amendment You include this amount in income on your 2012 Form 1040. Online tax amendment 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. Online tax amendment Disaster relief. Online tax amendment   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. Online tax amendment Table 2. Online tax amendment Deduction Limit Rules for Personal-Use and Employee Property       $100 Rule 10% Rule 2% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Online tax amendment Apply this rule to personal-use property after you have figured the amount of your loss. Online tax amendment You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Online tax amendment Apply this rule to personal-use property after you reduce each loss by $100 (the $100 rule). Online tax amendment You must reduce your total casualty or theft loss by 2% of your adjusted gross income. Online tax amendment Apply this rule to property you used in performing services as an employee after you have figured the amount of your loss and added it to your job expenses and most other miscellaneous itemized deductions. Online tax amendment Single Event Apply this rule only once, even if many pieces of property are affected. Online tax amendment Apply this rule only once, even if many pieces of property are affected. Online tax amendment Apply this rule only once, even if many pieces of property are affected. Online tax amendment More Than One Event Apply to the loss from each event. Online tax amendment Apply to the total of all your losses from all events. Online tax amendment Apply to the total of all your losses from all events. Online tax amendment More Than One Person— With Loss From the   Same Event  (other than a married couple  filing jointly) Apply separately to each person. Online tax amendment Apply separately to each person. Online tax amendment Apply separately to each person. Online tax amendment Married Couple—  With Loss From the  Same Event Filing Joint Return Apply as if you were one person. Online tax amendment Apply as if you were one person. Online tax amendment Apply as if you were one person. Online tax amendment Filing Separate Return Apply separately to each spouse. Online tax amendment Apply separately to each spouse. Online tax amendment Apply separately to each spouse. Online tax amendment More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Online tax amendment Apply separately to each owner of jointly owned property. Online tax amendment Apply separately to each owner of jointly owned property. Online tax amendment    Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster, are not taxable income to you. Online tax amendment For more information, see Qualified disaster relief payments under Disaster Area Losses, later. Online tax amendment   Disaster unemployment assistance payments are unemployment benefits that are taxable. Online tax amendment   Generally, disaster relief grants received under the Robert T. Online tax amendment Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Online tax amendment See Federal disaster relief grants , later, under Disaster Area Losses. Online tax amendment Loan proceeds. Online tax amendment   Do not reduce your casualty loss by loan proceeds you use to rehabilitate or replace property on which you are claiming a casualty loss deduction. Online tax amendment If you have a federal loan that is canceled (forgiven), see Federal loan canceled , later, under Disaster Area Losses. Online tax amendment Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using the amount of your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Online tax amendment This section explains the adjustment you may have to make. Online tax amendment Actual reimbursement less than expected. Online tax amendment   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. Online tax amendment Example. Online tax amendment Your personal car had a FMV of $2,000 when it was destroyed in a collision with another car in 2012. Online tax amendment The accident was due to the negligence of the other driver. Online tax amendment At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Online tax amendment You did not have a deductible loss in 2012. Online tax amendment In January 2013, the court awards you a judgment of $2,000. Online tax amendment However, in July it becomes apparent that you will be unable to collect any amount from the other driver. Online tax amendment Since this is your only casualty or theft loss, you can deduct the loss in 2013 that is figured by applying the Deduction Limits (discussed later). Online tax amendment Actual reimbursement more than expected. Online tax amendment   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. Online tax amendment 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. Online tax amendment You do not refigure your tax for the year you claimed the deduction. Online tax amendment See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Online tax amendment Example. Online tax amendment In 2012, a hurricane destroyed your motorboat. Online tax amendment Your loss was $3,000, and you estimated that your insurance would cover $2,500 of it. Online tax amendment You did not itemize deductions on your 2012 return, so you could not deduct the loss. Online tax amendment When the insurance company reimburses you for the loss, you do not report any of the reimbursement as income. Online tax amendment This is true even if it is for the full $3,000 because you did not deduct the loss on your 2012 return. Online tax amendment The loss did not reduce your tax. Online tax amendment    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. Online tax amendment 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. Online tax amendment Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Online tax amendment You may be able to postpone reporting any remaining gain as explained under Postponement of Gain, later. Online tax amendment Actual reimbursement same as expected. Online tax amendment   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. Online tax amendment Example. Online tax amendment In December 2013, you had a collision while driving your personal car. Online tax amendment Repairs to the car cost $950. Online tax amendment You had $100 deductible collision insurance. Online tax amendment Your insurance company agreed to reimburse you for the rest of the damage. Online tax amendment Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Online tax amendment Due to the $100 rule, you cannot deduct the $100 you paid as the deductible. Online tax amendment When you receive the $850 from the insurance company in 2014, do not report it as income. Online tax amendment Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Online tax amendment The deduction for casualty and theft losses of employee property and personal-use property is limited. Online tax amendment A loss on employee property is subject to the 2% rule, discussed next. Online tax amendment With certain exceptions, a loss on property you own for your personal use is subject to the $100 and 10% rules, discussed later. Online tax amendment The 2%, $100, and 10% rules are also summarized in Table 2 . Online tax amendment Losses on business property (other than employee property) and income-producing property are not subject to these rules. Online tax amendment However, if your casualty or theft loss involved a home you used for business or rented out, your deductible loss may be limited. Online tax amendment See the Instructions for Form 4684, Section B. Online tax amendment If the casualty or theft loss involved property used in a passive activity, see Form 8582, Passive Activity Loss Limitations, and its instructions. Online tax amendment 2% Rule The casualty and theft loss deduction for employee property, when added to your job expenses and most other miscellaneous itemized deductions on Schedule A (Form 1040) or Form 1040NR, Schedule A, must be reduced by 2% of your adjusted gross income. Online tax amendment Employee property is property used in performing services as an employee. Online tax amendment $100 Rule After you have figured your casualty or theft loss on personal-use property, as discussed earlier, you must reduce that loss by $100. Online tax amendment This reduction applies to each total casualty or theft loss. Online tax amendment It does not matter how many pieces of property are involved in an event. Online tax amendment Only a single $100 reduction applies. Online tax amendment Example. Online tax amendment You have $750 deductible collision insurance on your car. Online tax amendment The car is damaged in a collision. Online tax amendment The insurance company pays you for the damage minus the $750 deductible. Online tax amendment The amount of the casualty loss is based solely on the deductible. Online tax amendment The casualty loss is $650 ($750 − $100) because the first $100 of a casualty loss on personal-use property is not deductible. Online tax amendment Single event. Online tax amendment   Generally, events closely related in origin cause a single casualty. Online tax amendment 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. Online tax amendment A single casualty may also damage two or more pieces of property, such as a hailstorm that damages both your home and your car parked in your driveway. Online tax amendment Example 1. Online tax amendment A thunderstorm destroyed your pleasure boat. Online tax amendment You also lost some boating equipment in the storm. Online tax amendment Your loss was $5,000 on the boat and $1,200 on the equipment. Online tax amendment Your insurance company reimbursed you $4,500 for the damage to your boat. Online tax amendment You had no insurance coverage on the equipment. Online tax amendment Your casualty loss is from a single event and the $100 rule applies once. Online tax amendment Figure your loss before applying the 10% rule (discussed later) as follows. Online tax amendment     Boat Equipment 1. Online tax amendment Loss $5,000 $1,200 2. Online tax amendment Subtract insurance 4,500 -0- 3. Online tax amendment Loss after reimbursement $ 500 $1,200 4. Online tax amendment Total loss $1,700 5. Online tax amendment Subtract $100 100 6. Online tax amendment Loss before 10% rule $1,600 Example 2. Online tax amendment Thieves broke into your home in January and stole a ring and a fur coat. Online tax amendment You had a loss of $200 on the ring and $700 on the coat. Online tax amendment This is a single theft. Online tax amendment The $100 rule applies to the total $900 loss. Online tax amendment Example 3. Online tax amendment In September, hurricane winds blew the roof off your home. Online tax amendment Flood waters caused by the hurricane further damaged your home and destroyed your furniture and personal car. Online tax amendment This is considered a single casualty. Online tax amendment The $100 rule is applied to your total loss from the flood waters and the wind. Online tax amendment More than one loss. Online tax amendment   If you have more than one casualty or theft loss during your tax year, you must reduce each loss by $100. Online tax amendment Example. Online tax amendment Your family car was damaged in an accident in January. Online tax amendment Your loss after the insurance reimbursement was $75. Online tax amendment In February, your car was damaged in another accident. Online tax amendment This time your loss after the insurance reimbursement was $90. Online tax amendment Apply the $100 rule to each separate casualty loss. Online tax amendment Since neither accident resulted in a loss of over $100, you are not entitled to any deduction for these accidents. Online tax amendment More than one person. Online tax amendment   If two or more individuals (other than a husband and wife filing a joint return) have losses from the same casualty or theft, the $100 rule applies separately to each individual. Online tax amendment Example. Online tax amendment A fire damaged your house and also damaged the personal property of your house guest. Online tax amendment You must reduce your loss by $100. Online tax amendment Your house guest must reduce his or her loss by $100. Online tax amendment Married taxpayers. Online tax amendment   If you and your spouse file a joint return, you are treated as one individual in applying the $100 rule. Online tax amendment It does not matter whether you own the property jointly or separately. Online tax amendment   If you and your spouse have a casualty or theft loss and you file separate returns, each of you must reduce your loss by $100. Online tax amendment This is true even if you own the property jointly. Online tax amendment If one spouse owns the property, only that spouse can figure a loss deduction on a separate return. Online tax amendment   If the casualty or theft loss is on property you own as tenants by the entirety, each of you can figure your deduction on only one-half of the loss on separate returns. Online tax amendment Neither of you can figure your deduction on the entire loss on a separate return. Online tax amendment Each of you must reduce the loss by $100. Online tax amendment More than one owner. Online tax amendment   If two or more individuals (other than a husband and wife filing a joint return) have a loss on property jointly owned, the $100 rule applies separately to each. Online tax amendment For example, if two sisters live together in a home they own jointly and they have a casualty loss on the home, the $100 rule applies separately to each sister. Online tax amendment 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. Online tax amendment Apply this rule after you reduce each loss by $100. Online tax amendment For more information, see the Form 4684 instructions. Online tax amendment If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Online tax amendment Example. Online tax amendment In June, you discovered that your house had been burglarized. Online tax amendment Your loss after insurance reimbursement was $2,000. Online tax amendment Your adjusted gross income for the year you discovered the theft is $29,500. Online tax amendment Figure your theft loss as follows. Online tax amendment 1. Online tax amendment Loss after insurance $2,000 2. Online tax amendment Subtract $100 100 3. Online tax amendment Loss after $100 rule $1,900 4. Online tax amendment Subtract 10% of $29,500 AGI $2,950 5. Online tax amendment 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 ($2,950). Online tax amendment More than one loss. Online tax amendment   If you have more than one casualty or theft loss during your tax year, reduce each loss by any reimbursement and by $100. Online tax amendment Then you must reduce the total of all your losses by 10% of your adjusted gross income. Online tax amendment Example. Online tax amendment In March, you had a car accident that totally destroyed your car. Online tax amendment You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Online tax amendment Your loss on the car was $1,800. Online tax amendment In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items you had stored there. Online tax amendment Your loss on the basement items after reimbursement was $2,100. Online tax amendment Your adjusted gross income for the year that the accident and fire occurred is $25,000. Online tax amendment You figure your casualty loss deduction as follows. Online tax amendment     Car Basement 1. Online tax amendment Loss $1,800 $2,100 2. Online tax amendment Subtract $100 per incident 100 100 3. Online tax amendment Loss after $100 rule $1,700 $2,000 4. Online tax amendment Total loss $3,700 5. Online tax amendment Subtract 10% of $25,000 AGI 2,500 6. Online tax amendment Casualty loss deduction $1,200 Married taxpayers. Online tax amendment   If you and your spouse file a joint return, you are treated as one individual in applying the 10% rule. Online tax amendment It does not matter if you own the property jointly or separately. Online tax amendment   If you file separate returns, the 10% rule applies to each return on which a loss is claimed. Online tax amendment More than one owner. Online tax amendment   If two or more individuals (other than husband and wife filing a joint return) have a loss on property that is owned jointly, the 10% rule applies separately to each. Online tax amendment Gains and losses. Online tax amendment   If you have casualty or theft gains as well as losses to personal-use property, you must compare your total gains to your total losses. Online tax amendment 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. Online tax amendment Casualty or theft gains do not include gains you choose to postpone. Online tax amendment See Postponement of Gain, later. Online tax amendment Losses more than gains. Online tax amendment   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. Online tax amendment The rest, if any, is your deductible loss from personal-use property. Online tax amendment Example. Online tax amendment Your theft loss after reducing it by reimbursements and by $100 is $2,700. Online tax amendment Your casualty gain is $700. Online tax amendment Your loss is more than your gain, so you must reduce your $2,000 net loss ($2,700 − $700) by 10% of your adjusted gross income. Online tax amendment Gains more than losses. Online tax amendment   If your recognized gains are more than your losses, subtract your losses from your gains. Online tax amendment The difference is treated as a capital gain and must be reported on Schedule D (Form 1040). Online tax amendment The 10% rule does not apply to your gains. Online tax amendment Example. Online tax amendment Your theft loss is $600 after reducing it by reimbursements and by $100. Online tax amendment Your casualty gain is $1,600. Online tax amendment Because your gain is more than your loss, you must report the $1,000 net gain ($1,600 − $600) on Schedule D (Form 1040). Online tax amendment More information. Online tax amendment   For information on how to figure recognized gains, see Figuring a Gain , later. Online tax amendment Figuring the Deduction Generally, you must figure your loss separately for each item stolen, damaged, or destroyed. Online tax amendment However, a special rule applies to real property you own for personal use. Online tax amendment Real property. Online tax amendment   In figuring a loss to real estate you own for personal use, all improvements (such as buildings and ornamental trees and the land containing the improvements) are considered together. Online tax amendment Example 1. Online tax amendment In June, a fire destroyed your lakeside cottage, which cost $144,800 (including $14,500 for the land) several years ago. Online tax amendment (Your land was not damaged. Online tax amendment ) This was your only casualty or theft loss for the year. Online tax amendment The FMV of the property immediately before the fire was $180,000 ($145,000 for the cottage and $35,000 for the land). Online tax amendment The FMV immediately after the fire was $35,000 (value of the land). Online tax amendment You collected $130,000 from the insurance company. Online tax amendment Your adjusted gross income for the year the fire occurred is $80,000. Online tax amendment Your deduction for the casualty loss is $6,700, figured in the following manner. Online tax amendment 1. Online tax amendment Adjusted basis of the entire property (cost in this example) $144,800 2. Online tax amendment FMV of entire property  before fire $180,000 3. Online tax amendment FMV of entire property after fire 35,000 4. Online tax amendment Decrease in FMV of entire property (line 2 − line 3) $145,000 5. Online tax amendment Loss (smaller of line 1 or line 4) $144,800 6. Online tax amendment Subtract insurance 130,000 7. Online tax amendment Loss after reimbursement $14,800 8. Online tax amendment Subtract $100 100 9. Online tax amendment Loss after $100 rule $14,700 10. Online tax amendment Subtract 10% of $80,000 AGI 8,000 11. Online tax amendment Casualty loss deduction $ 6,700 Example 2. Online tax amendment You bought your home a few years ago. Online tax amendment You paid $150,000 ($10,000 for the land and $140,000 for the house). Online tax amendment You also spent an additional $2,000 for landscaping. Online tax amendment This year a fire destroyed your home. Online tax amendment The fire also damaged the shrubbery and trees in your yard. Online tax amendment The fire was your only casualty or theft loss this year. Online tax amendment Competent appraisers valued the property as a whole at $175,000 before the fire, but only $50,000 after the fire. Online tax amendment Shortly after the fire, the insurance company paid you $95,000 for the loss. Online tax amendment Your adjusted gross income for this year is $70,000. Online tax amendment You figure your casualty loss deduction as follows. Online tax amendment 1. Online tax amendment Adjusted basis of the entire property (cost of land, building, and landscaping) $152,000 2. Online tax amendment FMV of entire property  before fire $175,000 3. Online tax amendment FMV of entire property after fire 50,000 4. Online tax amendment Decrease in FMV of entire property (line 2 − line 3) $125,000 5. Online tax amendment Loss (smaller of line 1 or line 4) $125,000 6. Online tax amendment Subtract insurance 95,000 7. Online tax amendment Loss after reimbursement $30,000 8. Online tax amendment Subtract $100 100 9. Online tax amendment Loss after $100 rule $29,900 10. Online tax amendment Subtract 10% of $70,000 AGI 7,000 11. Online tax amendment Casualty loss deduction $ 22,900 Personal property. Online tax amendment   Personal property is any property that is not real property. Online tax amendment 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. Online tax amendment Then combine these separate losses to figure the total loss. Online tax amendment Reduce the total loss by $100 and 10% of your adjusted gross income to figure the loss deduction. Online tax amendment Example 1. Online tax amendment In August, a storm destroyed your pleasure boat, which cost $18,500. Online tax amendment This was your only casualty or theft loss for the year. Online tax amendment Its FMV immediately before the storm was $17,000. Online tax amendment You had no insurance, but were able to salvage the motor of the boat and sell it for $200. Online tax amendment Your adjusted gross income for the year the casualty occurred is $70,000. Online tax amendment Although the motor was sold separately, it is part of the boat and not a separate item of property. Online tax amendment You figure your casualty loss deduction as follows. Online tax amendment 1. Online tax amendment Adjusted basis (cost in this example) $18,500 2. Online tax amendment FMV before storm $17,000 3. Online tax amendment FMV after storm 200 4. Online tax amendment Decrease in FMV  (line 2 − line 3) $16,800 5. Online tax amendment Loss (smaller of line 1 or line 4) $16,800 6. Online tax amendment Subtract insurance -0- 7. Online tax amendment Loss after reimbursement $16,800 8. Online tax amendment Subtract $100 100 9. Online tax amendment Loss after $100 rule $16,700 10. Online tax amendment Subtract 10% of $70,000 AGI 7,000 11. Online tax amendment Casualty loss deduction $ 9,700 Example 2. Online tax amendment In June, you were involved in an auto accident that totally destroyed your personal car and your antique pocket watch. Online tax amendment You had bought the car for $30,000. Online tax amendment The FMV of the car just before the accident was $17,500. Online tax amendment Its FMV just after the accident was $180 (scrap value). Online tax amendment Your insurance company reimbursed you $16,000. Online tax amendment Your watch was not insured. Online tax amendment You had purchased it for $250. Online tax amendment Its FMV just before the accident was $500. Online tax amendment Your adjusted gross income for the year the accident occurred is $97,000. Online tax amendment Your casualty loss deduction is zero, figured as follows. Online tax amendment     Car Watch 1. Online tax amendment Adjusted basis (cost) $30,000 $250 2. Online tax amendment FMV before accident $17,500 $500 3. Online tax amendment FMV after accident 180 -0- 4. Online tax amendment Decrease in FMV (line 2 − line 3) $17,320 $500 5. Online tax amendment Loss (smaller of line 1 or line 4) $17,320 $250 6. Online tax amendment Subtract insurance 16,000 -0- 7. Online tax amendment Loss after reimbursement $1,320 $250 8. Online tax amendment Total loss $1,570 9. Online tax amendment Subtract $100 100 10. Online tax amendment Loss after $100 rule $1,470 11. Online tax amendment Subtract 10% of $97,000 AGI 9,700 12. Online tax amendment Casualty loss deduction $ -0- Both real and personal properties. Online tax amendment   When a casualty involves both real and personal properties, you must figure the loss separately for each type of property. Online tax amendment However, you apply a single $100 reduction to the total loss. Online tax amendment Then, you apply the 10% rule to figure the casualty loss deduction. Online tax amendment Example. Online tax amendment In July, a hurricane damaged your home, which cost you $164,000 including land. Online tax amendment The FMV of the property (both building and land) immediately before the storm was $170,000 and its FMV immediately after the storm was $100,000. Online tax amendment Your household furnishings were also damaged. Online tax amendment You separately figured the loss on each damaged household item and arrived at a total loss of $600. Online tax amendment You collected $50,000 from the insurance company for the damage to your home, but your household furnishings were not insured. Online tax amendment Your adjusted gross income for the year the hurricane occurred is $65,000. Online tax amendment You figure your casualty loss deduction from the hurricane in the following manner. Online tax amendment 1. Online tax amendment Adjusted basis of real property (cost in this example) $164,000 2. Online tax amendment FMV of real property before hurricane $170,000 3. Online tax amendment FMV of real property after hurricane 100,000 4. Online tax amendment Decrease in FMV of real property (line 2 − line 3) $70,000 5. Online tax amendment Loss on real property (smaller of line 1 or line 4) $70,000 6. Online tax amendment Subtract insurance 50,000 7. Online tax amendment Loss on real property after reimbursement $20,000 8. Online tax amendment Loss on furnishings $600 9. Online tax amendment Subtract insurance -0- 10. Online tax amendment Loss on furnishings after reimbursement $600 11. Online tax amendment Total loss (line 7 plus line 10) $20,600 12. Online tax amendment Subtract $100 100 13. Online tax amendment Loss after $100 rule $20,500 14. Online tax amendment Subtract 10% of $65,000 AGI 6,500 15. Online tax amendment Casualty loss deduction $14,000 Property used partly for business and partly for personal purposes. Online tax amendment   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 portion and for the business or income-producing portion. Online tax amendment You must figure each loss separately because the losses attributed to these two uses are figured in two different ways. Online tax amendment When figuring each loss, allocate the total cost or basis, the FMV before and after the casualty or theft loss, and the insurance or other reimbursement between the business and personal use of the property. Online tax amendment The $100 rule and the 10% rule apply only to the casualty or theft loss on the personal-use portion of the property. Online tax amendment Example. Online tax amendment You own a building that you constructed on leased land. Online tax amendment You use half of the building for your business and you live in the other half. Online tax amendment The cost of the building was $400,000. Online tax amendment You made no further improvements or additions to it. Online tax amendment A flood in March damaged the entire building. Online tax amendment The FMV of the building was $380,000 immediately before the flood and $320,000 afterwards. Online tax amendment Your insurance company reimbursed you $40,000 for the flood damage. Online tax amendment Depreciation on the business part of the building before the flood totaled $24,000. Online tax amendment Your adjusted gross income for the year the flood occurred is $125,000. Online tax amendment You have a deductible business casualty loss of $10,000. Online tax amendment You do not have a deductible personal casualty loss because of the 10% rule. Online tax amendment You figure your loss as follows. Online tax amendment     Business   Personal     Part   Part 1. Online tax amendment Cost (total $400,000) $200,000   $200,000 2. Online tax amendment Subtract depreciation 24,000   -0- 3. Online tax amendment Adjusted basis $176,000   $200,000 4. Online tax amendment FMV before flood (total $380,000) $190,000   $190,000 5. Online tax amendment FMV after flood (total $320,000) 160,000   160,000 6. Online tax amendment Decrease in FMV  (line 4 − line 5) $30,000   $30,000 7. Online tax amendment Loss (smaller of line 3 or line 6) $30,000   $30,000 8. Online tax amendment Subtract insurance 20,000   20,000 9. Online tax amendment Loss after reimbursement $10,000   $10,000 10. Online tax amendment Subtract $100 on personal-use property -0-   100 11. Online tax amendment Loss after $100 rule $10,000   $9,900 12. Online tax amendment Subtract 10% of $125,000 AGI on personal-use property -0-   12,500 13. Online tax amendment Deductible business loss $10,000     14. Online tax amendment Deductible personal loss $-0- Figuring a Gain 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. Online tax amendment Your gain is figured as follows. Online tax amendment The amount you receive (discussed next), minus Your adjusted basis in the property at the time of the casualty or theft. Online tax amendment See Adjusted Basis , earlier, for information on adjusted basis. Online tax amendment 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. Online tax amendment Amount you receive. Online tax amendment   The amount you receive includes any money plus the value of any property you receive minus any expenses you have in obtaining reimbursement. Online tax amendment It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Online tax amendment Example. Online tax amendment A hurricane destroyed your personal residence and the insurance company awarded you $145,000. Online tax amendment You received $140,000 in cash. Online tax amendment The remaining $5,000 was paid directly to the holder of a mortgage on the property. Online tax amendment The amount you received includes the $5,000 reimbursement paid on the mortgage. Online tax amendment Main home destroyed. Online tax amendment   If you have a gain because your main home was destroyed, you generally can exclude the gain from your income as if you had sold or exchanged your home. Online tax amendment You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Online tax amendment To exclude a gain, you generally must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date it was destroyed. Online tax amendment For information on this exclusion, see Publication 523. Online tax amendment 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. Online tax amendment See Postponement of Gain , later. Online tax amendment Reporting a gain. Online tax amendment   You generally must report your gain as income in the year you receive the reimbursement. Online tax amendment However, you do not have to report your gain if you meet certain requirements and choose to postpone reporting the gain according to the rules explained under Postponement of Gain, next. Online tax amendment   For information on how to report a gain, see How To Report Gains and Losses , later. Online tax amendment    If you have a casualty or theft gain on personal-use property that you choose to postpone reporting (as explained next) and you also have another casualty or theft loss on personal-use property, do not consider the gain you are postponing when figuring your casualty or theft loss deduction. Online tax amendment See 10% Rule under Deduction Limits, earlier. Online tax amendment Postponement of 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 or stolen property. Online tax amendment Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Online tax amendment You must ordinarily report the gain on your stolen or destroyed property if you receive money or unlike property as reimbursement. Online tax amendment However, you can choose to postpone reporting the gain if you purchase property that is similar or related in service or use to the stolen or destroyed property within a specified replacement period, discussed later. Online tax amendment You also can choose to postpone reporting the gain if you purchase a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the property. Online tax amendment See Controlling interest in a corporation , later. Online tax amendment If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Online tax amendment To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Online tax amendment 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. Online tax amendment Example. Online tax amendment In 1970, you bought an oceanfront cottage for your personal use at a cost of $18,000. Online tax amendment You made no further improvements or additions to it. Online tax amendment When a storm destroyed the cottage this January, the cottage was worth $250,000. Online tax amendment You received $146,000 from the insurance company in March. Online tax amendment You had a gain of $128,000 ($146,000 − $18,000). Online tax amendment You spent $144,000 to rebuild the cottage. Online tax amendment Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Online tax amendment Buying replacement property from a related person. Online tax amendment   You cannot postpone reporting a gain from a casualty or theft if you buy the replacement property from a related person (discussed later). Online tax amendment This rule applies to the following taxpayers. Online tax amendment C corporations. Online tax amendment Partnerships in which more than 50% of the capital or profits interests is owned by C corporations. Online tax amendment All others (including individuals, partnerships — other than those in (2) — and S corporations) if the total realized gain for the tax year on all destroyed or stolen properties on which there are realized gains is more than $100,000. Online tax amendment For casualties and thefts described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Online tax amendment If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Online tax amendment If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Online tax amendment Exception. Online tax amendment   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 destroyed or stolen property. Online tax amendment Related persons. Online tax amendment   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. Online tax amendment For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Online tax amendment Death of a taxpayer. Online tax amendment   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. Online tax amendment The executor of the estate or the person succeeding to the funds from the casualty or theft cannot postpone reporting the gain by buying replacement property. Online tax amendment Replacement Property You must buy replacement property for the specific purpose of replacing your destroyed or stolen property. Online tax amendment Property you acquire as a gift or inheritance does not qualify. Online tax amendment You do not have to use the same funds you receive as
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