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Search irs gov freefile 25. Search irs gov freefile   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Search irs gov freefile Progressive deterioration. Search irs gov freefile Damage from corrosive drywall. Search irs gov freefile Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Search irs gov freefile  Section C of Form 4684 is new for 2013. Search irs gov freefile You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Search irs gov freefile Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Search irs gov freefile You do not need to complete Appendix A. Search irs gov freefile For details, see Losses from Ponzi-type investment schemes , in this chapter. Search irs gov freefile Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Search irs gov freefile The chapter also explains the following  topics. Search irs gov freefile How to figure the amount of your loss. Search irs gov freefile How to treat insurance and other reimbursements you receive. Search irs gov freefile The deduction limits. Search irs gov freefile When and how to report a casualty or theft. Search irs gov freefile Forms to file. Search irs gov freefile    When you have a casualty or theft, you have to file Form 4684. Search irs gov freefile You will also have to file one or more of the following forms. Search irs gov freefile Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Search irs gov freefile   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Search irs gov freefile Workbook for casualties and thefts. Search irs gov freefile    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Search irs gov freefile It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Search irs gov freefile Business or investment-related losses. Search irs gov freefile   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Search irs gov freefile Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Search irs gov freefile A sudden event is one that is swift, not gradual or progressive. Search irs gov freefile An unexpected event is one that is ordinarily unanticipated and unintended. Search irs gov freefile 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. Search irs gov freefile Deductible losses. Search irs gov freefile   Deductible casualty losses can result from a number of different causes, including the following. Search irs gov freefile Car accidents (but see Nondeductible losses , next, for exceptions). Search irs gov freefile Earthquakes. Search irs gov freefile Fires (but see Nondeductible losses , next, for exceptions). Search irs gov freefile Floods. Search irs gov freefile 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. Search irs gov freefile Mine cave-ins. Search irs gov freefile Shipwrecks. Search irs gov freefile Sonic booms. Search irs gov freefile Storms, including hurricanes and tornadoes. Search irs gov freefile Terrorist attacks. Search irs gov freefile Vandalism. Search irs gov freefile Volcanic eruptions. Search irs gov freefile Nondeductible losses. Search irs gov freefile   A casualty loss is not deductible if the damage or destruction is caused by the following. Search irs gov freefile Accidentally breaking articles such as glassware or china under normal conditions. Search irs gov freefile A family pet (explained below). Search irs gov freefile A fire if you willfully set it or pay someone else to set it. Search irs gov freefile A car accident if your willful negligence or willful act caused it. Search irs gov freefile The same is true if the willful act or willful negligence of someone acting for you caused the accident. Search irs gov freefile Progressive deterioration (explained later). Search irs gov freefile Family pet. Search irs gov freefile   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. Search irs gov freefile Example. Search irs gov freefile Your antique oriental rug was damaged by your new puppy before it was housebroken. Search irs gov freefile Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Search irs gov freefile Progressive deterioration. Search irs gov freefile    Loss of property due to progressive deterioration is not deductible as a casualty loss. Search irs gov freefile This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Search irs gov freefile The following are examples of damage due to progressive deterioration. Search irs gov freefile The steady weakening of a building due to normal wind and weather conditions. Search irs gov freefile The deterioration and damage to a water heater that bursts. Search irs gov freefile However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Search irs gov freefile Most losses of property caused by droughts. Search irs gov freefile To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Search irs gov freefile Termite or moth damage. Search irs gov freefile The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Search irs gov freefile However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Search irs gov freefile Damage from corrosive drywall. Search irs gov freefile   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Search irs gov freefile For details, see Publication 547. Search irs gov freefile Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Search irs gov freefile The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Search irs gov freefile You do not need to show a conviction for theft. Search irs gov freefile Theft includes the taking of money or property by the following means. Search irs gov freefile Blackmail. Search irs gov freefile Burglary. Search irs gov freefile Embezzlement. Search irs gov freefile Extortion. Search irs gov freefile Kidnapping for ransom. Search irs gov freefile Larceny. Search irs gov freefile Robbery. Search irs gov freefile The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Search irs gov freefile Decline in market value of stock. Search irs gov freefile   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. Search irs gov freefile 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. Search irs gov freefile You report a capital loss on Schedule D (Form 1040). Search irs gov freefile For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Search irs gov freefile Mislaid or lost property. Search irs gov freefile   The simple disappearance of money or property is not a theft. Search irs gov freefile 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. Search irs gov freefile Sudden, unexpected, and unusual events are defined earlier. Search irs gov freefile Example. Search irs gov freefile A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Search irs gov freefile The diamond falls from the ring and is never found. Search irs gov freefile The loss of the diamond is a casualty. Search irs gov freefile Losses from Ponzi-type investment schemes. Search irs gov freefile   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Search irs gov freefile R. Search irs gov freefile B. Search irs gov freefile 735 (available at www. Search irs gov freefile irs. Search irs gov freefile gov/irb/2009-14_IRB/ar07. Search irs gov freefile html). Search irs gov freefile Revenue Procedure 2009-20, 2009-14 I. Search irs gov freefile R. Search irs gov freefile B. Search irs gov freefile 749 (available at www. Search irs gov freefile irs. Search irs gov freefile gov/irb/2009-14_IRB/ar11. Search irs gov freefile html). Search irs gov freefile Revenue Procedure 2011-58, 2011-50 I. Search irs gov freefile R. Search irs gov freefile B. Search irs gov freefile 849 (available at www. Search irs gov freefile irs. Search irs gov freefile gov/irb/2011-50_IRB/ar11. Search irs gov freefile html). Search irs gov freefile 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. Search irs gov freefile Skip lines 19 to 27. Search irs gov freefile Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Search irs gov freefile You do not need to complete Appendix A. Search irs gov freefile For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Search irs gov freefile   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Search irs gov freefile Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Search irs gov freefile If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Search irs gov freefile As a casualty loss. Search irs gov freefile As an ordinary loss. Search irs gov freefile As a nonbusiness bad debt. Search irs gov freefile Casualty loss or ordinary loss. Search irs gov freefile   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. Search irs gov freefile The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Search irs gov freefile 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. Search irs gov freefile 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. Search irs gov freefile Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Search irs gov freefile   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Search irs gov freefile The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Search irs gov freefile Your loss is subject to the 2%-of-adjusted-gross-income limit. Search irs gov freefile You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Search irs gov freefile Nonbusiness bad debt. Search irs gov freefile   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. Search irs gov freefile How to report. Search irs gov freefile   The kind of deduction you choose for your loss on deposits determines how you report your loss. Search irs gov freefile If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Search irs gov freefile Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Search irs gov freefile Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Search irs gov freefile More information. Search irs gov freefile   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Search irs gov freefile Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Search irs gov freefile You also must be able to support the amount you take as a deduction. Search irs gov freefile Casualty loss proof. Search irs gov freefile   For a casualty loss, your records should show all the following. Search irs gov freefile The type of casualty (car accident, fire, storm, etc. Search irs gov freefile ) and when it occurred. Search irs gov freefile That the loss was a direct result of the casualty. Search irs gov freefile 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. Search irs gov freefile Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Search irs gov freefile Theft loss proof. Search irs gov freefile   For a theft loss, your records should show all the following. Search irs gov freefile When you discovered that your property was missing. Search irs gov freefile That your property was stolen. Search irs gov freefile That you were the owner of the property. Search irs gov freefile Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Search irs gov freefile It is important that you have records that will prove your deduction. Search irs gov freefile If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Search irs gov freefile Figuring a Loss Figure the amount of your loss using the following steps. Search irs gov freefile Determine your adjusted basis in the property before the casualty or theft. Search irs gov freefile Determine the decrease in fair market value of the property as a result of the casualty or theft. Search irs gov freefile From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Search irs gov freefile 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. Search irs gov freefile Gain from reimbursement. Search irs gov freefile   If your reimbursement is more than your adjusted basis in the property, you have a gain. Search irs gov freefile This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Search irs gov freefile If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Search irs gov freefile See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Search irs gov freefile Leased property. Search irs gov freefile   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. Search irs gov freefile 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. Search irs gov freefile 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. Search irs gov freefile FMV of stolen property. Search irs gov freefile   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Search irs gov freefile Example. Search irs gov freefile Several years ago, you purchased silver dollars at face value for $150. Search irs gov freefile This is your adjusted basis in the property. Search irs gov freefile Your silver dollars were stolen this year. Search irs gov freefile The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Search irs gov freefile Your theft loss is $150. Search irs gov freefile Recovered stolen property. Search irs gov freefile   Recovered stolen property is your property that was stolen and later returned to you. Search irs gov freefile 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. Search irs gov freefile Use this amount to refigure your total loss for the year in which the loss was deducted. Search irs gov freefile   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Search irs gov freefile But report the difference only up to the amount of the loss that reduced your tax. Search irs gov freefile For more information on the amount to report, see Recoveries in chapter 12. Search irs gov freefile 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. Search irs gov freefile However, other measures can also be used to establish certain decreases. Search irs gov freefile Appraisal. Search irs gov freefile   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. Search irs gov freefile The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Search irs gov freefile This information is needed to limit any deduction to the actual loss resulting from damage to the property. Search irs gov freefile   Several factors are important in evaluating the accuracy of an appraisal, including the following. Search irs gov freefile The appraiser's familiarity with your property before and after the casualty or theft. Search irs gov freefile The appraiser's knowledge of sales of comparable property in the area. Search irs gov freefile The appraiser's knowledge of conditions in the area of the casualty. Search irs gov freefile The appraiser's method of appraisal. Search irs gov freefile    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. Search irs gov freefile For more information on disasters, see Disaster Area Losses, in Pub. Search irs gov freefile 547. Search irs gov freefile Cost of cleaning up or making repairs. Search irs gov freefile   The cost of repairing damaged property is not part of a casualty loss. Search irs gov freefile Neither is the cost of cleaning up after a casualty. Search irs gov freefile 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. Search irs gov freefile The repairs are actually made. Search irs gov freefile The repairs are necessary to bring the property back to its condition before the casualty. Search irs gov freefile The amount spent for repairs is not excessive. Search irs gov freefile The repairs take care of the damage only. Search irs gov freefile The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Search irs gov freefile Landscaping. Search irs gov freefile   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Search irs gov freefile You may be able to measure your loss by what you spend on the following. Search irs gov freefile Removing destroyed or damaged trees and shrubs minus any salvage you receive. Search irs gov freefile Pruning and other measures taken to preserve damaged trees and shrubs. Search irs gov freefile Replanting necessary to restore the property to its approximate value before the casualty. Search irs gov freefile Car value. Search irs gov freefile    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Search irs gov freefile You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Search irs gov freefile 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. Search irs gov freefile If your car is not listed in the books, determine its value from other sources. Search irs gov freefile A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Search irs gov freefile 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. Search irs gov freefile Cost of protection. Search irs gov freefile   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Search irs gov freefile The amount you spend on insurance or to board up your house against a storm is not part of your loss. Search irs gov freefile   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. Search irs gov freefile An example would be the cost of a dike to prevent flooding. Search irs gov freefile Exception. Search irs gov freefile   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. Search irs gov freefile See Disaster Area Losses in Publication 547. Search irs gov freefile Incidental expenses. Search irs gov freefile   Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Search irs gov freefile Replacement cost. Search irs gov freefile   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Search irs gov freefile Sentimental value. Search irs gov freefile   Do not consider sentimental value when determining your loss. Search irs gov freefile 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. Search irs gov freefile Decline in market value of property in or near casualty area. Search irs gov freefile   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. Search irs gov freefile You have a loss only for actual casualty damage to your property. Search irs gov freefile However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Search irs gov freefile Costs of photographs and appraisals. Search irs gov freefile    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Search irs gov freefile Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Search irs gov freefile    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Search irs gov freefile See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Search irs gov freefile   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. Search irs gov freefile You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Search irs gov freefile For information about miscellaneous deductions, see chapter 28. Search irs gov freefile Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Search irs gov freefile For more information, see chapter 13. Search irs gov freefile Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Search irs gov freefile You do not have a casualty or theft loss to the extent you are reimbursed. Search irs gov freefile If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Search irs gov freefile You must reduce your loss even if you do not receive payment until a later tax year. Search irs gov freefile See Reimbursement Received After Deducting Loss , later. Search irs gov freefile Failure to file a claim for reimbursement. Search irs gov freefile   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Search irs gov freefile Otherwise, you cannot deduct this loss as a casualty or theft loss. Search irs gov freefile However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Search irs gov freefile Example. Search irs gov freefile You have a car insurance policy with a $1,000 deductible. Search irs gov freefile Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Search irs gov freefile This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Search irs gov freefile Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Search irs gov freefile Other types of reimbursements are discussed next. Search irs gov freefile Also see the Instructions for Form 4684. Search irs gov freefile Employer's emergency disaster fund. Search irs gov freefile   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. Search irs gov freefile Take into consideration only the amount you used to replace your destroyed or damaged property. Search irs gov freefile Example. Search irs gov freefile Your home was extensively damaged by a tornado. Search irs gov freefile Your loss after reimbursement from your insurance company was $10,000. Search irs gov freefile Your employer set up a disaster relief fund for its employees. Search irs gov freefile Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Search irs gov freefile You received $4,000 from the fund and spent the entire amount on repairs to your home. Search irs gov freefile In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Search irs gov freefile Your casualty loss before applying the deduction limits discussed later is $6,000. Search irs gov freefile Cash gifts. Search irs gov freefile   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. Search irs gov freefile This applies even if you use the money to pay for repairs to property damaged in the disaster. Search irs gov freefile Example. Search irs gov freefile Your home was damaged by a hurricane. Search irs gov freefile Relatives and neighbors made cash gifts to you that were excludable from your income. Search irs gov freefile You used part of the cash gifts to pay for repairs to your home. Search irs gov freefile There were no limits or restrictions on how you could use the cash gifts. Search irs gov freefile Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Search irs gov freefile Insurance payments for living expenses. Search irs gov freefile   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Search irs gov freefile You lose the use of your main home because of a casualty. Search irs gov freefile Government authorities do not allow you access to your main home because of a casualty or threat of one. Search irs gov freefile Inclusion in income. Search irs gov freefile   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Search irs gov freefile Report this amount on Form 1040, line 21. Search irs gov freefile However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Search irs gov freefile See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Search irs gov freefile   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. Search irs gov freefile Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Search irs gov freefile Generally, these expenses include the amounts you pay for the following. Search irs gov freefile Rent for suitable housing. Search irs gov freefile Transportation. Search irs gov freefile Food. Search irs gov freefile Utilities. Search irs gov freefile Miscellaneous services. Search irs gov freefile 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. Search irs gov freefile Example. Search irs gov freefile As a result of a fire, you vacated your apartment for a month and moved to a motel. Search irs gov freefile You normally pay $525 a month for rent. Search irs gov freefile None was charged for the month the apartment was vacated. Search irs gov freefile Your motel rent for this month was $1,200. Search irs gov freefile You normally pay $200 a month for food. Search irs gov freefile Your food expenses for the month you lived in the motel were $400. Search irs gov freefile You received $1,100 from your insurance company to cover your living expenses. Search irs gov freefile You determine the payment you must include in income as follows. Search irs gov freefile 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Search irs gov freefile   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. Search irs gov freefile Example. Search irs gov freefile Your main home was destroyed by a tornado in August 2011. Search irs gov freefile You regained use of your home in November 2012. Search irs gov freefile The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Search irs gov freefile You include this amount in income on your 2012 Form 1040. Search irs gov freefile 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. Search irs gov freefile Disaster relief. Search irs gov freefile   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. Search irs gov freefile Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Search irs gov freefile For more information, see Disaster Area Losses in Publication 547. Search irs gov freefile Disaster unemployment assistance payments are unemployment benefits that are taxable. Search irs gov freefile Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Search irs gov freefile Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Search irs gov freefile See Disaster Area Losses in Publication 547. Search irs gov freefile Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Search irs gov freefile This section explains the adjustment you may have to make. Search irs gov freefile Actual reimbursement less than expected. Search irs gov freefile   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. Search irs gov freefile Example. Search irs gov freefile Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Search irs gov freefile The accident was due to the negligence of the other driver. Search irs gov freefile At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Search irs gov freefile You did not have a deductible loss in 2012. Search irs gov freefile In January 2013, the court awarded you a judgment of $2,000. Search irs gov freefile However, in July it became apparent that you will be unable to collect any amount from the other driver. Search irs gov freefile You can deduct the loss in 2013 subject to the limits discussed later. Search irs gov freefile Actual reimbursement more than expected. Search irs gov freefile   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Search irs gov freefile 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. Search irs gov freefile You do not refigure your tax for the year you claimed the deduction. Search irs gov freefile For more information, see Recoveries in chapter 12. Search irs gov freefile 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. Search irs gov freefile 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. Search irs gov freefile Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Search irs gov freefile See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Search irs gov freefile Actual reimbursement same as expected. Search irs gov freefile   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. Search irs gov freefile Example. Search irs gov freefile In December 2013, you had a collision while driving your personal car. Search irs gov freefile Repairs to the car cost $950. Search irs gov freefile You had $100 deductible collision insurance. Search irs gov freefile Your insurance company agreed to reimburse you for the rest of the damage. Search irs gov freefile Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Search irs gov freefile Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Search irs gov freefile When you receive the $850 from the insurance company in 2014, do not report it as income. Search irs gov freefile Single Casualty on Multiple Properties Personal property. Search irs gov freefile   Personal property is any property that is not real property. Search irs gov freefile 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. Search irs gov freefile Then combine these separate losses to figure the total loss from that casualty or theft. Search irs gov freefile Example. Search irs gov freefile A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Search irs gov freefile You did not have fire insurance to cover your loss. Search irs gov freefile (This was the only casualty or theft you had during the year. Search irs gov freefile ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Search irs gov freefile The rug cost $3,000 and had an FMV of $2,500 just before the fire. Search irs gov freefile You bought the table at an auction for $100 before discovering it was an antique. Search irs gov freefile It had been appraised at $900 before the fire. Search irs gov freefile You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Search irs gov freefile   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Search irs gov freefile Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Search irs gov freefile Example. Search irs gov freefile You bought your home a few years ago. Search irs gov freefile You paid $160,000 ($20,000 for the land and $140,000 for the house). Search irs gov freefile You also spent $2,000 for landscaping. Search irs gov freefile This year a fire destroyed your home. Search irs gov freefile The fire also damaged the shrubbery and trees in your yard. Search irs gov freefile The fire was your only casualty or theft loss this year. Search irs gov freefile Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Search irs gov freefile (The loss to your household furnishings is not shown in this example. Search irs gov freefile It would be figured separately on each item, as explained earlier under Personal property . Search irs gov freefile ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Search irs gov freefile You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Search irs gov freefile If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Search irs gov freefile You must reduce each casualty or theft loss by $100 ($100 rule). Search irs gov freefile You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Search irs gov freefile You make these reductions on Form 4684. Search irs gov freefile These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Search irs gov freefile For more detailed explanations and examples, see Publication 547. Search irs gov freefile Table 25-1. Search irs gov freefile How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Search irs gov freefile Apply this rule after you have figured the amount of your loss. Search irs gov freefile You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Search irs gov freefile Apply this rule after you reduce each loss by $100 (the $100 rule). Search irs gov freefile Single Event Apply this rule only once, even if many pieces of property are affected. Search irs gov freefile Apply this rule only once, even if many pieces of property are affected. Search irs gov freefile More Than One Event Apply to the loss from each event. Search irs gov freefile Apply to the total of all your losses from all events. Search irs gov freefile More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Search irs gov freefile Apply separately to each person. Search irs gov freefile Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Search irs gov freefile Apply as if you were one person. Search irs gov freefile Filing Separately Apply separately to each spouse. Search irs gov freefile Apply separately to each spouse. Search irs gov freefile More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Search irs gov freefile Apply separately to each owner of jointly owned property. Search irs gov freefile Property used partly for business and partly for personal purposes. Search irs gov freefile   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. Search irs gov freefile You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Search irs gov freefile $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Search irs gov freefile This reduction applies to each total casualty or theft loss. Search irs gov freefile It does not matter how many pieces of property are involved in an event. Search irs gov freefile Only a single $100 reduction applies. Search irs gov freefile Example. Search irs gov freefile A hailstorm damages your home and your car. Search irs gov freefile Determine the amount of loss, as discussed earlier, for each of these items. Search irs gov freefile Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Search irs gov freefile Single event. Search irs gov freefile   Generally, events closely related in origin cause a single casualty. Search irs gov freefile 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. Search irs gov freefile 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. Search irs gov freefile Apply this rule after you reduce each loss by $100. Search irs gov freefile For more information, see the Form 4684 instructions. Search irs gov freefile If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Search irs gov freefile Example 1. Search irs gov freefile In June, you discovered that your house had been burglarized. Search irs gov freefile Your loss after insurance reimbursement was $2,000. Search irs gov freefile Your adjusted gross income for the year you discovered the theft is $29,500. Search irs gov freefile You first apply the $100 rule and then the 10% rule. Search irs gov freefile Figure your theft loss deduction as follows. Search irs gov freefile 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Search irs gov freefile Example 2. Search irs gov freefile In March, you had a car accident that totally destroyed your car. Search irs gov freefile You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Search irs gov freefile Your loss on the car was $1,800. Search irs gov freefile In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Search irs gov freefile Your loss on the basement items after reimbursement was $2,100. Search irs gov freefile Your adjusted gross income for the year that the accident and fire occurred is $25,000. Search irs gov freefile You figure your casualty loss deduction as follows. Search irs gov freefile       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Search irs gov freefile   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Search irs gov freefile 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. Search irs gov freefile Casualty or theft gains do not include gains you choose to postpone. Search irs gov freefile See Publication 547 for information on the postponement of gain. Search irs gov freefile Losses more than gains. Search irs gov freefile   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. Search irs gov freefile The rest, if any, is your deductible loss from personal-use property. Search irs gov freefile Gains more than losses. Search irs gov freefile   If your recognized gains are more than your losses, subtract your losses from your gains. Search irs gov freefile The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Search irs gov freefile The 10% rule does not apply to your gains. Search irs gov freefile When To Report Gains and Losses Gains. Search irs gov freefile   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Search irs gov freefile You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Search irs gov freefile If you have a loss, see Table 25-2 . Search irs gov freefile Table 25-2. Search irs gov freefile When To Deduct a Loss IF you have a loss. Search irs gov freefile . Search irs gov freefile . Search irs gov freefile THEN deduct it in the year. Search irs gov freefile . Search irs gov freefile . Search irs gov freefile from a casualty, the loss occurred. Search irs gov freefile in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Search irs gov freefile from a theft, the theft was discovered. Search irs gov freefile on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Search irs gov freefile • bad debt, deposits are totally worthless. Search irs gov freefile Losses. Search irs gov freefile   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Search irs gov freefile This is true even if you do not repair or replace the damaged property until a later year. Search irs gov freefile   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Search irs gov freefile   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. Search irs gov freefile Loss on deposits. Search irs gov freefile   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Search irs gov freefile Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Search irs gov freefile However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Search irs gov freefile The year the disaster occurred. Search irs gov freefile The year immediately preceding the year the disaster occurred. Search irs gov freefile Gains. Search irs gov freefile    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Search irs gov freefile For those special rules, see Publication 547. Search irs gov freefile Postponed tax deadlines. Search irs gov freefile   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Search irs gov freefile The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Search irs gov freefile   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Search irs gov freefile Go to www. Search irs gov freefile irs. Search irs gov freefile gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Search irs gov freefile Who is eligible. Search irs gov freefile   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Search irs gov freefile Any individual whose main home is located in a covered disaster area (defined next). Search irs gov freefile Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Search irs gov freefile Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Search irs gov freefile 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. Search irs gov freefile The main home or principal place of business does not have to be located in the covered disaster area. Search irs gov freefile 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. Search irs gov freefile The spouse on a joint return with a taxpayer who is eligible for postponements. Search irs gov freefile Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Search irs gov freefile Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Search irs gov freefile Any other person determined by the IRS to be affected by a federally declared disaster. Search irs gov freefile Covered disaster area. Search irs gov freefile   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Search irs gov freefile Abatement of interest and penalties. Search irs gov freefile   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Search irs gov freefile More information. Search irs gov freefile   For more information, see Disaster Area Losses in Publication 547. Search irs gov freefile How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Search irs gov freefile If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Search irs gov freefile Combine the gains and losses on one Form 4684. Search irs gov freefile Follow the form instructions as to which lines to fill out. Search irs gov freefile In addition, you must use the appropriate schedule to report a gain or loss. Search irs gov freefile The schedule you use depends on whether you have a gain or loss. Search irs gov freefile If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Search irs gov freefile   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. Search irs gov freefile Amounts you spend to restore your property after a casualty increase your adjusted basis. Search irs gov freefile See Adjusted Basis in chapter 13 for more information. Search irs gov freefile Net operating loss (NOL). Search irs gov freefile    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Search irs gov freefile You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Search irs gov freefile Or, you can use it to lower your tax in a later year. Search irs gov freefile You do not have to be in business to have an NOL from a casualty or theft loss. Search irs gov freefile For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Search irs gov freefile Prev  Up  Next   Home   More Online Publications

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Search irs gov freefile Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Search irs gov freefile Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Search irs gov freefile Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Search irs gov freefile Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Search irs gov freefile It is intended only as a guide. Search irs gov freefile Look in this publication for more complete information. Search irs gov freefile   Appendix A. Search irs gov freefile Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Search irs gov freefile Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Search irs gov freefile Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Search irs gov freefile Sean enrolled as a full-time graduate student in August 2013 at California State College. Search irs gov freefile He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Search irs gov freefile His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Search irs gov freefile Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Search irs gov freefile In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Search irs gov freefile California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Search irs gov freefile California State College reports amounts billed in 2013 instead of amounts paid during 2013. Search irs gov freefile In completing Form 8863, the Joneses use the amounts they paid. Search irs gov freefile Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Search irs gov freefile Dave and Valerie figure their education credits by completing Form 8863. Search irs gov freefile They begin Form 8863 on page 2 before completing Part I on page 1. Search irs gov freefile Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Search irs gov freefile The Joneses decide to complete Part III for Carey first, as shown later. Search irs gov freefile They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Search irs gov freefile The Joneses complete a separate Part III for their son Sean. Search irs gov freefile They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Search irs gov freefile They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Search irs gov freefile Once they have completed Part III for each student, they figure their credits. Search irs gov freefile The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Search irs gov freefile They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Search irs gov freefile The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Search irs gov freefile They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Search irs gov freefile They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Search irs gov freefile The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Search irs gov freefile The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Search irs gov freefile They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Search irs gov freefile This image is too large to be displayed in the current screen. Search irs gov freefile Please click the link to view the image. Search irs gov freefile Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Search irs gov freefile Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Search irs gov freefile Less adjustments:     a. Search irs gov freefile Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Search irs gov freefile Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Search irs gov freefile Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Search irs gov freefile Total adjustments (add lines 2a, 2b, and 2c) 0 4. Search irs gov freefile Adjusted qualified education expenses. Search irs gov freefile Subtract line 3 from line 1. Search irs gov freefile If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Search irs gov freefile Please click the link to view the image. Search irs gov freefile Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Search irs gov freefile Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Search irs gov freefile Less adjustments:     a. Search irs gov freefile Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Search irs gov freefile Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Search irs gov freefile Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Search irs gov freefile Total adjustments (add lines 2a, 2b, and 2c) 0 4. Search irs gov freefile Adjusted qualified education expenses. Search irs gov freefile Subtract line 3 from line 1. Search irs gov freefile If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Search irs gov freefile Enter the amount from Form 8863, line 18 1. Search irs gov freefile 1,190 2. Search irs gov freefile Enter the amount from Form 8863, line 9 2. Search irs gov freefile 1,500 3. Search irs gov freefile Add lines 1 and 2 3. Search irs gov freefile 2,690 4. Search irs gov freefile Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Search irs gov freefile 1,000 5. Search irs gov freefile Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Search irs gov freefile 0 6. Search irs gov freefile Subtract line 5 from line 4 6. Search irs gov freefile 1,000 7. Search irs gov freefile   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Search irs gov freefile 1,000 This image is too large to be displayed in the current screen. Search irs gov freefile Please click the link to view the image. Search irs gov freefile Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Search irs gov freefile Please click the link to view the image. Search irs gov freefile Carey Jones page 2 This image is too large to be displayed in the current screen. Search irs gov freefile Please click the link to view the image. Search irs gov freefile Filled-in Form 8863 Jones page 2 Appendix B. Search irs gov freefile Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Search irs gov freefile See the text for definitions and details. Search irs gov freefile Do not rely on this chart alone. Search irs gov freefile    Caution:You generally cannot claim more than one benefit for the same education expense. Search irs gov freefile   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Search irs gov freefile    40% of the credit may be refundable (limited to $1,000 per student). Search irs gov freefile Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Search irs gov freefile , that must be paid to the educational institution, etc. Search irs gov freefile , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Search irs gov freefile   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Search irs gov freefile Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Search irs gov freefile For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Search irs gov freefile For each term listed below that has more than one definition, the definition for each education benefit is listed. Search irs gov freefile Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Search irs gov freefile If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Search irs gov freefile Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Search irs gov freefile They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Search irs gov freefile For information on a specific benefit, see the appropriate chapter in this publication. Search irs gov freefile Candidate for a degree:   A student who meets either of the following requirements. Search irs gov freefile Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Search irs gov freefile Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Search irs gov freefile Eligible educational institution:    American opportunity credit. Search irs gov freefile Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Search irs gov freefile It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Search irs gov freefile Coverdell education savings account (ESA). Search irs gov freefile Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Search irs gov freefile It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Search irs gov freefile Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Search irs gov freefile Education savings bond program. Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile IRA, early distributions from. Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile Lifetime learning credit. Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile Qualified tuition program (QTP). Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile Scholarships and fellowships. Search irs gov freefile An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Search irs gov freefile Student loan, cancellation of. Search irs gov freefile Same as Scholarships and fellowships in this category. Search irs gov freefile Student loan interest deduction. Search irs gov freefile Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Search irs gov freefile It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Search irs gov freefile Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Search irs gov freefile Tuition and fees deduction. Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile Eligible student:    American opportunity credit. Search irs gov freefile A student who meets all of the following requirements for the tax year for which the credit is being determined. Search irs gov freefile Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Search irs gov freefile Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Search irs gov freefile For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Search irs gov freefile Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Search irs gov freefile Lifetime learning credit. Search irs gov freefile A student who is enrolled in one or more courses at an eligible educational institution. Search irs gov freefile Student loan interest deduction. Search irs gov freefile A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Search irs gov freefile Tuition and fees deduction. Search irs gov freefile A student who is enrolled in one or more courses at an eligible educational institution. Search irs gov freefile Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Search irs gov freefile Modified adjusted gross income (MAGI):    American opportunity credit. Search irs gov freefile Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Search irs gov freefile Coverdell education savings account (ESA). Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile Education savings bond program. Search irs gov freefile Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Search irs gov freefile Lifetime learning credit. Search irs gov freefile Same as American opportunity credit in this category. Search irs gov freefile Student loan interest deduction. Search irs gov freefile Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Search irs gov freefile Tuition and fees deduction. Search irs gov freefile Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Search irs gov freefile Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Search irs gov freefile Qualified education expenses:   See pertinent chapter for specific items. Search irs gov freefile    American opportunity credit. Search irs gov freefile Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Search irs gov freefile Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Search irs gov freefile Does not include expenses for room and board. Search irs gov freefile Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Search irs gov freefile Coverdell education savings account (ESA). Search irs gov freefile Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Search irs gov freefile Many specialized expenses included for K–12. Search irs gov freefile Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Search irs gov freefile Education savings bond program. Search irs gov freefile Tuition and fees required to enroll at or attend an eligible educational institution. Search irs gov freefile Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Search irs gov freefile Does not include expenses for room and board. Search irs gov freefile Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Search irs gov freefile IRA, early distributions from. Search irs gov freefile Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Search irs gov freefile Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Search irs gov freefile Lifetime learning credit. Search irs gov freefile Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Search irs gov freefile Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Search irs gov freefile Does not include expenses for room and board. Search irs gov freefile Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Search irs gov freefile Qualified tuition program (QTP). Search irs gov freefile Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Search irs gov freefile Includes expenses for special needs services and computer access. Search irs gov freefile Scholarships and fellowships. Search irs gov freefile Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Search irs gov freefile Course-related items must be required of all students in the course of instruction. Search irs gov freefile Student loan interest deduction. Search irs gov freefile Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Search irs gov freefile Tuition and fees deduction. Search irs gov freefile Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Search irs gov freefile Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Search irs gov freefile Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Search irs gov freefile To include as tax on your current year's return an amount allowed as a credit in a prior year. Search irs gov freefile Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Search irs gov freefile Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Search irs gov freefile Prev  Up  Next   Home   More Online Publications