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Taxact free Internal Revenue Bulletin:  2010-9  March 1, 2010  Rev. Taxact free Proc. Taxact free 2010-18 Table of Contents SECTION 1. Taxact free PURPOSE SECTION 2. Taxact free BACKGROUND SECTION 3. Taxact free SCOPE SECTION 4. Taxact free APPLICATION SECTION 5. Taxact free EFFECTIVE DATE SECTION 6. Taxact free DRAFTING INFORMATION SECTION 1. Taxact free PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2010, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2010, including a separate table of inclusion amounts for lessees of trucks and vans. Taxact free The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Taxact free SECTION 2. Taxact free BACKGROUND . Taxact free 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Taxact free Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. Taxact free The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Taxact free This change reflects the higher rate of price inflation for trucks and vans since 1988. Taxact free . Taxact free 02 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Taxact free The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Taxact free Under § 1. Taxact free 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. Taxact free One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Taxact free Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Taxact free SECTION 3. Taxact free SCOPE . Taxact free 01 The limitations on depreciation deductions in section 4. Taxact free 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2010, and continue to apply for each taxable year that the passenger automobile remains in service. Taxact free . Taxact free 02 The tables in section 4. Taxact free 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2010. Taxact free Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Taxact free See Rev. Taxact free Proc. Taxact free 2005-13, 2005-1 C. Taxact free B. Taxact free 759, for passenger automobiles first leased before calendar year 2006; Rev. Taxact free Proc. Taxact free 2006-18, 2006-1 C. Taxact free B. Taxact free 645, for passenger automobiles first leased during calendar year 2006; Rev. Taxact free Proc. Taxact free 2007-30, 2007-1 C. Taxact free B. Taxact free 1104, for passenger automobiles first leased during calendar year 2007; Rev. Taxact free Proc. Taxact free 2008-22, 2008-12 I. Taxact free R. Taxact free B. Taxact free 658, for passenger automobiles first leased during calendar year 2008; and Rev. Taxact free Proc. Taxact free 2009-24, 2009-17 I. Taxact free R. Taxact free B. Taxact free 885, for passenger automobiles first leased during calendar year 2009. Taxact free SECTION 4. Taxact free APPLICATION . Taxact free 01 Limitations on Depreciation Deductions for Certain Automobiles. Taxact free (1) Amount of the inflation adjustment. Taxact free (a) Passenger automobiles (other than trucks or vans). Taxact free Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Taxact free The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Taxact free The new car component of the CPI was 115. Taxact free 2 for October 1987 and 137. Taxact free 851 for October 2009. Taxact free The October 2009 index exceeded the October 1987 index by 22. Taxact free 651. Taxact free Therefore, the automobile price inflation adjustment for 2010 for passenger automobiles (other than trucks and vans) is 19. Taxact free 66 percent (22. Taxact free 651/115. Taxact free 2 x 100%). Taxact free The dollar limitations in § 280F(a) are multiplied by a factor of 0. Taxact free 1966, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2010. Taxact free This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2010. Taxact free (b) Trucks and vans. Taxact free To determine the dollar limitations for trucks and vans first placed in service during calendar year 2010, the new truck component of the CPI is used instead of the new car component. Taxact free The new truck component of the CPI was 112. Taxact free 4 for October 1987 and 140. Taxact free 897 for October 2009. Taxact free The October 2009 index exceeded the October 1987 index by 28. Taxact free 497. Taxact free Therefore, the automobile price inflation adjustment for 2010 for trucks and vans is 25. Taxact free 35 percent (28. Taxact free 497/112. Taxact free 4 x 100%). Taxact free The dollar limitations in § 280F(a) are multiplied by a factor of 0. Taxact free 2535, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Taxact free This adjustment applies to all trucks and vans that are first placed in service in calendar year 2010. Taxact free (2) Amount of the limitation. Taxact free Tables 1 and 2 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2010. Taxact free Use Table 1 for a passenger automobile (other than a truck or van) and Table 2 for a truck or van placed in service in calendar year 2010. Taxact free REV. Taxact free PROC. Taxact free 2010-18 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2010 Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. Taxact free PROC. Taxact free 2010-18 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2010 Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 . Taxact free 02 Inclusions in Income of Lessees of Passenger Automobiles. Taxact free A taxpayer must follow the procedures in § 1. Taxact free 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2010. Taxact free In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 3 of this revenue procedure, while lessees of trucks and vans should use Table 4 of this revenue procedure. Taxact free REV. Taxact free PROC. Taxact free 2010-18 TABLE 3 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2010 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $16,700 $17,000 3 7 10 11 14 17,000 17,500 4 8 13 15 16 17,500 18,000 5 10 16 19 21 18,000 18,500 6 13 18 23 26 18,500 19,000 7 15 22 26 31 19,000 19,500 8 17 25 30 35 19,500 20,000 9 19 29 34 39 20,000 20,500 10 21 32 38 44 20,500 21,000 11 23 35 42 48 21,000 21,500 12 26 38 45 53 21,500 22,000 13 28 41 50 57 22,000 23,000 14 31 46 56 63 23,000 24,000 16 36 52 63 73 24,000 25,000 18 40 59 71 81 25,000 26,000 20 44 66 78 90 26,000 27,000 22 49 71 86 100 27,000 28,000 24 53 78 94 108 28,000 29,000 26 57 85 101 118 29,000 30,000 28 61 92 109 126 30,000 31,000 30 66 97 117 135 31,000 32,000 32 70 104 125 144 32,000 33,000 34 74 111 132 153 33,000 34,000 36 79 117 140 161 34,000 35,000 38 83 123 148 171 35,000 36,000 40 87 130 156 179 36,000 37,000 42 92 136 163 188 37,000 38,000 44 96 143 170 198 38,000 39,000 46 100 149 179 206 39,000 40,000 48 105 155 186 215 40,000 41,000 50 109 162 194 224 41,000 42,000 52 113 169 201 233 42,000 43,000 54 118 174 210 241 43,000 44,000 56 122 181 217 251 44,000 45,000 58 126 188 225 259 45,000 46,000 60 131 194 232 269 46,000 47,000 61 135 201 240 277 47,000 48,000 63 140 207 248 286 48,000 49,000 65 144 213 256 295 49,000 50,000 67 148 220 263 304 50,000 51,000 69 153 226 271 313 51,000 52,000 71 157 232 279 322 52,000 53,000 73 161 239 287 331 53,000 54,000 75 166 245 294 340 54,000 55,000 77 170 252 302 348 55,000 56,000 79 174 258 310 358 56,000 57,000 81 178 265 318 366 57,000 58,000 83 183 271 325 375 58,000 59,000 85 187 278 333 384 59,000 60,000 87 191 284 341 393 60,000 62,000 90 198 294 352 406 62,000 64,000 94 207 306 368 424 64,000 66,000 98 215 320 382 443 66,000 68,000 102 224 332 398 460 68,000 70,000 106 232 346 413 478 70,000 72,000 110 241 358 429 496 72,000 74,000 114 250 371 444 513 74,000 76,000 118 258 384 460 531 76,000 78,000 122 267 396 476 549 78,000 80,000 126 276 409 491 566 80,000 85,000 132 291 432 518 598 85,000 90,000 142 313 464 556 643 90,000 95,000 152 334 497 594 687 95,000 100,000 162 356 528 634 731 100,000 110,000 177 388 577 691 798 110,000 120,000 196 432 641 768 887 120,000 130,000 216 475 705 846 976 130,000 140,000 236 518 770 922 1,065 140,000 150,000 256 561 834 1,000 1,154 150,000 160,000 275 605 898 1,077 1,243 160,000 170,000 295 648 963 1,153 1,333 170,000 180,000 315 691 1,027 1,231 1,421 180,000 190,000 334 735 1,091 1,308 1,510 190,000 200,000 354 778 1,155 1,386 1,599 200,000 210,000 374 821 1,220 1,462 1,688 210,000 220,000 393 865 1,284 1,539 1,777 220,000 230,000 413 908 1,348 1,617 1,866 230,000 240,000 433 951 1,413 1,693 1,956 240,000 and up 453 995 1,476 1,771 2,044 REV. Taxact free PROC. Taxact free 2010-18 TABLE 4 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2010 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later 17,000 17,500 3 6 9 10 11 17,500 18,000 4 8 12 14 16 18,000 18,500 5 10 15 18 21 18,500 19,000 6 12 19 22 24 19,000 19,500 7 15 21 26 29 19,500 20,000 8 17 25 29 34 20,000 20,500 9 19 28 33 38 20,500 21,000 10 21 31 37 43 21,000 21,500 11 23 35 41 47 21,500 22,000 12 25 38 45 51 22,000 23,000 13 29 42 51 58 23,000 24,000 15 33 49 58 67 24,000 25,000 17 37 56 66 76 25,000 26,000 19 42 62 73 85 26,000 27,000 21 46 68 82 93 27,000 28,000 23 50 75 89 103 28,000 29,000 25 55 81 97 111 29,000 30,000 27 59 88 104 121 30,000 31,000 29 63 94 113 129 31,000 32,000 31 68 100 120 138 32,000 33,000 33 72 107 127 148 33,000 34,000 35 76 114 135 156 34,000 35,000 37 81 119 143 165 35,000 36,000 39 85 126 151 174 36,000 37,000 41 89 133 158 183 37,000 38,000 43 94 139 166 191 38,000 39,000 45 98 145 174 201 39,000 40,000 47 102 152 182 209 40,000 41,000 49 106 159 189 218 41,000 42,000 51 111 164 198 227 42,000 43,000 53 115 171 205 236 43,000 44,000 55 119 178 213 245 44,000 45,000 57 124 184 220 254 45,000 46,000 59 128 190 228 263 46,000 47,000 60 133 197 235 272 47,000 48,000 62 137 203 244 280 48,000 49,000 64 142 209 251 290 49,000 50,000 66 146 216 259 298 50,000 51,000 68 150 223 266 308 51,000 52,000 70 154 229 275 316 52,000 53,000 72 159 235 282 325 53,000 54,000 74 163 242 290 334 54,000 55,000 76 167 249 297 343 55,000 56,000 78 172 254 305 352 56,000 57,000 80 176 261 313 361 57,000 58,000 82 180 268 320 370 58,000 59,000 84 185 274 328 378 59,000 60,000 86 189 280 336 388 60,000 62,000 89 195 291 347 401 62,000 64,000 93 204 303 363 418 64,000 66,000 97 213 315 379 436 66,000 68,000 101 221 329 394 454 68,000 70,000 105 230 341 410 472 70,000 72,000 109 239 354 424 490 72,000 74,000 113 247 367 440 508 74,000 76,000 117 256 380 455 526 76,000 78,000 121 264 393 471 543 78,000 80,000 125 273 406 486 561 80,000 85,000 131 289 428 513 592 85,000 90,000 141 310 461 552 636 90,000 95,000 151 332 492 591 681 95,000 100,000 161 353 525 629 726 100,000 110,000 176 386 573 686 793 110,000 120,000 195 430 637 763 882 120,000 130,000 215 473 701 841 971 130,000 140,000 235 516 766 918 1,059 140,000 150,000 255 559 830 995 1,149 150,000 160,000 274 603 894 1,072 1,238 160,000 170,000 294 646 958 1,150 1,326 170,000 180,000 314 689 1,023 1,226 1,416 180,000 190,000 333 733 1,087 1,303 1,505 190,000 200,000 353 776 1,151 1,381 1,594 200,000 210,000 373 819 1,216 1,457 1,683 210,000 220,000 392 863 1,280 1,534 1,772 220,000 230,000 412 906 1,344 1,612 1,861 230,000 240,000 432 949 1,409 1,689 1,949 240,000 and up 452 992 1,473 1,766 2,039 SECTION 5. Taxact free EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2010. Taxact free SECTION 6. Taxact free DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Taxact free Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Taxact free For further information regarding this revenue procedure, contact Mr. Taxact free Harvey at (202) 622-4930 (not a toll-free call). Taxact free Prev  Up  Next   Home   More Internal Revenue Bulletins
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Taxact free 11. Taxact free   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Taxact free Nondeductible losses. Taxact free Family pet. Taxact free Progressive deterioration. Taxact free Decline in market value of stock. Taxact free Mislaid or lost property. Taxact free Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. Taxact free Related persons. Taxact free Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Taxact free Covered disaster area. Taxact free Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Taxact free A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Taxact free A theft occurs when property is stolen. Taxact free A condemnation occurs when private property is legally taken for public use without the owner's consent. Taxact free A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Taxact free You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. Taxact free An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. Taxact free If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. Taxact free For more information, see Postponing Gain , later. Taxact free Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Taxact free Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Taxact free If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. Taxact free Casualty. Taxact free   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Taxact free A sudden event is one that is swift, not gradual or progressive. Taxact free An unexpected event is one that is ordinarily unanticipated and unintended. Taxact free 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. Taxact free Deductible losses. Taxact free   Deductible casualty losses can result from a number of different causes, including the following. Taxact free Airplane crashes. Taxact free Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Taxact free Earthquakes. Taxact free Fires (but see Nondeductible losses next for exceptions). Taxact free Floods. Taxact free Freezing. Taxact free 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. Taxact free Lightning. Taxact free Storms, including hurricanes and tornadoes. Taxact free Terrorist attacks. Taxact free Vandalism. Taxact free Volcanic eruptions. Taxact free Nondeductible losses. Taxact free   A casualty loss is not deductible if the damage or destruction is caused by the following. Taxact free Accidentally breaking articles such as glassware or china under normal conditions. Taxact free A family pet (explained below). Taxact free A fire if you willfully set it, or pay someone else to set it. Taxact free A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Taxact free The same is true if the willful act or willful negligence of someone acting for you caused the accident. Taxact free Progressive deterioration (explained below). Taxact free Family pet. Taxact free   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. Taxact free Example. Taxact free You keep your horse in your yard. Taxact free The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Taxact free Some of the trees were completely girdled and died. Taxact free Because the damage was not unexpected or unusual, the loss is not deductible. Taxact free Progressive deterioration. Taxact free   Loss of property due to progressive deterioration is not deductible as a casualty loss. Taxact free This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Taxact free Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Taxact free However, weather-related conditions or disease may cause another type of involuntary conversion. Taxact free See Other Involuntary Conversions , later. Taxact free Theft. Taxact free   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Taxact free 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. Taxact free You do not need to show a conviction for theft. Taxact free   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Taxact free The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Taxact free Decline in market value of stock. Taxact free   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. Taxact free 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. Taxact free You report a capital loss on Schedule D (Form 1040). Taxact free For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Taxact free Mislaid or lost property. Taxact free   The simple disappearance of money or property is not a theft. Taxact free 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. Taxact free Example. Taxact free A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Taxact free The diamond falls from the ring and is never found. Taxact free The loss of the diamond is a casualty. Taxact free Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Taxact free The following is a discussion of some losses you can deduct and some you cannot deduct. Taxact free Livestock or produce bought for resale. Taxact free   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Taxact free If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. Taxact free You cannot take a separate deduction. Taxact free Livestock, plants, produce, and crops raised for sale. Taxact free   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Taxact free You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Taxact free   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. Taxact free You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Taxact free The uniform capitalization rules are discussed in chapter 6. Taxact free   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. Taxact free You get the deduction by omitting the item from your inventory at the close of your tax year. Taxact free You cannot take a separate casualty or theft deduction. Taxact free Income loss. Taxact free   A loss of future income is not deductible. Taxact free Example. Taxact free A severe flood destroyed your crops. Taxact free Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . Taxact free You estimate that the crop loss will reduce your farm income by $25,000. Taxact free This loss of future income is also not deductible. Taxact free Loss of timber. Taxact free   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Taxact free If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Taxact free See Postponing Gain , later. Taxact free Property used in farming. Taxact free   Casualty and theft losses of property used in your farm business usually result in deductible losses. Taxact free If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. Taxact free See How To Figure a Loss , later. Taxact free Raised draft, breeding, dairy, or sporting animals. Taxact free   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. Taxact free However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. Taxact free You use inventories to determine your income and you included the animals in your inventory. Taxact free You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. Taxact free When you include livestock in inventory, its last inventory value is its basis. Taxact free When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. Taxact free You cannot take a separate deduction. Taxact free How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. Taxact free Farm property. Taxact free   Farm property is the property you use in your farming business. Taxact free If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. Taxact free   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Taxact free However, the deduction limits, discussed later, do not apply to farm property. Taxact free Personal-use property. Taxact free   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. Taxact free The following items are examples of personal-use property: Your main home. Taxact free Furniture and electronics used in your main home and not used in a home office or for business purposes. Taxact free Clothing and jewelry. Taxact free An automobile used for nonbusiness purposes. Taxact free You figure the casualty or theft loss on this property by taking the following steps. Taxact free Determine your adjusted basis in the property before the casualty or theft. Taxact free Determine the decrease in fair market value of the property as a result of the casualty or theft. Taxact free From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Taxact free You must apply the deduction limits, discussed later, to determine your deductible loss. Taxact free    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Taxact free It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Taxact free Adjusted basis. Taxact free   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Taxact free For more information about adjusted basis, see chapter 6. Taxact free Decrease in fair market value (FMV). Taxact free   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Taxact free FMV is defined in chapter 10 under Payments Received or Considered Received . Taxact free Appraisal. Taxact free   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Taxact free But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Taxact free   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. Taxact free The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Taxact free This information is needed to limit any deduction to the actual loss resulting from damage to the property. Taxact free Cost of cleaning up or making repairs. Taxact free   The cost of cleaning up after a casualty is not part of a casualty loss. Taxact free Neither is the cost of repairing damaged property after a casualty. Taxact free 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. Taxact free The repairs are actually made. Taxact free The repairs are necessary to bring the property back to its condition before the casualty. Taxact free The amount spent for repairs is not excessive. Taxact free The repairs fix the damage only. Taxact free The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Taxact free Related expenses. Taxact free   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. Taxact free However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Taxact free Separate computations for more than one item of property. Taxact free   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Taxact free Then combine the losses to determine your total loss. Taxact free    There is an exception to this rule for personal-use real property. Taxact free See Exception for personal-use real property, later. Taxact free Example. Taxact free A fire on your farm damaged a tractor and the barn in which it was stored. Taxact free The tractor had an adjusted basis of $3,300. Taxact free Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Taxact free The barn had an adjusted basis of $28,000. Taxact free Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Taxact free You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Taxact free Figure your deductible casualty loss separately for the two items of property. Taxact free     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. Taxact free   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. Taxact free Figure the loss using the smaller of the following. Taxact free The decrease in FMV of the entire property. Taxact free The adjusted basis of the entire property. Taxact free Example. Taxact free You bought a farm in 1990 for $160,000. Taxact free The adjusted basis of the residential part is now $128,000. Taxact free In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Taxact free The adjusted basis of the residential part includes the $7,500. Taxact free The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Taxact free The trees were not covered by insurance. Taxact free 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. Taxact free   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Taxact free You do not have a casualty or theft loss to the extent you are reimbursed. Taxact free   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Taxact free You must reduce your loss even if you do not receive payment until a later tax year. Taxact free    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. Taxact free You may have to include a portion of these payments in your income. Taxact free See Insurance payments for living expenses in Publication 547 for details. Taxact free Disaster relief. Taxact free   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. Taxact free Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Taxact free   Generally, disaster relief grants received under the Robert T. Taxact free Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Taxact free See Federal disaster relief grants , later, under Disaster Area Losses . Taxact free   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Taxact free See Qualified disaster relief payments , later, under Disaster Area Losses . Taxact free Reimbursement received after deducting loss. Taxact free   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Taxact free Actual reimbursement less than expected. Taxact free   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. Taxact free Actual reimbursement more than expected. Taxact free   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. Taxact free However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Taxact free Do not refigure your tax for the year you claimed the deduction. Taxact free See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Taxact free 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. Taxact free See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. Taxact free Actual reimbursement same as expected. Taxact free   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. Taxact free Lump-sum reimbursement. Taxact free   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. Taxact free Figure the gain or loss separately for each asset that has a separate basis. Taxact free Adjustments to basis. Taxact free   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. Taxact free The result is your adjusted basis in the property. Taxact free Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Taxact free See Adjusted Basis in chapter 6 for more information. Taxact free Example. Taxact free You built a new silo for $25,000. Taxact free This is the basis in your silo because that is the total cost you incurred to build it. Taxact free During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Taxact free In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. Taxact free Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Taxact free Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). Taxact free There are two limits on the deduction for casualty or theft loss of personal-use property. Taxact free You figure these limits on Form 4684. Taxact free $100 rule. Taxact free   You must reduce each casualty or theft loss on personal-use property by $100. Taxact free This rule applies after you have subtracted any reimbursement. Taxact free 10% rule. Taxact free   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Taxact free Apply this rule after you reduce each loss by $100. Taxact free Adjusted gross income is on line 38 of Form 1040. Taxact free Example. Taxact free In June, you discovered that your house had been burglarized. Taxact free Your loss after insurance reimbursement was $2,000. Taxact free Your adjusted gross income for the year you discovered the burglary is $57,000. Taxact free Figure your theft loss deduction as follows: 1. Taxact free Loss after insurance $2,000 2. Taxact free Subtract $100 100 3. Taxact free Loss after $100 rule $1,900 4. Taxact free Subtract 10% (. Taxact free 10) × $57,000 AGI $5,700 5. Taxact free Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). Taxact free    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. Taxact free See 10% Rule in Publication 547. Taxact free When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Taxact free You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Taxact free However, losses in federally declared disaster areas are subject to different rules. Taxact free See Disaster Area Losses , later, for an exception. Taxact free 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. Taxact free Leased property. Taxact free   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. Taxact free This is true even if the loss occurred or the liability was paid in a different year. Taxact free You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Taxact free Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Taxact free Example. Taxact free Robert leased a tractor from First Implement, Inc. Taxact free , for use in his farm business. Taxact free The tractor was destroyed by a tornado in June 2012. Taxact free The loss was not insured. Taxact free First Implement billed Robert for the fair market value of the tractor on the date of the loss. Taxact free Robert disagreed with the bill and refused to pay it. Taxact free First Implement later filed suit in court against Robert. Taxact free In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. Taxact free Robert paid $20,000 in June 2013. Taxact free He can claim the $20,000 as a loss on his 2013 tax return. Taxact free Net operating loss (NOL). Taxact free   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Taxact free An NOL can be carried back or carried forward and deducted from income in other years. Taxact free See Publication 536 for more information on NOLs. Taxact free Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Taxact free You must have records to support the amount you claim for the loss. Taxact free Casualty loss proof. Taxact free   For a casualty loss, your records should show all the following information. Taxact free The type of casualty (car accident, fire, storm, etc. Taxact free ) and when it occurred. Taxact free That the loss was a direct result of the casualty. Taxact free 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. Taxact free Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Taxact free Theft loss proof. Taxact free   For a theft loss, your records should show all the following information. Taxact free When you discovered your property was missing. Taxact free That your property was stolen. Taxact free That you were the owner of the property. Taxact free Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Taxact free Figuring a Gain A casualty or theft may result in a taxable gain. Taxact free 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. Taxact free You generally report your gain as income in the year you receive the reimbursement. Taxact free However, depending on the type of property you receive, you may not have to report your gain. Taxact free See Postponing Gain , later. Taxact free Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. Taxact free 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. Taxact free Amount you receive. Taxact free   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Taxact free It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Taxact free Example. Taxact free A tornado severely damaged your barn. Taxact free The adjusted basis of the barn was $25,000. Taxact free Your insurance company reimbursed you $40,000 for the damaged barn. Taxact free However, you had legal expenses of $2,000 to collect that insurance. Taxact free Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Taxact free 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. Taxact free Some of these are discussed in the following paragraphs. Taxact free Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Taxact free You report the gain or deduct the loss on your tax return for the year you realize it. Taxact free However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Taxact free See Postponing Gain , later. Taxact free Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Taxact free The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. Taxact free The owner receives a condemnation award (money or property) in exchange for the property taken. Taxact free A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Taxact free Threat of condemnation. Taxact free   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. Taxact free Main home condemned. Taxact free   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Taxact free For information on this exclusion, see Publication 523. Taxact free 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. Taxact free See Postponing Gain , later. Taxact free (You cannot deduct a loss from the condemnation of your main home. Taxact free ) More information. Taxact free   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Taxact free Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Taxact free Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. Taxact free Livestock Losses Diseased livestock. Taxact free   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. Taxact free If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Taxact free Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Taxact free If you replace the livestock, you may be able to postpone reporting the gain. Taxact free See Postponing Gain below. Taxact free Reporting dispositions of diseased livestock. Taxact free   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. Taxact free You must also include other information on this statement. Taxact free See How To Postpone Gain , later, under Postponing Gain . Taxact free Weather-related sales of livestock. Taxact free   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. Taxact free Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. Taxact free Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Taxact free If you replace the livestock, you may be able to postpone reporting the gain. Taxact free See Postponing Gain below. Taxact free Example. Taxact free It is your usual business practice to sell five of your dairy animals during the year. Taxact free This year you sold 20 dairy animals because of drought. Taxact free The sale of 15 animals is treated as an involuntary conversion. Taxact free    If you do not replace the livestock, you may be able to report the gain in the following year's income. Taxact free This rule also applies to other livestock (including poultry). Taxact free See Sales Caused by Weather-Related Conditions in chapter 3. Taxact free Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. Taxact free Treat the loss as a loss from an involuntary conversion. Taxact free The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Taxact free You deduct the loss on the return for the year the seedlings died. Taxact free Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. Taxact free Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Taxact free You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Taxact free However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. Taxact free If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Taxact free To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Taxact free 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. Taxact free Example 1. Taxact free In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Taxact free In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Taxact free In May of this year, the property was worth $100,000. Taxact free In June the barn and silo were destroyed by a tornado. Taxact free At the time of the tornado, you had an adjusted basis of $0 in the property. Taxact free You received $85,000 from the insurance company. Taxact free You had a gain of $85,000 ($85,000 – $0). Taxact free You spent $80,000 to rebuild the barn and silo. Taxact free Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Taxact free Example 2. Taxact free In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Taxact free You made no further improvements or additions to it. Taxact free When a storm destroyed the cabin this January, the cabin was worth $250,000. Taxact free You received $146,000 from the insurance company in March. Taxact free You had a gain of $128,000 ($146,000 − $18,000). Taxact free You spent $144,000 to rebuild the cabin. Taxact free Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Taxact free Buying replacement property from a related person. Taxact free   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). Taxact free This rule applies to the following taxpayers. Taxact free C corporations. Taxact free Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Taxact free Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. Taxact free For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Taxact free If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Taxact free If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Taxact free Exception. Taxact free   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. Taxact free Related persons. Taxact free   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. Taxact free For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Taxact free Death of a taxpayer. Taxact free   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. Taxact free The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. Taxact free Replacement Property You must buy replacement property for the specific purpose of replacing your property. Taxact free Your replacement property must be similar or related in service or use to the property it replaces. Taxact free You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Taxact free If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. Taxact free Property you acquire by gift or inheritance does not qualify as replacement property. Taxact free Owner-user. Taxact free   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Taxact free Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. Taxact free A grinding mill that replaces a tractor does not qualify. Taxact free Neither does a breeding or draft animal that replaces a dairy cow. Taxact free Soil or other environmental contamination. Taxact free   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. Taxact free Weather-related conditions. Taxact free   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. Taxact free Example. Taxact free Each year you normally sell 25 cows from your beef herd. Taxact free However, this year you had to sell 50 cows. Taxact free This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. Taxact free Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. Taxact free Standing crop destroyed by casualty. Taxact free   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. Taxact free The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). Taxact free In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. Taxact free Timber loss. Taxact free   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. Taxact free If you bought the standing timber within the replacement period, you can postpone reporting the gain. Taxact free Business or income-producing property located in a federally declared disaster area. Taxact free   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. Taxact free For more information, see Disaster Area Losses in Publication 547. Taxact free Substituting replacement property. Taxact free   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. Taxact free This is true even if you acquire the other property within the replacement period. Taxact free However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. Taxact free Basis of replacement property. Taxact free   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Taxact free In this way, tax on the gain is postponed until you dispose of the replacement property. Taxact free Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Taxact free This is the replacement period. Taxact free The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Taxact free The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Taxact free Example. Taxact free You are a calendar year taxpayer. Taxact free While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Taxact free You discovered the theft when you returned to your farm on November 11, 2012. Taxact free Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Taxact free You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Taxact free Main home in disaster area. Taxact free   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Taxact free See Disaster Area Losses , later. Taxact free Property in the Midwestern disaster areas. Taxact free   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Taxact free This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Taxact free Property in the Kansas disaster area. Taxact free   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Taxact free This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Taxact free Property in the Hurricane Katrina disaster area. Taxact free   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Taxact free This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Taxact free Weather-related sales of livestock in an area eligible for federal assistance. Taxact free   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Taxact free The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Taxact free   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Taxact free R. Taxact free B. Taxact free 529, available at  www. Taxact free irs. Taxact free gov/irb/2006-39_IRB/ar11. Taxact free html. Taxact free For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. Taxact free gov. Taxact free Condemnation. Taxact free   The replacement period for a condemnation begins on the earlier of the following dates. Taxact free The date on which you disposed of the condemned property. Taxact free The date on which the threat of condemnation began. Taxact free The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Taxact free But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. Taxact free Business or investment real property. Taxact free   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Taxact free Extension. Taxact free   You can apply for an extension of the replacement period. Taxact free Send your written application to the Internal Revenue Service Center where you file your tax return. Taxact free See your tax return instructions for the address. Taxact free Include all the details about your need for an extension. Taxact free Make your application before the end of the replacement period. Taxact free However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. Taxact free You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Taxact free How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Taxact free You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Taxact free Required statement. Taxact free   You should attach a statement to your return for the year you have the gain. Taxact free This statement should include all the following information. Taxact free The date and details of the casualty, theft, or other involuntary conversion. Taxact free The insurance or other reimbursement you received. Taxact free How you figured the gain. Taxact free Replacement property acquired before return filed. Taxact free   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. Taxact free The replacement property. Taxact free The postponed gain. Taxact free The basis adjustment that reflects the postponed gain. Taxact free Any gain you are reporting as income. Taxact free Replacement property acquired after return filed. Taxact free   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. Taxact free   You should then attach another statement to your return for the year in which you buy the replacement property. Taxact free This statement should contain detailed information on the replacement property. Taxact free If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. Taxact free Include in the statement detailed information on the replacement property bought in that year. Taxact free Reporting weather-related sales of livestock. Taxact free   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. Taxact free Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Taxact free The gain realized on the sale or exchange. Taxact free The number and kind of livestock sold or exchanged. Taxact free The number of livestock of each kind you would have sold or exchanged under your usual business practice. Taxact free   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Taxact free The dates you bought the replacement property. Taxact free The cost of the replacement property. Taxact free Description of the replacement property (for example, the number and kind of the replacement livestock). Taxact free Amended return. Taxact free   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Taxact free You do not acquire replacement property within the replacement period, plus extensions. Taxact free On this amended return, you must report the gain and pay any additional tax due. Taxact free You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. Taxact free On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Taxact free Disaster Area Losses Special rules apply to federally declared disaster area losses. Taxact free A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Taxact free Stafford Disaster Relief and Emergency Assistance Act. Taxact free It includes a major disaster or emergency declaration under the act. Taxact free A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. Taxact free fema. Taxact free gov. Taxact free This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Taxact free For other special rules, see Disaster Area Losses in Publication 547. Taxact free When to deduct the loss. Taxact free   You generally must deduct a casualty loss in the year it occurred. Taxact free However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. Taxact free If you make this choice, the loss is treated as having occurred in the preceding year. Taxact free    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. Taxact free   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Taxact free The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Taxact free The due date (with extensions) for the return for the preceding tax year. Taxact free Federal disaster relief grants. Taxact free   Do not include post-disaster relief grants received under the Robert T. Taxact free Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Taxact free Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Taxact free If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. Taxact free Unemployment assistance payments under the Act are taxable unemployment compensation. Taxact free Qualified disaster relief payments. Taxact free   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. Taxact free These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Taxact free No withholding applies to these payments. Taxact free   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Taxact free Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Taxact free Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Taxact free (A personal residence can be a rented residence or one you own. Taxact free ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Taxact free   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. Taxact free    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Taxact free Qualified disaster mitigation payments. Taxact free   Qualified disaster mitigation payments made under the Robert T. Taxact free Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. Taxact free These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Taxact free You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Taxact free Sale of property under hazard mitigation program. Taxact free   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. Taxact free You report the gain or deduct the loss on your tax return for the year you realize it. Taxact free (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Taxact free ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. Taxact free See Postponing Gain , earlier, for the rules that apply. Taxact free Other federal assistance programs. Taxact free    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Taxact free Postponed tax deadlines. Taxact free   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Taxact free The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. Taxact free   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Taxact free Go to http://www. Taxact free irs. Taxact free gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Taxact free Who is eligible. Taxact free   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Taxact free Any individual whose main home is located in a covered disaster area (defined next). Taxact free Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Taxact free Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Taxact free 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. Taxact free The main home or principal place of business does not have to be located in the covered disaster area. Taxact free 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. Taxact free The spouse on a joint return with a taxpayer who is eligible for postponements. Taxact free Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. Taxact free Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Taxact free Any other person determined by the IRS to be affected by a federally declared disaster. Taxact free Covered disaster area. Taxact free   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. Taxact free Abatement of interest and penalties. Taxact free   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Taxact free Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. Taxact free Form 4684. Taxact free   Use this form to report your gains and losses from casualties and thefts. Taxact free Form 4797. Taxact free   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Taxact free Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. Taxact free Form 8949. Taxact free   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Taxact free Schedule A (Form 1040). Taxact free   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. Taxact free Schedule D (Form 1040). Taxact free   Use this form to carry over the following gains. Taxact free Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Taxact free Net gain shown on Form 4684 from the casualty or theft of personal-use property. Taxact free    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Taxact free Schedule F (Form 1040). Taxact free   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. Taxact free Prev  Up  Next   Home   More Online Publications