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Www irs gov efile 25. Www irs gov efile   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Www irs gov efile Progressive deterioration. Www irs gov efile Damage from corrosive drywall. Www irs gov efile 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. Www irs gov efile  Section C of Form 4684 is new for 2013. Www irs gov efile 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. Www irs gov efile Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Www irs gov efile You do not need to complete Appendix A. Www irs gov efile For details, see Losses from Ponzi-type investment schemes , in this chapter. Www irs gov efile Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Www irs gov efile The chapter also explains the following  topics. Www irs gov efile How to figure the amount of your loss. Www irs gov efile How to treat insurance and other reimbursements you receive. Www irs gov efile The deduction limits. Www irs gov efile When and how to report a casualty or theft. Www irs gov efile Forms to file. Www irs gov efile    When you have a casualty or theft, you have to file Form 4684. Www irs gov efile You will also have to file one or more of the following forms. Www irs gov efile Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Www irs gov efile   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Www irs gov efile Workbook for casualties and thefts. Www irs gov efile    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Www irs gov efile It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Www irs gov efile Business or investment-related losses. Www irs gov efile   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Www irs gov efile 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. Www irs gov efile A sudden event is one that is swift, not gradual or progressive. Www irs gov efile An unexpected event is one that is ordinarily unanticipated and unintended. Www irs gov efile 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. Www irs gov efile Deductible losses. Www irs gov efile   Deductible casualty losses can result from a number of different causes, including the following. Www irs gov efile Car accidents (but see Nondeductible losses , next, for exceptions). Www irs gov efile Earthquakes. Www irs gov efile Fires (but see Nondeductible losses , next, for exceptions). Www irs gov efile Floods. Www irs gov efile 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. Www irs gov efile Mine cave-ins. Www irs gov efile Shipwrecks. Www irs gov efile Sonic booms. Www irs gov efile Storms, including hurricanes and tornadoes. Www irs gov efile Terrorist attacks. Www irs gov efile Vandalism. Www irs gov efile Volcanic eruptions. Www irs gov efile Nondeductible losses. Www irs gov efile   A casualty loss is not deductible if the damage or destruction is caused by the following. Www irs gov efile Accidentally breaking articles such as glassware or china under normal conditions. Www irs gov efile A family pet (explained below). Www irs gov efile A fire if you willfully set it or pay someone else to set it. Www irs gov efile A car accident if your willful negligence or willful act caused it. Www irs gov efile The same is true if the willful act or willful negligence of someone acting for you caused the accident. Www irs gov efile Progressive deterioration (explained later). Www irs gov efile Family pet. Www irs gov efile   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. Www irs gov efile Example. Www irs gov efile Your antique oriental rug was damaged by your new puppy before it was housebroken. Www irs gov efile Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Www irs gov efile Progressive deterioration. Www irs gov efile    Loss of property due to progressive deterioration is not deductible as a casualty loss. Www irs gov efile This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Www irs gov efile The following are examples of damage due to progressive deterioration. Www irs gov efile The steady weakening of a building due to normal wind and weather conditions. Www irs gov efile The deterioration and damage to a water heater that bursts. Www irs gov efile However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Www irs gov efile Most losses of property caused by droughts. Www irs gov efile To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Www irs gov efile Termite or moth damage. Www irs gov efile The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Www irs gov efile However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Www irs gov efile Damage from corrosive drywall. Www irs gov efile   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. Www irs gov efile For details, see Publication 547. Www irs gov efile Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Www irs gov efile 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. Www irs gov efile You do not need to show a conviction for theft. Www irs gov efile Theft includes the taking of money or property by the following means. Www irs gov efile Blackmail. Www irs gov efile Burglary. Www irs gov efile Embezzlement. Www irs gov efile Extortion. Www irs gov efile Kidnapping for ransom. Www irs gov efile Larceny. Www irs gov efile Robbery. Www irs gov efile The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Www irs gov efile Decline in market value of stock. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile You report a capital loss on Schedule D (Form 1040). Www irs gov efile For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Www irs gov efile Mislaid or lost property. Www irs gov efile   The simple disappearance of money or property is not a theft. Www irs gov efile 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. Www irs gov efile Sudden, unexpected, and unusual events are defined earlier. Www irs gov efile Example. Www irs gov efile A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Www irs gov efile The diamond falls from the ring and is never found. Www irs gov efile The loss of the diamond is a casualty. Www irs gov efile Losses from Ponzi-type investment schemes. Www irs gov efile   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Www irs gov efile R. Www irs gov efile B. Www irs gov efile 735 (available at www. Www irs gov efile irs. Www irs gov efile gov/irb/2009-14_IRB/ar07. Www irs gov efile html). Www irs gov efile Revenue Procedure 2009-20, 2009-14 I. Www irs gov efile R. Www irs gov efile B. Www irs gov efile 749 (available at www. Www irs gov efile irs. Www irs gov efile gov/irb/2009-14_IRB/ar11. Www irs gov efile html). Www irs gov efile Revenue Procedure 2011-58, 2011-50 I. Www irs gov efile R. Www irs gov efile B. Www irs gov efile 849 (available at www. Www irs gov efile irs. Www irs gov efile gov/irb/2011-50_IRB/ar11. Www irs gov efile html). Www irs gov efile 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. Www irs gov efile Skip lines 19 to 27. Www irs gov efile Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Www irs gov efile You do not need to complete Appendix A. Www irs gov efile For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Www irs gov efile   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. Www irs gov efile Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Www irs gov efile If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Www irs gov efile As a casualty loss. Www irs gov efile As an ordinary loss. Www irs gov efile As a nonbusiness bad debt. Www irs gov efile Casualty loss or ordinary loss. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Www irs gov efile   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Www irs gov efile The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Www irs gov efile Your loss is subject to the 2%-of-adjusted-gross-income limit. Www irs gov efile You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Www irs gov efile Nonbusiness bad debt. Www irs gov efile   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. Www irs gov efile How to report. Www irs gov efile   The kind of deduction you choose for your loss on deposits determines how you report your loss. Www irs gov efile If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Www irs gov efile Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Www irs gov efile Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Www irs gov efile More information. Www irs gov efile   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. Www irs gov efile Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Www irs gov efile You also must be able to support the amount you take as a deduction. Www irs gov efile Casualty loss proof. Www irs gov efile   For a casualty loss, your records should show all the following. Www irs gov efile The type of casualty (car accident, fire, storm, etc. Www irs gov efile ) and when it occurred. Www irs gov efile That the loss was a direct result of the casualty. Www irs gov efile 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. Www irs gov efile Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Www irs gov efile Theft loss proof. Www irs gov efile   For a theft loss, your records should show all the following. Www irs gov efile When you discovered that your property was missing. Www irs gov efile That your property was stolen. Www irs gov efile That you were the owner of the property. Www irs gov efile Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Www irs gov efile It is important that you have records that will prove your deduction. Www irs gov efile If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Www irs gov efile Figuring a Loss Figure the amount of your loss using the following steps. Www irs gov efile Determine your adjusted basis in the property before the casualty or theft. Www irs gov efile Determine the decrease in fair market value of the property as a result of the casualty or theft. Www irs gov efile From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Www irs gov efile 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. Www irs gov efile Gain from reimbursement. Www irs gov efile   If your reimbursement is more than your adjusted basis in the property, you have a gain. Www irs gov efile This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Www irs gov efile If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Www irs gov efile See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Www irs gov efile Leased property. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile FMV of stolen property. Www irs gov efile   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Www irs gov efile Example. Www irs gov efile Several years ago, you purchased silver dollars at face value for $150. Www irs gov efile This is your adjusted basis in the property. Www irs gov efile Your silver dollars were stolen this year. Www irs gov efile The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Www irs gov efile Your theft loss is $150. Www irs gov efile Recovered stolen property. Www irs gov efile   Recovered stolen property is your property that was stolen and later returned to you. Www irs gov efile 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. Www irs gov efile Use this amount to refigure your total loss for the year in which the loss was deducted. Www irs gov efile   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Www irs gov efile But report the difference only up to the amount of the loss that reduced your tax. Www irs gov efile For more information on the amount to report, see Recoveries in chapter 12. Www irs gov efile 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. Www irs gov efile However, other measures can also be used to establish certain decreases. Www irs gov efile Appraisal. Www irs gov efile   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. Www irs gov efile The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Www irs gov efile This information is needed to limit any deduction to the actual loss resulting from damage to the property. Www irs gov efile   Several factors are important in evaluating the accuracy of an appraisal, including the following. Www irs gov efile The appraiser's familiarity with your property before and after the casualty or theft. Www irs gov efile The appraiser's knowledge of sales of comparable property in the area. Www irs gov efile The appraiser's knowledge of conditions in the area of the casualty. Www irs gov efile The appraiser's method of appraisal. Www irs gov efile    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. Www irs gov efile For more information on disasters, see Disaster Area Losses, in Pub. Www irs gov efile 547. Www irs gov efile Cost of cleaning up or making repairs. Www irs gov efile   The cost of repairing damaged property is not part of a casualty loss. Www irs gov efile Neither is the cost of cleaning up after a casualty. Www irs gov efile 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. Www irs gov efile The repairs are actually made. Www irs gov efile The repairs are necessary to bring the property back to its condition before the casualty. Www irs gov efile The amount spent for repairs is not excessive. Www irs gov efile The repairs take care of the damage only. Www irs gov efile The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Www irs gov efile Landscaping. Www irs gov efile   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Www irs gov efile You may be able to measure your loss by what you spend on the following. Www irs gov efile Removing destroyed or damaged trees and shrubs minus any salvage you receive. Www irs gov efile Pruning and other measures taken to preserve damaged trees and shrubs. Www irs gov efile Replanting necessary to restore the property to its approximate value before the casualty. Www irs gov efile Car value. Www irs gov efile    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile If your car is not listed in the books, determine its value from other sources. Www irs gov efile A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Www irs gov efile 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. Www irs gov efile Cost of protection. Www irs gov efile   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Www irs gov efile The amount you spend on insurance or to board up your house against a storm is not part of your loss. Www irs gov efile   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. Www irs gov efile An example would be the cost of a dike to prevent flooding. Www irs gov efile Exception. Www irs gov efile   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. Www irs gov efile See Disaster Area Losses in Publication 547. Www irs gov efile Incidental expenses. Www irs gov efile   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. Www irs gov efile Replacement cost. Www irs gov efile   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Www irs gov efile Sentimental value. Www irs gov efile   Do not consider sentimental value when determining your loss. Www irs gov efile 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. Www irs gov efile Decline in market value of property in or near casualty area. Www irs gov efile   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. Www irs gov efile You have a loss only for actual casualty damage to your property. Www irs gov efile However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Www irs gov efile Costs of photographs and appraisals. Www irs gov efile    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Www irs gov efile Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Www irs gov efile    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Www irs gov efile See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Www irs gov efile   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. Www irs gov efile You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Www irs gov efile For information about miscellaneous deductions, see chapter 28. Www irs gov efile Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Www irs gov efile For more information, see chapter 13. Www irs gov efile 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. Www irs gov efile You do not have a casualty or theft loss to the extent you are reimbursed. Www irs gov efile If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Www irs gov efile You must reduce your loss even if you do not receive payment until a later tax year. Www irs gov efile See Reimbursement Received After Deducting Loss , later. Www irs gov efile Failure to file a claim for reimbursement. Www irs gov efile   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Www irs gov efile Otherwise, you cannot deduct this loss as a casualty or theft loss. Www irs gov efile However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Www irs gov efile Example. Www irs gov efile You have a car insurance policy with a $1,000 deductible. Www irs gov efile 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). Www irs gov efile This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Www irs gov efile Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Www irs gov efile Other types of reimbursements are discussed next. Www irs gov efile Also see the Instructions for Form 4684. Www irs gov efile Employer's emergency disaster fund. Www irs gov efile   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. Www irs gov efile Take into consideration only the amount you used to replace your destroyed or damaged property. Www irs gov efile Example. Www irs gov efile Your home was extensively damaged by a tornado. Www irs gov efile Your loss after reimbursement from your insurance company was $10,000. Www irs gov efile Your employer set up a disaster relief fund for its employees. Www irs gov efile Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Www irs gov efile You received $4,000 from the fund and spent the entire amount on repairs to your home. Www irs gov efile In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Www irs gov efile Your casualty loss before applying the deduction limits discussed later is $6,000. Www irs gov efile Cash gifts. Www irs gov efile   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. Www irs gov efile This applies even if you use the money to pay for repairs to property damaged in the disaster. Www irs gov efile Example. Www irs gov efile Your home was damaged by a hurricane. Www irs gov efile Relatives and neighbors made cash gifts to you that were excludable from your income. Www irs gov efile You used part of the cash gifts to pay for repairs to your home. Www irs gov efile There were no limits or restrictions on how you could use the cash gifts. Www irs gov efile 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. Www irs gov efile Insurance payments for living expenses. Www irs gov efile   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Www irs gov efile You lose the use of your main home because of a casualty. Www irs gov efile Government authorities do not allow you access to your main home because of a casualty or threat of one. Www irs gov efile Inclusion in income. Www irs gov efile   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Www irs gov efile Report this amount on Form 1040, line 21. Www irs gov efile However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Www irs gov efile See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Www irs gov efile   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. Www irs gov efile Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Www irs gov efile Generally, these expenses include the amounts you pay for the following. Www irs gov efile Rent for suitable housing. Www irs gov efile Transportation. Www irs gov efile Food. Www irs gov efile Utilities. Www irs gov efile Miscellaneous services. Www irs gov efile 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. Www irs gov efile Example. Www irs gov efile As a result of a fire, you vacated your apartment for a month and moved to a motel. Www irs gov efile You normally pay $525 a month for rent. Www irs gov efile None was charged for the month the apartment was vacated. Www irs gov efile Your motel rent for this month was $1,200. Www irs gov efile You normally pay $200 a month for food. Www irs gov efile Your food expenses for the month you lived in the motel were $400. Www irs gov efile You received $1,100 from your insurance company to cover your living expenses. Www irs gov efile You determine the payment you must include in income as follows. Www irs gov efile 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. Www irs gov efile   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. Www irs gov efile Example. Www irs gov efile Your main home was destroyed by a tornado in August 2011. Www irs gov efile You regained use of your home in November 2012. Www irs gov efile The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Www irs gov efile You include this amount in income on your 2012 Form 1040. Www irs gov efile 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. Www irs gov efile Disaster relief. Www irs gov efile   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. Www irs gov efile Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Www irs gov efile For more information, see Disaster Area Losses in Publication 547. Www irs gov efile Disaster unemployment assistance payments are unemployment benefits that are taxable. Www irs gov efile Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Www irs gov efile 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. Www irs gov efile See Disaster Area Losses in Publication 547. Www irs gov efile 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. Www irs gov efile This section explains the adjustment you may have to make. Www irs gov efile Actual reimbursement less than expected. Www irs gov efile   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. Www irs gov efile Example. Www irs gov efile Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Www irs gov efile The accident was due to the negligence of the other driver. Www irs gov efile At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Www irs gov efile You did not have a deductible loss in 2012. Www irs gov efile In January 2013, the court awarded you a judgment of $2,000. Www irs gov efile However, in July it became apparent that you will be unable to collect any amount from the other driver. Www irs gov efile You can deduct the loss in 2013 subject to the limits discussed later. Www irs gov efile Actual reimbursement more than expected. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile You do not refigure your tax for the year you claimed the deduction. Www irs gov efile For more information, see Recoveries in chapter 12. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Www irs gov efile See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Www irs gov efile Actual reimbursement same as expected. Www irs gov efile   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. Www irs gov efile Example. Www irs gov efile In December 2013, you had a collision while driving your personal car. Www irs gov efile Repairs to the car cost $950. Www irs gov efile You had $100 deductible collision insurance. Www irs gov efile Your insurance company agreed to reimburse you for the rest of the damage. Www irs gov efile Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Www irs gov efile Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Www irs gov efile When you receive the $850 from the insurance company in 2014, do not report it as income. Www irs gov efile Single Casualty on Multiple Properties Personal property. Www irs gov efile   Personal property is any property that is not real property. Www irs gov efile 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. Www irs gov efile Then combine these separate losses to figure the total loss from that casualty or theft. Www irs gov efile Example. Www irs gov efile A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Www irs gov efile You did not have fire insurance to cover your loss. Www irs gov efile (This was the only casualty or theft you had during the year. Www irs gov efile ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Www irs gov efile The rug cost $3,000 and had an FMV of $2,500 just before the fire. Www irs gov efile You bought the table at an auction for $100 before discovering it was an antique. Www irs gov efile It had been appraised at $900 before the fire. Www irs gov efile 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. Www irs gov efile   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. Www irs gov efile Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Www irs gov efile Example. Www irs gov efile You bought your home a few years ago. Www irs gov efile You paid $160,000 ($20,000 for the land and $140,000 for the house). Www irs gov efile You also spent $2,000 for landscaping. Www irs gov efile This year a fire destroyed your home. Www irs gov efile The fire also damaged the shrubbery and trees in your yard. Www irs gov efile The fire was your only casualty or theft loss this year. Www irs gov efile Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Www irs gov efile (The loss to your household furnishings is not shown in this example. Www irs gov efile It would be figured separately on each item, as explained earlier under Personal property . Www irs gov efile ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile You must reduce each casualty or theft loss by $100 ($100 rule). Www irs gov efile You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Www irs gov efile You make these reductions on Form 4684. Www irs gov efile These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Www irs gov efile For more detailed explanations and examples, see Publication 547. Www irs gov efile Table 25-1. Www irs gov efile 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. Www irs gov efile Apply this rule after you have figured the amount of your loss. Www irs gov efile You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Www irs gov efile Apply this rule after you reduce each loss by $100 (the $100 rule). Www irs gov efile Single Event Apply this rule only once, even if many pieces of property are affected. Www irs gov efile Apply this rule only once, even if many pieces of property are affected. Www irs gov efile More Than One Event Apply to the loss from each event. Www irs gov efile Apply to the total of all your losses from all events. Www irs gov efile More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Www irs gov efile Apply separately to each person. Www irs gov efile Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Www irs gov efile Apply as if you were one person. Www irs gov efile Filing Separately Apply separately to each spouse. Www irs gov efile Apply separately to each spouse. Www irs gov efile More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Www irs gov efile Apply separately to each owner of jointly owned property. Www irs gov efile Property used partly for business and partly for personal purposes. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Www irs gov efile This reduction applies to each total casualty or theft loss. Www irs gov efile It does not matter how many pieces of property are involved in an event. Www irs gov efile Only a single $100 reduction applies. Www irs gov efile Example. Www irs gov efile A hailstorm damages your home and your car. Www irs gov efile Determine the amount of loss, as discussed earlier, for each of these items. Www irs gov efile Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Www irs gov efile Single event. Www irs gov efile   Generally, events closely related in origin cause a single casualty. Www irs gov efile 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. Www irs gov efile 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. Www irs gov efile Apply this rule after you reduce each loss by $100. Www irs gov efile For more information, see the Form 4684 instructions. Www irs gov efile If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Www irs gov efile Example 1. Www irs gov efile In June, you discovered that your house had been burglarized. Www irs gov efile Your loss after insurance reimbursement was $2,000. Www irs gov efile Your adjusted gross income for the year you discovered the theft is $29,500. Www irs gov efile You first apply the $100 rule and then the 10% rule. Www irs gov efile Figure your theft loss deduction as follows. Www irs gov efile 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). Www irs gov efile Example 2. Www irs gov efile In March, you had a car accident that totally destroyed your car. Www irs gov efile You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Www irs gov efile Your loss on the car was $1,800. Www irs gov efile In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Www irs gov efile Your loss on the basement items after reimbursement was $2,100. Www irs gov efile Your adjusted gross income for the year that the accident and fire occurred is $25,000. Www irs gov efile You figure your casualty loss deduction as follows. Www irs gov efile       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. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile Casualty or theft gains do not include gains you choose to postpone. Www irs gov efile See Publication 547 for information on the postponement of gain. Www irs gov efile Losses more than gains. Www irs gov efile   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. Www irs gov efile The rest, if any, is your deductible loss from personal-use property. Www irs gov efile Gains more than losses. Www irs gov efile   If your recognized gains are more than your losses, subtract your losses from your gains. Www irs gov efile The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Www irs gov efile The 10% rule does not apply to your gains. Www irs gov efile When To Report Gains and Losses Gains. Www irs gov efile   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. Www irs gov efile 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. Www irs gov efile If you have a loss, see Table 25-2 . Www irs gov efile Table 25-2. Www irs gov efile When To Deduct a Loss IF you have a loss. Www irs gov efile . Www irs gov efile . Www irs gov efile THEN deduct it in the year. Www irs gov efile . Www irs gov efile . Www irs gov efile from a casualty, the loss occurred. Www irs gov efile in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Www irs gov efile from a theft, the theft was discovered. Www irs gov efile on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Www irs gov efile • bad debt, deposits are totally worthless. Www irs gov efile Losses. Www irs gov efile   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Www irs gov efile This is true even if you do not repair or replace the damaged property until a later year. Www irs gov efile   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Www irs gov efile   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. Www irs gov efile Loss on deposits. Www irs gov efile   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Www irs gov efile Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Www irs gov efile 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. Www irs gov efile The year the disaster occurred. Www irs gov efile The year immediately preceding the year the disaster occurred. Www irs gov efile Gains. Www irs gov efile    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Www irs gov efile For those special rules, see Publication 547. Www irs gov efile Postponed tax deadlines. Www irs gov efile   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Www irs gov efile 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. Www irs gov efile   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). Www irs gov efile Go to www. Www irs gov efile irs. Www irs gov efile gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Www irs gov efile Who is eligible. Www irs gov efile   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Www irs gov efile Any individual whose main home is located in a covered disaster area (defined next). Www irs gov efile Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Www irs gov efile Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Www irs gov efile 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. Www irs gov efile The main home or principal place of business does not have to be located in the covered disaster area. Www irs gov efile 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. Www irs gov efile The spouse on a joint return with a taxpayer who is eligible for postponements. Www irs gov efile 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. Www irs gov efile Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Www irs gov efile Any other person determined by the IRS to be affected by a federally declared disaster. Www irs gov efile Covered disaster area. Www irs gov efile   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Www irs gov efile Abatement of interest and penalties. Www irs gov efile   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Www irs gov efile More information. Www irs gov efile   For more information, see Disaster Area Losses in Publication 547. Www irs gov efile How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Www irs gov efile If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Www irs gov efile Combine the gains and losses on one Form 4684. Www irs gov efile Follow the form instructions as to which lines to fill out. Www irs gov efile In addition, you must use the appropriate schedule to report a gain or loss. Www irs gov efile The schedule you use depends on whether you have a gain or loss. Www irs gov efile If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Www irs gov efile   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. Www irs gov efile Amounts you spend to restore your property after a casualty increase your adjusted basis. Www irs gov efile See Adjusted Basis in chapter 13 for more information. Www irs gov efile Net operating loss (NOL). Www irs gov efile    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. Www irs gov efile 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. Www irs gov efile Or, you can use it to lower your tax in a later year. Www irs gov efile You do not have to be in business to have an NOL from a casualty or theft loss. Www irs gov efile For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Www irs gov efile Prev  Up  Next   Home   More Online Publications
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Www irs gov efile Publication 925 - Additional Material Prev  Up  Next   Home   More Online Publications