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Www onlinetaxes h&rblock com Tax Changes for Individuals Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Wash Sale Rules Do Not Apply to Section 1256 Contracts Other 2001 Changes 2002 ChangesDeduction for Educator Expenses Personal Credits Still Allowed Against Alternative Minimum Tax Later ChangeChild and Dependent Care Expenses 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Www onlinetaxes h&rblock com However, you can still choose to use the previous carryback period. Www onlinetaxes h&rblock com You also can choose not to carry back an NOL and only carry it forward. Www onlinetaxes h&rblock com Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Www onlinetaxes h&rblock com The instructions for this form will be revised to reflect the new law. Www onlinetaxes h&rblock com Wash Sale Rules Do Not Apply to Section 1256 Contracts The wash sale rules that generally apply to losses from the sale of stock or securities, do not apply to any loss arising from a section 1256 contract. Www onlinetaxes h&rblock com A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Www onlinetaxes h&rblock com Wash sales and section 1256 contracts are explained in detail in Publication 550, Investment Income and Expenses. Www onlinetaxes h&rblock com Other 2001 Changes Other changes are discussed in the following chapters. Www onlinetaxes h&rblock com Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Deduction for Educator Expenses If you are an eligible educator, you can deduct as an adjustment to income up to $250 in qualified expenses. Www onlinetaxes h&rblock com You can deduct these expenses even if you do not itemize deductions on Schedule A (Form 1040). Www onlinetaxes h&rblock com This adjustment to income is for expenses paid or incurred in tax years beginning during 2002 or 2003. Www onlinetaxes h&rblock com Previously, these expenses were deductible only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Www onlinetaxes h&rblock com Eligible educator. Www onlinetaxes h&rblock com   You are an eligible educator if, for the tax year, you meet the following requirements. Www onlinetaxes h&rblock com You are a kindergarten through grade 12: Teacher, Instructor, Counselor, Principal, or Aide. Www onlinetaxes h&rblock com You work at least 900 hours during a school year in a school that provides elementary or secondary education, as determined under state law. Www onlinetaxes h&rblock com Qualified expenses. Www onlinetaxes h&rblock com   These are unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. Www onlinetaxes h&rblock com For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics. Www onlinetaxes h&rblock com   To be deductible as an adjustment to income, the qualified expenses must be more than the following amounts for the tax year. Www onlinetaxes h&rblock com The interest on qualified U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com savings bonds that you excluded from income because you paid qualified higher education expenses, Any distribution from a qualified tuition program that you excluded from income, or Any tax-free withdrawals from your Coverdell education savings account. Www onlinetaxes h&rblock com Personal Credits Still Allowed Against Alternative Minimum Tax The provision that allowed certain nonrefundable personal credits to reduce both your regular tax and any alternative minimum tax (AMT) has been extended and will be in effect for 2002 and 2003. Www onlinetaxes h&rblock com This provision, as it applies to the AMT, was originally scheduled to expire after 2001. Www onlinetaxes h&rblock com Without the extension, these credits could not have been used to reduce any AMT in 2002 or 2003. Www onlinetaxes h&rblock com Later Change Child and Dependent Care Expenses For the purpose of figuring the child and dependent care credit, your spouse is treated as having at least a minimum amount of earned income for any month that he or she is a full-time student or not able to care for himself or herself. Www onlinetaxes h&rblock com Beginning in 2003, this amount is increased to $250 a month if there is one qualifying person and to $500 a month if there are two or more qualifying persons. Www onlinetaxes h&rblock com Before 2003, the amounts were $200 and $400. Www onlinetaxes h&rblock com The same rule applies for the exclusion of employer-provided dependent care benefits. Www onlinetaxes h&rblock com For more information about the credit and exclusion, see Publication 503, Child and Dependent Care Expenses. Www onlinetaxes h&rblock com Prev  Up  Next   Home   More Online Publications
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Tax Information For Corporations

Abusive Tax Shelters and Transactions
The Internal Revenue Service has a comprehensive strategy in place to combat abusive tax shelters and transactions. This strategy includes guidance on abusive transactions, regulations governing tax shelters, a hotline for taxpayers to use to report abusive technical transactions, and enforcement activity against abusive tax shelter promoters and investors.

Additional Guidance on IRC Section 168(k)(4) Election to Accelerate Research Credits
A taxpayer with a taxable year end of June 30, is allowed the option provided by section 3.02(1)(a)(i)(I) and (II) of Rev. Proc. 2009-16 if such taxpayer files its original federal income tax return for such taxable year on or before March 11, 2009, consistent with the option available to a taxpayer who files its original federal income tax return after March 11, 2009.

Alternative Motor Vehicle Credit
The Alternative Fuel Motor Vehicle Credit was enacted by the Energy Policy Act of 2005 and includes separate credits for four distinct categories of vehicles: Hybrid vehicles, Fuel Cell vehicles, Qualified Alternative Fuel Motor vehicles (QAFMV) and Advanced Lean Burn Technology vehicles. The amount of the potential credit varies by type of vehicle and which of the four credits applies.

Corporate Executive Compliance
The Internal Revenue Service is taking steps to improve tax compliance by corporations and their executive employees. One area of emphasis is executive compensation, for which audit technique guides have been developed for use by agents in examining tax returns filed by corporations and executives.

e-file for Large Business and International (LB&I)
Certain large business and International (LB&I) corporations are required to electronically file their Forms 1120 and 1120S. Other corporations may do so voluntarily. This site provides e-file information for corporations that prepare and transmit their own electronic corporate income tax returns and those that use the services of third party tax professionals.

FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
FIN 48 is intended to eliminate inconsistency in accounting for uncertain tax positions in financial statements certified in accordance with U.S. GAAP and mandates new rules for recognition, de-recognition, measurement, and disclosure of tax positions.

Fast Track Settlement
The LB&I / Appeals Fast Track Settlement program is a joint effort between the Large Business and International (LB&I) Division and Appeals to use the mediation skills and delegated settlement authority of Appeals to resolve issues while still under LB&I jurisdiction.

Filing Requirements for Filing Status Change (revised 11-15-11)
Guidance for taxpayers requesting to change their filing status from a C Corporation (filing Form 1120) to an S Corporation (filing Form 1120S).

Foreign Account Tax Compliance Act
FATCA will increase information reporting by foreign financial institutions, non-financial foreign entities, and certain U.S. persons holding financial assets outside the United States.

Forms 5471 - Automatic Assessment of Penalties under IRC Section 6038(b)(1)
Beginning January 1, 2009, the Internal Revenue Service Center will automatically assert appropriate penalties on late filed Forms 1120 with Forms 5471 attached. Taxpayers are encouraged to submit delinquent Forms 5471 prior to January 1, 2009.

Form 8806 - Information Return for Acquisition of Control or Substantial Change in Capital Structure
Pursuant to the provisions of Temporary Regulation § 1.6043-4T(a), requiring reporting of certain acquisitions of control and substantial changes in capital structure, corporations can consent to the publication by the IRS of the information from their Form 8806.

Income from Abroad is Taxable
There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with bank accounts in Liechtenstein. The IRS' interest, however, extends beyond bank accounts in Liechtenstein to financial accounts anywhere in the world. The IRS reminds you to report your worldwide income on your U.S. tax return and lists the possible consequences of hiding income overseas.

Index of Large Business and International (LB&I) Division Industry Overviews
The LB&I Industry Overview Series, designed to provide LB&I employees greater awareness of various industries, contain information on industry background, trends, and terms, accounting principles, information systems, industry operating procedures, government regulatory requirements, significant law and important issues and industry resources.

Industry Issue Resolution Program
The Industry Issue Resolution (IIR) Program resolves frequently disputed or burdensome tax issues. IRS solicits suggestions for issues for the program from taxpayers, representatives and associations.

International Businesses
Provides links to information on a variety of International topics including Tax Treaties, Know-Your-Customer (KYC) Rules, Transfer Pricing and Qualified Intermediaries (QI).

The International Tax Gap
Find resources on this page pertaining to the international tax gap — the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time. The tax gap can also be thought of as the sum of non-compliance with the tax law.

Limited Issue Focused Examination (LIFE)
The IRS Large Business and International (LB&I) Division is implementing a new streamlined examination process.

LB&I Technical Resources and Guidance
Coordinated issue papers, Industry Director guidance, audit technique guides and other documents provide technical information and guidance on complex tax law and administrative issues affecting the LB&I division and LB&I taxpayers.

New Identification Number Implemented for Certain Foreign Information Returns
New Identification Number Implemented for Certain Foreign Information Returns

Pre-Filing Agreement Program
The Pre-Filing Agreement Program is expected to reduce taxpayer burden and make more effective use of IRS resources by resolving or eliminating tax controversy earlier in the examination process.

Quality Examination Process
The Quality Examination Process (QEP) is a systematic approach for engaging and involving Large Business and International (LB&I) taxpayers in the tax examination process, from the earliest planning stages through resolution of all issues and completion of the case.

Report of Foreign Bank and Financial Accounts (FBAR)
If you own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account, then you may be required to report the account yearly to the Internal Revenue Service.

S Corporations
An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation.

Schedule M-3 for Large Business & International (LB&I)
Schedule M-3 is used by certain corporations and partnerships to reconcile financial accounting net income and taxable income. Affected corporations and partnerships are those with assets of $10 million or more that file Form 1120, 1120-PC, 1120-L, 1120S, or 1065. Certain other partnerships filing Form 1065 are also required to use the Schedule M-3.

2008 Changes to Form 1065 - Frequently Asked Questions
Form 1065 has a number of changes for 2008. For example, Schedule B and Schedule K-1 require reporting of ownership percentages. The FAQ page on Form 1065 changes offers helpful examples.

U.S./Germany Tax Treaty Modified to Include Mandatory Arbitration in Certain Circumstances
A new Protocol modifying certain provisions of the income tax treaty between the U.S. and Germany came into force on Dec. 28, 2007. It modifies Article 25 Mutual Agreement Procedure (MAP) to provide for mandatory arbitration of certain cases in the MAP. This announcement provides interim guidance for the “commencement date” for MAP case arbitration until a formal mutual agreement is published.

Uncertain Tax Positions - Schedule UTP
IRS finalized Schedule UTP & instructions for reporting uncertain tax positions by certain corporations.

Page Last Reviewed or Updated: 30-Mar-2014

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