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Amended Tax Return 2012

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Amended Tax Return 2012

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

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Bloomington 301 S. Prospect Rd.
Bloomington, IL 61704

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

Services Provided

(309) 661-0032
Champaign 310 W. Church St.
Champaign, IL 61820

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

Services Provided

(217) 398-5210
Chicago 230 S. Dearborn St.
Chicago, IL 60604

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(312) 292-4912
Decatur 306 W. Eldorado
Decatur, IL 62522

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)
 

Services Provided

(217) 862-6015
Downers Grove 2001 Butterfield Rd.
Downers Grove, IL 60515

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(630) 493-5291
Fairview Heights 380 Fountain Office Court
Fairview Heights, IL 62208

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(618) 632-2567
Galesburg 2066 Windish Dr.
Galesburg, IL 61401 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

Services Provided

(309) 345-4158 
Mt. Vernon  105 S. Sixth St.
Mt. Vernon, IL 62864 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.) 

 

**This office will be closed on 3/31**

 

Services Provided

(618) 632-2567 
Orland Park  14479 John Humphrey Drive,
Orland Park, IL 60462 

Monday-Friday - 8:30 a.m. - 4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(708) 873-8310 
Peoria  2415 West Cornerstone Ct.
Peoria, IL 61614 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(309) 671-7264 
Quincy  3701 East Lake Centre Drive,
Quincy, IL 62305 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 11:30 a.m.-12:30 p.m.) 

 

Services Provided

(217) 224-8208 
Rockford  211 S. Court St.
Rockford, IL 61101 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 

 

Services Provided

(815) 334-7026 
Schiller Park  5100 River Road
Schiller Park, IL 60176 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(847) 671-7541 
Springfield  3101 Constitution Drive
Springfield, IL 62704 

Monday-Friday - 8:30 a.m.-4:30 p.m. 
 

Services Provided

(217) 862-6015 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call 312-292-3800 in Chicago or (217) 862-6382 in Springfield, or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
230 S. Dearborn St.
Room 2400, Stop 6604-CHI
Chicago, IL 60604

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Amended Tax Return 2012

Amended tax return 2012 2. Amended tax return 2012   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Amended tax return 2012 Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Amended tax return 2012 S. Amended tax return 2012 or foreign source income. Amended tax return 2012 This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Amended tax return 2012 S. Amended tax return 2012 Virgin Islands (USVI). Amended tax return 2012 Generally, the same rules that apply for determining U. Amended tax return 2012 S. Amended tax return 2012 source income also apply for determining possession source income. Amended tax return 2012 However, there are some important exceptions to these rules. Amended tax return 2012 Both the general rules and the exceptions are discussed in this chapter. Amended tax return 2012 U. Amended tax return 2012 S. Amended tax return 2012 income rule. Amended tax return 2012   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Amended tax return 2012 Table 2-1 shows the general rules for determining whether income is from sources within the United States. Amended tax return 2012 Table 2-1. Amended tax return 2012 General Rules for Determining U. Amended tax return 2012 S. Amended tax return 2012 Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Amended tax return 2012 Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Amended tax return 2012 For more information, see Regulations section 1. Amended tax return 2012 863-1(b). Amended tax return 2012 Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Amended tax return 2012 Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Amended tax return 2012 Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Amended tax return 2012 It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Amended tax return 2012 Services performed wholly within a relevant possession. Amended tax return 2012   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Amended tax return 2012 However, there is an exception for income earned as a member of the U. Amended tax return 2012 S. Amended tax return 2012 Armed Forces or a civilian spouse. Amended tax return 2012 U. Amended tax return 2012 S. Amended tax return 2012 Armed Forces. Amended tax return 2012   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Amended tax return 2012 However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Amended tax return 2012 Civilian spouse of active duty member of the U. Amended tax return 2012 S. Amended tax return 2012 Armed Forces. Amended tax return 2012   If you are a bona fide resident of a U. Amended tax return 2012 S. Amended tax return 2012 possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Amended tax return 2012 Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Amended tax return 2012 S. Amended tax return 2012 possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Amended tax return 2012 Services performed partly inside and partly outside a relevant possession. Amended tax return 2012   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Amended tax return 2012 Compensation (other than certain fringe benefits) is sourced on a time basis. Amended tax return 2012 Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Amended tax return 2012   Or, you may be permitted to use an alternative basis to determine the source of compensation. Amended tax return 2012 See Alternative basis , later. Amended tax return 2012   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Amended tax return 2012 In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Amended tax return 2012 Time basis. Amended tax return 2012   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Amended tax return 2012 Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Amended tax return 2012 The time period for which the income is made does not have to be a year. Amended tax return 2012 Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Amended tax return 2012 Example. Amended tax return 2012 In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Amended tax return 2012 Your Puerto Rico source income is $60,000, figured as follows. Amended tax return 2012       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Amended tax return 2012   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Amended tax return 2012 Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Amended tax return 2012 You determine the period to which the income is attributable based on the facts and circumstances of your case. Amended tax return 2012 For more information on multi-year compensation, see Treasury Decision (T. Amended tax return 2012 D. Amended tax return 2012 ) 9212 and Regulations section 1. Amended tax return 2012 861-4, 2005-35 I. Amended tax return 2012 R. Amended tax return 2012 B. Amended tax return 2012 429, available at www. Amended tax return 2012 irs. Amended tax return 2012 gov/irb/2005-35_IRB/ar14. Amended tax return 2012 html. Amended tax return 2012 Certain fringe benefits sourced on a geographical basis. Amended tax return 2012   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Amended tax return 2012 Housing. Amended tax return 2012 Education. Amended tax return 2012 Local transportation. Amended tax return 2012 Tax reimbursement. Amended tax return 2012 Hazardous or hardship duty pay. Amended tax return 2012 Moving expense reimbursement. Amended tax return 2012 For information on determining the source of the fringe benefits listed above, see Regulations section 1. Amended tax return 2012 861-4. Amended tax return 2012 Alternative basis. Amended tax return 2012   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Amended tax return 2012 If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Amended tax return 2012 De minimis exception. Amended tax return 2012   There is an exception to the rule for determining the source of income earned in a possession. Amended tax return 2012 Generally, you will not have income from a possession if during a tax year you: Are a U. Amended tax return 2012 S. Amended tax return 2012 citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Amended tax return 2012 This exception began with income earned during your 2008 tax year. Amended tax return 2012 Pensions. Amended tax return 2012   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Amended tax return 2012 The contribution portion is sourced according to where services were performed that earned the pension. Amended tax return 2012 The investment earnings portion is sourced according to the location of the pension trust. Amended tax return 2012 Example. Amended tax return 2012 You are a U. Amended tax return 2012 S. Amended tax return 2012 citizen who worked in Puerto Rico for a U. Amended tax return 2012 S. Amended tax return 2012 company. Amended tax return 2012 All services were performed in Puerto Rico. Amended tax return 2012 Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Amended tax return 2012 S. Amended tax return 2012 pension trust of your employer. Amended tax return 2012 Distributions from the U. Amended tax return 2012 S. Amended tax return 2012 pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Amended tax return 2012 S. Amended tax return 2012 source income. Amended tax return 2012 Investment Income This category includes such income as interest, dividends, rents, and royalties. Amended tax return 2012 Interest income. Amended tax return 2012   The source of interest income is generally determined by the residence of the payer. Amended tax return 2012 Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Amended tax return 2012   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Amended tax return 2012 See Regulations section 1. Amended tax return 2012 937-2(i) for more information. Amended tax return 2012 Dividends. Amended tax return 2012   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Amended tax return 2012 There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Amended tax return 2012 For more information, see Regulations section 1. Amended tax return 2012 937-2(g). Amended tax return 2012 Rental income. Amended tax return 2012   Rents from property located in a relevant possession are treated as income from sources within that possession. Amended tax return 2012 Royalties. Amended tax return 2012   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Amended tax return 2012   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Amended tax return 2012 Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Amended tax return 2012 The most common situations are discussed below. Amended tax return 2012 Real property. Amended tax return 2012   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Amended tax return 2012 The location of the property generally determines the source of income from the sale. Amended tax return 2012 For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Amended tax return 2012 If, however, the home you sold was located in the United States, the gain is U. Amended tax return 2012 S. Amended tax return 2012 source income. Amended tax return 2012 Personal property. Amended tax return 2012   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Amended tax return 2012 Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Amended tax return 2012 If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Amended tax return 2012   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Amended tax return 2012 The rules applying to sales of inventory are discussed below. Amended tax return 2012 For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Amended tax return 2012 Inventory. Amended tax return 2012   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Amended tax return 2012 The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Amended tax return 2012 Purchased. Amended tax return 2012   Income from the sale of inventory that you purchased is sourced where you sell the property. Amended tax return 2012 Generally, this is where title to the property passes to the buyer. Amended tax return 2012 Produced. Amended tax return 2012   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Amended tax return 2012 For information on making the allocation, see Regulations section 1. Amended tax return 2012 863-3(f). Amended tax return 2012 Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Amended tax return 2012 S. Amended tax return 2012 citizen or resident alien prior to becoming a bona fide resident of a possession. Amended tax return 2012 You are subject to these special rules if you meet both of the following conditions. Amended tax return 2012 For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Amended tax return 2012 For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Amended tax return 2012 If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Amended tax return 2012 Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Amended tax return 2012 S. Amended tax return 2012 tax return. Amended tax return 2012 (See chapter 3 for additional filing information. Amended tax return 2012 ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Amended tax return 2012 These rules apply to dispositions after April 11, 2005. Amended tax return 2012 For details, see Regulations section 1. Amended tax return 2012 937-2(f)(1) and Examples 1 and 2 of section 1. Amended tax return 2012 937-2(k). Amended tax return 2012 Example 1. Amended tax return 2012 In 2007, Cheryl Jones, a U. Amended tax return 2012 S. Amended tax return 2012 citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Amended tax return 2012 S. Amended tax return 2012 corporation listed on the New York Stock Exchange. Amended tax return 2012 On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Amended tax return 2012 Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Amended tax return 2012 On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Amended tax return 2012 On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Amended tax return 2012 Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Amended tax return 2012 The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Amended tax return 2012 This existing special rule applies if you are a U. Amended tax return 2012 S. Amended tax return 2012 citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Amended tax return 2012 S. Amended tax return 2012 assets during the 10-year period beginning when you became a bona fide resident. Amended tax return 2012 The gain is U. Amended tax return 2012 S. Amended tax return 2012 source income that generally is subject to U. Amended tax return 2012 S. Amended tax return 2012 tax if the property is either (1) located in the United States; (2) stock issued by a U. Amended tax return 2012 S. Amended tax return 2012 corporation or a debt obligation of a U. Amended tax return 2012 S. Amended tax return 2012 person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Amended tax return 2012 See chapter 3 for filing information. Amended tax return 2012 Special election. Amended tax return 2012   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Amended tax return 2012 Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Amended tax return 2012 This election overrides both of the special rules discussed earlier. Amended tax return 2012   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Amended tax return 2012 Marketable securities. Amended tax return 2012   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Amended tax return 2012 Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Amended tax return 2012 S. Amended tax return 2012 holding periods. Amended tax return 2012   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Amended tax return 2012 The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Amended tax return 2012 This is your gain (or loss) that is treated as being from sources within the relevant possession. Amended tax return 2012 If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Amended tax return 2012 Example 2. Amended tax return 2012 Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Amended tax return 2012 S. Amended tax return 2012 and possession holding periods. Amended tax return 2012 Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Amended tax return 2012 Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Amended tax return 2012 By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Amended tax return 2012 Other personal property. Amended tax return 2012   For personal property other than marketable securities, use a time-based allocation. Amended tax return 2012 Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Amended tax return 2012      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Amended tax return 2012 Example 3. Amended tax return 2012 In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Amended tax return 2012 On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Amended tax return 2012 On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Amended tax return 2012 She had owned the interest for a total of 1,720 days. Amended tax return 2012 Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Amended tax return 2012 The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Amended tax return 2012 By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Amended tax return 2012 Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Amended tax return 2012 Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Amended tax return 2012 These rules do not apply to amounts paid as salary or other compensation for services. Amended tax return 2012 See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Amended tax return 2012 Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Amended tax return 2012 These circumstances are listed below. Amended tax return 2012 You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Amended tax return 2012 That office or place of business is a material factor in producing the income. Amended tax return 2012 The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Amended tax return 2012 An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Amended tax return 2012 The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Amended tax return 2012 Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Amended tax return 2012 Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Amended tax return 2012 Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Amended tax return 2012 Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Amended tax return 2012 Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Amended tax return 2012 Example. Amended tax return 2012 Marcy Jackson is a bona fide resident of American Samoa. Amended tax return 2012 Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Amended tax return 2012 A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Amended tax return 2012 Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Amended tax return 2012 The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Amended tax return 2012 However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Amended tax return 2012 Prev  Up  Next   Home   More Online Publications