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Amended Us Tax Form 1040x

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Amended Us Tax Form 1040x

Amended us tax form 1040x 11. Amended us tax form 1040x   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Amended us tax form 1040x Nondeductible losses. Amended us tax form 1040x Family pet. Amended us tax form 1040x Progressive deterioration. Amended us tax form 1040x Decline in market value of stock. Amended us tax form 1040x Mislaid or lost property. Amended us tax form 1040x Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. Amended us tax form 1040x Related persons. Amended us tax form 1040x Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Amended us tax form 1040x Covered disaster area. Amended us tax form 1040x Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Amended us tax form 1040x A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Amended us tax form 1040x A theft occurs when property is stolen. Amended us tax form 1040x A condemnation occurs when private property is legally taken for public use without the owner's consent. Amended us tax form 1040x A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Amended us tax form 1040x You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. Amended us tax form 1040x An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. Amended us tax form 1040x If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. Amended us tax form 1040x For more information, see Postponing Gain , later. Amended us tax form 1040x Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Amended us tax form 1040x Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Amended us tax form 1040x If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. Amended us tax form 1040x Casualty. Amended us tax form 1040x   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Amended us tax form 1040x A sudden event is one that is swift, not gradual or progressive. Amended us tax form 1040x An unexpected event is one that is ordinarily unanticipated and unintended. Amended us tax form 1040x 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 us tax form 1040x Deductible losses. Amended us tax form 1040x   Deductible casualty losses can result from a number of different causes, including the following. Amended us tax form 1040x Airplane crashes. Amended us tax form 1040x Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Amended us tax form 1040x Earthquakes. Amended us tax form 1040x Fires (but see Nondeductible losses next for exceptions). Amended us tax form 1040x Floods. Amended us tax form 1040x Freezing. Amended us tax form 1040x 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 us tax form 1040x Lightning. Amended us tax form 1040x Storms, including hurricanes and tornadoes. Amended us tax form 1040x Terrorist attacks. Amended us tax form 1040x Vandalism. Amended us tax form 1040x Volcanic eruptions. Amended us tax form 1040x Nondeductible losses. Amended us tax form 1040x   A casualty loss is not deductible if the damage or destruction is caused by the following. Amended us tax form 1040x Accidentally breaking articles such as glassware or china under normal conditions. Amended us tax form 1040x A family pet (explained below). Amended us tax form 1040x A fire if you willfully set it, or pay someone else to set it. Amended us tax form 1040x A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Amended us tax form 1040x The same is true if the willful act or willful negligence of someone acting for you caused the accident. Amended us tax form 1040x Progressive deterioration (explained below). Amended us tax form 1040x Family pet. Amended us tax form 1040x   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. Amended us tax form 1040x Example. Amended us tax form 1040x You keep your horse in your yard. Amended us tax form 1040x The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Amended us tax form 1040x Some of the trees were completely girdled and died. Amended us tax form 1040x Because the damage was not unexpected or unusual, the loss is not deductible. Amended us tax form 1040x Progressive deterioration. Amended us tax form 1040x   Loss of property due to progressive deterioration is not deductible as a casualty loss. Amended us tax form 1040x This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Amended us tax form 1040x Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Amended us tax form 1040x However, weather-related conditions or disease may cause another type of involuntary conversion. Amended us tax form 1040x See Other Involuntary Conversions , later. Amended us tax form 1040x Theft. Amended us tax form 1040x   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Amended us tax form 1040x The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. Amended us tax form 1040x You do not need to show a conviction for theft. Amended us tax form 1040x   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Amended us tax form 1040x The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Amended us tax form 1040x Decline in market value of stock. Amended us tax form 1040x   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 us tax form 1040x 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 us tax form 1040x You report a capital loss on Schedule D (Form 1040). Amended us tax form 1040x For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Amended us tax form 1040x Mislaid or lost property. Amended us tax form 1040x   The simple disappearance of money or property is not a theft. Amended us tax form 1040x 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 us tax form 1040x Example. Amended us tax form 1040x A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Amended us tax form 1040x The diamond falls from the ring and is never found. Amended us tax form 1040x The loss of the diamond is a casualty. Amended us tax form 1040x Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Amended us tax form 1040x The following is a discussion of some losses you can deduct and some you cannot deduct. Amended us tax form 1040x Livestock or produce bought for resale. Amended us tax form 1040x   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Amended us tax form 1040x If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. Amended us tax form 1040x You cannot take a separate deduction. Amended us tax form 1040x Livestock, plants, produce, and crops raised for sale. Amended us tax form 1040x   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Amended us tax form 1040x You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Amended us tax form 1040x   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. Amended us tax form 1040x You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Amended us tax form 1040x The uniform capitalization rules are discussed in chapter 6. Amended us tax form 1040x   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. Amended us tax form 1040x You get the deduction by omitting the item from your inventory at the close of your tax year. Amended us tax form 1040x You cannot take a separate casualty or theft deduction. Amended us tax form 1040x Income loss. Amended us tax form 1040x   A loss of future income is not deductible. Amended us tax form 1040x Example. Amended us tax form 1040x A severe flood destroyed your crops. Amended us tax form 1040x Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . Amended us tax form 1040x You estimate that the crop loss will reduce your farm income by $25,000. Amended us tax form 1040x This loss of future income is also not deductible. Amended us tax form 1040x Loss of timber. Amended us tax form 1040x   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Amended us tax form 1040x If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Amended us tax form 1040x See Postponing Gain , later. Amended us tax form 1040x Property used in farming. Amended us tax form 1040x   Casualty and theft losses of property used in your farm business usually result in deductible losses. Amended us tax form 1040x If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. Amended us tax form 1040x See How To Figure a Loss , later. Amended us tax form 1040x Raised draft, breeding, dairy, or sporting animals. Amended us tax form 1040x   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. Amended us tax form 1040x However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. Amended us tax form 1040x You use inventories to determine your income and you included the animals in your inventory. Amended us tax form 1040x You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. Amended us tax form 1040x When you include livestock in inventory, its last inventory value is its basis. Amended us tax form 1040x When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. Amended us tax form 1040x You cannot take a separate deduction. Amended us tax form 1040x How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. Amended us tax form 1040x Farm property. Amended us tax form 1040x   Farm property is the property you use in your farming business. Amended us tax form 1040x If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. Amended us tax form 1040x   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Amended us tax form 1040x However, the deduction limits, discussed later, do not apply to farm property. Amended us tax form 1040x Personal-use property. Amended us tax form 1040x   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. Amended us tax form 1040x The following items are examples of personal-use property: Your main home. Amended us tax form 1040x Furniture and electronics used in your main home and not used in a home office or for business purposes. Amended us tax form 1040x Clothing and jewelry. Amended us tax form 1040x An automobile used for nonbusiness purposes. Amended us tax form 1040x You figure the casualty or theft loss on this property by taking the following steps. Amended us tax form 1040x Determine your adjusted basis in the property before the casualty or theft. Amended us tax form 1040x Determine the decrease in fair market value of the property as a result of the casualty or theft. Amended us tax form 1040x From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Amended us tax form 1040x You must apply the deduction limits, discussed later, to determine your deductible loss. Amended us tax form 1040x    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Amended us tax form 1040x It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Amended us tax form 1040x Adjusted basis. Amended us tax form 1040x   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Amended us tax form 1040x For more information about adjusted basis, see chapter 6. Amended us tax form 1040x Decrease in fair market value (FMV). Amended us tax form 1040x   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Amended us tax form 1040x FMV is defined in chapter 10 under Payments Received or Considered Received . Amended us tax form 1040x Appraisal. Amended us tax form 1040x   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Amended us tax form 1040x But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Amended us tax form 1040x   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 us tax form 1040x The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Amended us tax form 1040x This information is needed to limit any deduction to the actual loss resulting from damage to the property. Amended us tax form 1040x Cost of cleaning up or making repairs. Amended us tax form 1040x   The cost of cleaning up after a casualty is not part of a casualty loss. Amended us tax form 1040x Neither is the cost of repairing damaged property after a casualty. Amended us tax form 1040x 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 us tax form 1040x The repairs are actually made. Amended us tax form 1040x The repairs are necessary to bring the property back to its condition before the casualty. Amended us tax form 1040x The amount spent for repairs is not excessive. Amended us tax form 1040x The repairs fix the damage only. Amended us tax form 1040x 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 us tax form 1040x Related expenses. Amended us tax form 1040x   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. Amended us tax form 1040x However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Amended us tax form 1040x Separate computations for more than one item of property. Amended us tax form 1040x   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Amended us tax form 1040x Then combine the losses to determine your total loss. Amended us tax form 1040x    There is an exception to this rule for personal-use real property. Amended us tax form 1040x See Exception for personal-use real property, later. Amended us tax form 1040x Example. Amended us tax form 1040x A fire on your farm damaged a tractor and the barn in which it was stored. Amended us tax form 1040x The tractor had an adjusted basis of $3,300. Amended us tax form 1040x Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Amended us tax form 1040x The barn had an adjusted basis of $28,000. Amended us tax form 1040x Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Amended us tax form 1040x You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Amended us tax form 1040x Figure your deductible casualty loss separately for the two items of property. Amended us tax form 1040x     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. Amended us tax form 1040x   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Amended us tax form 1040x Figure the loss using the smaller of the following. Amended us tax form 1040x The decrease in FMV of the entire property. Amended us tax form 1040x The adjusted basis of the entire property. Amended us tax form 1040x Example. Amended us tax form 1040x You bought a farm in 1990 for $160,000. Amended us tax form 1040x The adjusted basis of the residential part is now $128,000. Amended us tax form 1040x In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Amended us tax form 1040x The adjusted basis of the residential part includes the $7,500. Amended us tax form 1040x The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Amended us tax form 1040x The trees were not covered by insurance. Amended us tax form 1040x 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. Amended us tax form 1040x   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Amended us tax form 1040x You do not have a casualty or theft loss to the extent you are reimbursed. Amended us tax form 1040x   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 us tax form 1040x You must reduce your loss even if you do not receive payment until a later tax year. Amended us tax form 1040x    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. Amended us tax form 1040x You may have to include a portion of these payments in your income. Amended us tax form 1040x See Insurance payments for living expenses in Publication 547 for details. Amended us tax form 1040x Disaster relief. Amended us tax form 1040x   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 us tax form 1040x Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Amended us tax form 1040x   Generally, disaster relief grants received under the Robert T. Amended us tax form 1040x Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Amended us tax form 1040x See Federal disaster relief grants , later, under Disaster Area Losses . Amended us tax form 1040x   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Amended us tax form 1040x See Qualified disaster relief payments , later, under Disaster Area Losses . Amended us tax form 1040x Reimbursement received after deducting loss. Amended us tax form 1040x   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Amended us tax form 1040x Actual reimbursement less than expected. Amended us tax form 1040x   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 us tax form 1040x Actual reimbursement more than expected. Amended us tax form 1040x   If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Amended us tax form 1040x However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Amended us tax form 1040x Do not refigure your tax for the year you claimed the deduction. Amended us tax form 1040x See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Amended us tax form 1040x 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 us tax form 1040x See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. Amended us tax form 1040x Actual reimbursement same as expected. Amended us tax form 1040x   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 us tax form 1040x Lump-sum reimbursement. Amended us tax form 1040x   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. Amended us tax form 1040x Figure the gain or loss separately for each asset that has a separate basis. Amended us tax form 1040x Adjustments to basis. Amended us tax form 1040x   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 us tax form 1040x The result is your adjusted basis in the property. Amended us tax form 1040x Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Amended us tax form 1040x See Adjusted Basis in chapter 6 for more information. Amended us tax form 1040x Example. Amended us tax form 1040x You built a new silo for $25,000. Amended us tax form 1040x This is the basis in your silo because that is the total cost you incurred to build it. Amended us tax form 1040x During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Amended us tax form 1040x In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. Amended us tax form 1040x Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Amended us tax form 1040x Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). Amended us tax form 1040x There are two limits on the deduction for casualty or theft loss of personal-use property. Amended us tax form 1040x You figure these limits on Form 4684. Amended us tax form 1040x $100 rule. Amended us tax form 1040x   You must reduce each casualty or theft loss on personal-use property by $100. Amended us tax form 1040x This rule applies after you have subtracted any reimbursement. Amended us tax form 1040x 10% rule. Amended us tax form 1040x   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Amended us tax form 1040x Apply this rule after you reduce each loss by $100. Amended us tax form 1040x Adjusted gross income is on line 38 of Form 1040. Amended us tax form 1040x Example. Amended us tax form 1040x In June, you discovered that your house had been burglarized. Amended us tax form 1040x Your loss after insurance reimbursement was $2,000. Amended us tax form 1040x Your adjusted gross income for the year you discovered the burglary is $57,000. Amended us tax form 1040x Figure your theft loss deduction as follows: 1. Amended us tax form 1040x Loss after insurance $2,000 2. Amended us tax form 1040x Subtract $100 100 3. Amended us tax form 1040x Loss after $100 rule $1,900 4. Amended us tax form 1040x Subtract 10% (. Amended us tax form 1040x 10) × $57,000 AGI $5,700 5. Amended us tax form 1040x Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). Amended us tax form 1040x    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. Amended us tax form 1040x See 10% Rule in Publication 547. Amended us tax form 1040x When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Amended us tax form 1040x You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Amended us tax form 1040x However, losses in federally declared disaster areas are subject to different rules. Amended us tax form 1040x See Disaster Area Losses , later, for an exception. Amended us tax form 1040x 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 us tax form 1040x Leased property. Amended us tax form 1040x   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. Amended us tax form 1040x This is true even if the loss occurred or the liability was paid in a different year. Amended us tax form 1040x You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Amended us tax form 1040x Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Amended us tax form 1040x Example. Amended us tax form 1040x Robert leased a tractor from First Implement, Inc. Amended us tax form 1040x , for use in his farm business. Amended us tax form 1040x The tractor was destroyed by a tornado in June 2012. Amended us tax form 1040x The loss was not insured. Amended us tax form 1040x First Implement billed Robert for the fair market value of the tractor on the date of the loss. Amended us tax form 1040x Robert disagreed with the bill and refused to pay it. Amended us tax form 1040x First Implement later filed suit in court against Robert. Amended us tax form 1040x In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. Amended us tax form 1040x Robert paid $20,000 in June 2013. Amended us tax form 1040x He can claim the $20,000 as a loss on his 2013 tax return. Amended us tax form 1040x Net operating loss (NOL). Amended us tax form 1040x   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Amended us tax form 1040x An NOL can be carried back or carried forward and deducted from income in other years. Amended us tax form 1040x See Publication 536 for more information on NOLs. Amended us tax form 1040x Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Amended us tax form 1040x You must have records to support the amount you claim for the loss. Amended us tax form 1040x Casualty loss proof. Amended us tax form 1040x   For a casualty loss, your records should show all the following information. Amended us tax form 1040x The type of casualty (car accident, fire, storm, etc. Amended us tax form 1040x ) and when it occurred. Amended us tax form 1040x That the loss was a direct result of the casualty. Amended us tax form 1040x 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 us tax form 1040x Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Amended us tax form 1040x Theft loss proof. Amended us tax form 1040x   For a theft loss, your records should show all the following information. Amended us tax form 1040x When you discovered your property was missing. Amended us tax form 1040x That your property was stolen. Amended us tax form 1040x That you were the owner of the property. Amended us tax form 1040x Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Amended us tax form 1040x Figuring a Gain A casualty or theft may result in a taxable gain. Amended us tax form 1040x If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. Amended us tax form 1040x You generally report your gain as income in the year you receive the reimbursement. Amended us tax form 1040x However, depending on the type of property you receive, you may not have to report your gain. Amended us tax form 1040x See Postponing Gain , later. Amended us tax form 1040x Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. Amended us tax form 1040x Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. Amended us tax form 1040x Amount you receive. Amended us tax form 1040x   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Amended us tax form 1040x It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Amended us tax form 1040x Example. Amended us tax form 1040x A tornado severely damaged your barn. Amended us tax form 1040x The adjusted basis of the barn was $25,000. Amended us tax form 1040x Your insurance company reimbursed you $40,000 for the damaged barn. Amended us tax form 1040x However, you had legal expenses of $2,000 to collect that insurance. Amended us tax form 1040x Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Amended us tax form 1040x 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. Amended us tax form 1040x Some of these are discussed in the following paragraphs. Amended us tax form 1040x Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Amended us tax form 1040x You report the gain or deduct the loss on your tax return for the year you realize it. Amended us tax form 1040x However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Amended us tax form 1040x See Postponing Gain , later. Amended us tax form 1040x Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Amended us tax form 1040x The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. Amended us tax form 1040x The owner receives a condemnation award (money or property) in exchange for the property taken. Amended us tax form 1040x A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Amended us tax form 1040x Threat of condemnation. Amended us tax form 1040x   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. Amended us tax form 1040x Main home condemned. Amended us tax form 1040x   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Amended us tax form 1040x For information on this exclusion, see Publication 523. Amended us tax form 1040x If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. Amended us tax form 1040x See Postponing Gain , later. Amended us tax form 1040x (You cannot deduct a loss from the condemnation of your main home. Amended us tax form 1040x ) More information. Amended us tax form 1040x   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Amended us tax form 1040x Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Amended us tax form 1040x Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. Amended us tax form 1040x Livestock Losses Diseased livestock. Amended us tax form 1040x   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. Amended us tax form 1040x If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Amended us tax form 1040x Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Amended us tax form 1040x If you replace the livestock, you may be able to postpone reporting the gain. Amended us tax form 1040x See Postponing Gain below. Amended us tax form 1040x Reporting dispositions of diseased livestock. Amended us tax form 1040x   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. Amended us tax form 1040x You must also include other information on this statement. Amended us tax form 1040x See How To Postpone Gain , later, under Postponing Gain . Amended us tax form 1040x Weather-related sales of livestock. Amended us tax form 1040x   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. Amended us tax form 1040x Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. Amended us tax form 1040x Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Amended us tax form 1040x If you replace the livestock, you may be able to postpone reporting the gain. Amended us tax form 1040x See Postponing Gain below. Amended us tax form 1040x Example. Amended us tax form 1040x It is your usual business practice to sell five of your dairy animals during the year. Amended us tax form 1040x This year you sold 20 dairy animals because of drought. Amended us tax form 1040x The sale of 15 animals is treated as an involuntary conversion. Amended us tax form 1040x    If you do not replace the livestock, you may be able to report the gain in the following year's income. Amended us tax form 1040x This rule also applies to other livestock (including poultry). Amended us tax form 1040x See Sales Caused by Weather-Related Conditions in chapter 3. Amended us tax form 1040x Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. Amended us tax form 1040x Treat the loss as a loss from an involuntary conversion. Amended us tax form 1040x The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Amended us tax form 1040x You deduct the loss on the return for the year the seedlings died. Amended us tax form 1040x Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. Amended us tax form 1040x Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Amended us tax form 1040x You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Amended us tax form 1040x However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. Amended us tax form 1040x If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Amended us tax form 1040x To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Amended us tax form 1040x If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. Amended us tax form 1040x Example 1. Amended us tax form 1040x In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Amended us tax form 1040x In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Amended us tax form 1040x In May of this year, the property was worth $100,000. Amended us tax form 1040x In June the barn and silo were destroyed by a tornado. Amended us tax form 1040x At the time of the tornado, you had an adjusted basis of $0 in the property. Amended us tax form 1040x You received $85,000 from the insurance company. Amended us tax form 1040x You had a gain of $85,000 ($85,000 – $0). Amended us tax form 1040x You spent $80,000 to rebuild the barn and silo. Amended us tax form 1040x Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Amended us tax form 1040x Example 2. Amended us tax form 1040x In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Amended us tax form 1040x You made no further improvements or additions to it. Amended us tax form 1040x When a storm destroyed the cabin this January, the cabin was worth $250,000. Amended us tax form 1040x You received $146,000 from the insurance company in March. Amended us tax form 1040x You had a gain of $128,000 ($146,000 − $18,000). Amended us tax form 1040x You spent $144,000 to rebuild the cabin. Amended us tax form 1040x Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Amended us tax form 1040x Buying replacement property from a related person. Amended us tax form 1040x   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). Amended us tax form 1040x This rule applies to the following taxpayers. Amended us tax form 1040x C corporations. Amended us tax form 1040x Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Amended us tax form 1040x Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. Amended us tax form 1040x For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Amended us tax form 1040x If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Amended us tax form 1040x If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Amended us tax form 1040x Exception. Amended us tax form 1040x   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. Amended us tax form 1040x Related persons. Amended us tax form 1040x   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. Amended us tax form 1040x For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Amended us tax form 1040x Death of a taxpayer. Amended us tax form 1040x   If a taxpayer dies after having a gain, but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. Amended us tax form 1040x The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. Amended us tax form 1040x Replacement Property You must buy replacement property for the specific purpose of replacing your property. Amended us tax form 1040x Your replacement property must be similar or related in service or use to the property it replaces. Amended us tax form 1040x You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Amended us tax form 1040x If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. Amended us tax form 1040x Property you acquire by gift or inheritance does not qualify as replacement property. Amended us tax form 1040x Owner-user. Amended us tax form 1040x   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Amended us tax form 1040x Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. Amended us tax form 1040x A grinding mill that replaces a tractor does not qualify. Amended us tax form 1040x Neither does a breeding or draft animal that replaces a dairy cow. Amended us tax form 1040x Soil or other environmental contamination. Amended us tax form 1040x   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. Amended us tax form 1040x Weather-related conditions. Amended us tax form 1040x   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. Amended us tax form 1040x Example. Amended us tax form 1040x Each year you normally sell 25 cows from your beef herd. Amended us tax form 1040x However, this year you had to sell 50 cows. Amended us tax form 1040x This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. Amended us tax form 1040x Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. Amended us tax form 1040x Standing crop destroyed by casualty. Amended us tax form 1040x   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. Amended us tax form 1040x The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). Amended us tax form 1040x In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. Amended us tax form 1040x Timber loss. Amended us tax form 1040x   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. Amended us tax form 1040x If you bought the standing timber within the replacement period, you can postpone reporting the gain. Amended us tax form 1040x Business or income-producing property located in a federally declared disaster area. Amended us tax form 1040x   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. Amended us tax form 1040x For more information, see Disaster Area Losses in Publication 547. Amended us tax form 1040x Substituting replacement property. Amended us tax form 1040x   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. Amended us tax form 1040x This is true even if you acquire the other property within the replacement period. Amended us tax form 1040x However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. Amended us tax form 1040x Basis of replacement property. Amended us tax form 1040x   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Amended us tax form 1040x In this way, tax on the gain is postponed until you dispose of the replacement property. Amended us tax form 1040x Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Amended us tax form 1040x This is the replacement period. Amended us tax form 1040x The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Amended us tax form 1040x The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Amended us tax form 1040x Example. Amended us tax form 1040x You are a calendar year taxpayer. Amended us tax form 1040x While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Amended us tax form 1040x You discovered the theft when you returned to your farm on November 11, 2012. Amended us tax form 1040x Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Amended us tax form 1040x You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Amended us tax form 1040x Main home in disaster area. Amended us tax form 1040x   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Amended us tax form 1040x See Disaster Area Losses , later. Amended us tax form 1040x Property in the Midwestern disaster areas. Amended us tax form 1040x   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Amended us tax form 1040x This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Amended us tax form 1040x Property in the Kansas disaster area. Amended us tax form 1040x   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Amended us tax form 1040x This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Amended us tax form 1040x Property in the Hurricane Katrina disaster area. Amended us tax form 1040x   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Amended us tax form 1040x This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Amended us tax form 1040x Weather-related sales of livestock in an area eligible for federal assistance. Amended us tax form 1040x   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Amended us tax form 1040x The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Amended us tax form 1040x   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Amended us tax form 1040x R. Amended us tax form 1040x B. Amended us tax form 1040x 529, available at  www. Amended us tax form 1040x irs. Amended us tax form 1040x gov/irb/2006-39_IRB/ar11. Amended us tax form 1040x html. Amended us tax form 1040x For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. Amended us tax form 1040x gov. Amended us tax form 1040x Condemnation. Amended us tax form 1040x   The replacement period for a condemnation begins on the earlier of the following dates. Amended us tax form 1040x The date on which you disposed of the condemned property. Amended us tax form 1040x The date on which the threat of condemnation began. Amended us tax form 1040x The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Amended us tax form 1040x But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. Amended us tax form 1040x Business or investment real property. Amended us tax form 1040x   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Amended us tax form 1040x Extension. Amended us tax form 1040x   You can apply for an extension of the replacement period. Amended us tax form 1040x Send your written application to the Internal Revenue Service Center where you file your tax return. Amended us tax form 1040x See your tax return instructions for the address. Amended us tax form 1040x Include all the details about your need for an extension. Amended us tax form 1040x Make your application before the end of the replacement period. Amended us tax form 1040x However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. Amended us tax form 1040x You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Amended us tax form 1040x How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Amended us tax form 1040x You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Amended us tax form 1040x Required statement. Amended us tax form 1040x   You should attach a statement to your return for the year you have the gain. Amended us tax form 1040x This statement should include all the following information. Amended us tax form 1040x The date and details of the casualty, theft, or other involuntary conversion. Amended us tax form 1040x The insurance or other reimbursement you received. Amended us tax form 1040x How you figured the gain. Amended us tax form 1040x Replacement property acquired before return filed. Amended us tax form 1040x   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. Amended us tax form 1040x The replacement property. Amended us tax form 1040x The postponed gain. Amended us tax form 1040x The basis adjustment that reflects the postponed gain. Amended us tax form 1040x Any gain you are reporting as income. Amended us tax form 1040x Replacement property acquired after return filed. Amended us tax form 1040x   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. Amended us tax form 1040x   You should then attach another statement to your return for the year in which you buy the replacement property. Amended us tax form 1040x This statement should contain detailed information on the replacement property. Amended us tax form 1040x If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. Amended us tax form 1040x Include in the statement detailed information on the replacement property bought in that year. Amended us tax form 1040x Reporting weather-related sales of livestock. Amended us tax form 1040x   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. Amended us tax form 1040x Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Amended us tax form 1040x The gain realized on the sale or exchange. Amended us tax form 1040x The number and kind of livestock sold or exchanged. Amended us tax form 1040x The number of livestock of each kind you would have sold or exchanged under your usual business practice. Amended us tax form 1040x   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Amended us tax form 1040x The dates you bought the replacement property. Amended us tax form 1040x The cost of the replacement property. Amended us tax form 1040x Description of the replacement property (for example, the number and kind of the replacement livestock). Amended us tax form 1040x Amended return. Amended us tax form 1040x   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Amended us tax form 1040x You do not acquire replacement property within the replacement period, plus extensions. Amended us tax form 1040x On this amended return, you must report the gain and pay any additional tax due. Amended us tax form 1040x You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. Amended us tax form 1040x On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Amended us tax form 1040x Disaster Area Losses Special rules apply to federally declared disaster area losses. Amended us tax form 1040x A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Amended us tax form 1040x Stafford Disaster Relief and Emergency Assistance Act. Amended us tax form 1040x It includes a major disaster or emergency declaration under the act. Amended us tax form 1040x A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. Amended us tax form 1040x fema. Amended us tax form 1040x gov. Amended us tax form 1040x This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Amended us tax form 1040x For other special rules, see Disaster Area Losses in Publication 547. Amended us tax form 1040x When to deduct the loss. Amended us tax form 1040x   You generally must deduct a casualty loss in the year it occurred. Amended us tax form 1040x However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. Amended us tax form 1040x If you make this choice, the loss is treated as having occurred in the preceding year. Amended us tax form 1040x    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. Amended us tax form 1040x   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Amended us tax form 1040x The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Amended us tax form 1040x The due date (with extensions) for the return for the preceding tax year. Amended us tax form 1040x Federal disaster relief grants. Amended us tax form 1040x   Do not include post-disaster relief grants received under the Robert T. Amended us tax form 1040x Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Amended us tax form 1040x Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Amended us tax form 1040x If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. Amended us tax form 1040x Unemployment assistance payments under the Act are taxable unemployment compensation. Amended us tax form 1040x Qualified disaster relief payments. Amended us tax form 1040x   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. Amended us tax form 1040x These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Amended us tax form 1040x No withholding applies to these payments. Amended us tax form 1040x   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Amended us tax form 1040x Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Amended us tax form 1040x Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Amended us tax form 1040x (A personal residence can be a rented residence or one you own. Amended us tax form 1040x ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Amended us tax form 1040x   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. Amended us tax form 1040x    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Amended us tax form 1040x Qualified disaster mitigation payments. Amended us tax form 1040x   Qualified disaster mitigation payments made under the Robert T. Amended us tax form 1040x Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. Amended us tax form 1040x These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Amended us tax form 1040x You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Amended us tax form 1040x Sale of property under hazard mitigation program. Amended us tax form 1040x   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. Amended us tax form 1040x You report the gain or deduct the loss on your tax return for the year you realize it. Amended us tax form 1040x (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Amended us tax form 1040x ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. Amended us tax form 1040x See Postponing Gain , earlier, for the rules that apply. Amended us tax form 1040x Other federal assistance programs. Amended us tax form 1040x    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Amended us tax form 1040x Postponed tax deadlines. Amended us tax form 1040x   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Amended us tax form 1040x The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. Amended us tax form 1040x   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Amended us tax form 1040x Go to http://www. Amended us tax form 1040x irs. Amended us tax form 1040x gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Amended us tax form 1040x Who is eligible. Amended us tax form 1040x   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Amended us tax form 1040x Any individual whose main home is located in a covered disaster area (defined next). Amended us tax form 1040x Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Amended us tax form 1040x Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Amended us tax form 1040x 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 us tax form 1040x The main home or principal place of business does not have to be located in the covered disaster area. Amended us tax form 1040x 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 us tax form 1040x The spouse on a joint return with a taxpayer who is eligible for postponements. Amended us tax form 1040x Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. Amended us tax form 1040x Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Amended us tax form 1040x Any other person determined by the IRS to be affected by a federally declared disaster. Amended us tax form 1040x Covered disaster area. Amended us tax form 1040x   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. Amended us tax form 1040x Abatement of interest and penalties. Amended us tax form 1040x   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Amended us tax form 1040x Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. Amended us tax form 1040x Form 4684. Amended us tax form 1040x   Use this form to report your gains and losses from casualties and thefts. Amended us tax form 1040x Form 4797. Amended us tax form 1040x   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Amended us tax form 1040x Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. Amended us tax form 1040x Form 8949. Amended us tax form 1040x   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Amended us tax form 1040x Schedule A (Form 1040). Amended us tax form 1040x   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. Amended us tax form 1040x Schedule D (Form 1040). Amended us tax form 1040x   Use this form to carry over the following gains. Amended us tax form 1040x Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Amended us tax form 1040x Net gain shown on Form 4684 from the casualty or theft of personal-use property. Amended us tax form 1040x    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Amended us tax form 1040x Schedule F (Form 1040). Amended us tax form 1040x   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. Amended us tax form 1040x Prev  Up  Next   Home   More Online Publications
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The Amended Us Tax Form 1040x

Amended us tax form 1040x 5. Amended us tax form 1040x   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Prohibited Tax Shelter TransactionsEntity Level Tax Excess Benefit TransactionsTax on Disqualified Persons Tax on Organization Managers Excess Benefit Transaction Excess Business Holdings Taxable Distributions of Sponsoring Organizations Exception. Amended us tax form 1040x A donor advised fund does not include: Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Excise Taxes on Private Foundations Excise Taxes on Black Lung Benefit Trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements Introduction An excise tax may be imposed on certain tax-exempt organizations. Amended us tax form 1040x Topics - This chapter discusses: Prohibited tax shelter transactions Excess benefit transactions Excess business holdings Taxable distributions of sponsoring organizations Taxes on prohibited benefits distributed from donor advised funds Excise taxes on private foundations Excise taxes on 501(c)(21) black lung benefit trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements of Hospitals Useful Items - You may want to see: Forms (and Instructions) 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code See chapter 6 for more information about getting Form 4720. Amended us tax form 1040x Prohibited Tax Shelter Transactions Section 4965 imposes an excise tax on: Certain tax-exempt entities that are party to prohibited tax shelter transactions, and Any entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows or has reason to know that the transaction is a prohibited tax shelter transaction. Amended us tax form 1040x  Additionally, section 6033 provides new disclosure requirements on a tax-exempt entity that is a party to a prohibited tax shelter transaction. Amended us tax form 1040x Tax-exempt entities. Amended us tax form 1040x   Tax-exempt entities that are subject to section 4965 include: Entities described in section 501(c), including but not limited to the following common types of entities: Instrumentalities of the United States described in section 501(c)(1); Churches, hospitals, museums, schools, scientific research organizations, and other charities described in section 501(c)(3); Civic leagues, social welfare organizations, and local associations of employees described in section 501(c)(4); Labor, agricultural, or horticultural organizations described in section 501(c)(5); Business leagues, chambers of commerce, trade associations, and other organizations described in section 501(c)(6); Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9); Credit unions described in section 501(c)(14); Insurance companies described in section 501(c)(15); and Veterans' organizations described in section 501(c)(19). Amended us tax form 1040x Religious or apostolic associations or corporations described in section 501(d). Amended us tax form 1040x Entities described in section 170(c), including states, possessions of the United States, the District of Columbia, political subdivisions of states and political subdivisions of possessions of the United States (but not including the United States). Amended us tax form 1040x Indian tribal governments within the meaning of section 7701(a)(40). Amended us tax form 1040x Entity manager. Amended us tax form 1040x    An entity manager is any person with authority or responsibility similar to that exercised by an officer, director, or trustee, and, for any act, the person that has authority or responsibility with respect to the prohibited transaction. Amended us tax form 1040x Prohibited tax shelter transaction. Amended us tax form 1040x   A prohibited tax shelter transaction is any listed transaction, within the meaning of section 6707A(c)(2), and any prohibited reportable transactions. Amended us tax form 1040x A prohibited reportable transaction is a confidential transaction within the meaning of Regulations section 1. Amended us tax form 1040x 6011-4(b)(3), and a transaction with contractual protection within the meaning of Regulations section 1. Amended us tax form 1040x 6011-4(b)(4). Amended us tax form 1040x See the Instructions for Form 8886 for more information on listed transactions and prohibited reportable transactions. Amended us tax form 1040x Subsequently listed transaction. Amended us tax form 1040x   Any transaction to which the tax-exempt entity is a party and is later determined to be a listed transaction after the entity has become a party to it, is a subsequently listed transaction. Amended us tax form 1040x Entity Level Tax Section 4965(a)(1) imposes an entity level excise tax on any tax-exempt entity described in 1, 2, 3, or 4 above that becomes a party to a prohibited tax shelter transaction or is a party to a subsequently listed transaction (defined earlier). Amended us tax form 1040x The excise tax imposed on a tax-exempt entity applies to tax years in which the entity becomes a party to the prohibited tax shelter transaction and any subsequent tax years. Amended us tax form 1040x The amount of the excise tax depends on whether the tax-exempt entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time it became a party to the transaction. Amended us tax form 1040x To figure and report the excise tax imposed on a tax-exempt entity for being a party to a prohibited tax shelter transaction, file Form 4720. Amended us tax form 1040x For more information about this excise tax, including information about how it is figured, see the Instructions for Form 4720. Amended us tax form 1040x Manager Level Tax Section 4965(a)(2) imposes an excise tax on any tax-exempt entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows (or has reason to know) that the transaction is a prohibited tax shelter transaction. Amended us tax form 1040x The excise tax, in the amount of $20,000, is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction. Amended us tax form 1040x To report this tax, file Form 4720. Amended us tax form 1040x Excess Benefit Transactions Excise tax on excess benefit transactions. Amended us tax form 1040x   A disqualified person who benefits from an excess benefit transaction, such as compensation, fringe benefits, or contract payments from certain section 501(c)(3), 501(c)(4), or 501(c)(29) organizations, must correct the transaction and may have to pay an excise tax under section 4958. Amended us tax form 1040x A manager of the organization may also have to pay an excise tax under section 4958. Amended us tax form 1040x These taxes are reported on Form 4720. Amended us tax form 1040x   The excise taxes are imposed if an applicable tax-exempt organization provides an excess benefit to a disqualified person and that benefit exceeds the value of the benefit received in exchange. Amended us tax form 1040x   There are three taxes under section 4958. Amended us tax form 1040x Disqualified persons are liable for the first two taxes and certain organization managers are liable for the third tax. Amended us tax form 1040x    Taxes imposed on excess benefit transactions do not apply to a transaction under a written contract that was binding on September 13, 1995, and at all times thereafter before the transaction occurred. Amended us tax form 1040x Tax on Disqualified Persons An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person. Amended us tax form 1040x The disqualified person who benefited from the transaction is liable for the tax. Amended us tax form 1040x See definition of Disqualified person, later at Disqualified person. Amended us tax form 1040x Additional tax on the disqualified person. Amended us tax form 1040x   If the 25% tax is imposed and the excess benefit transaction is not corrected within the taxable period, an additional excise tax equal to 200% of the excess benefit is imposed on any disqualified person involved. Amended us tax form 1040x   If a disqualified person makes a payment of less than the full correction amount, the 200% tax is imposed only on the unpaid portion of the correction amount. Amended us tax form 1040x If more than one disqualified person received an excess benefit from an excess benefit transaction, all such disqualified persons are jointly and severally liable for the taxes. Amended us tax form 1040x   To avoid the 200% tax, a disqualified person must correct the excess benefit transaction during the taxable period. Amended us tax form 1040x The 200% tax is abated (refunded if collected) if the excess benefit transaction is corrected within a 90-day correction period beginning on the date a statutory notice of deficiency is issued. Amended us tax form 1040x Taxable period. Amended us tax form 1040x   The taxable period means the period beginning with the date on which the excess benefit transaction occurs and ending on the earlier of: The date a notice of deficiency was mailed to the disqualified person for the initial tax on the excess benefit transaction, or The date on which the initial tax on the excess benefit transaction for the disqualified person is assessed. Amended us tax form 1040x Tax on Organization Managers If tax is imposed on a disqualified person for any excess benefit transaction, an excise tax equal to 10% of the excess benefit is imposed on an organization manager who knowingly participated in an excess benefit transaction, unless such participation was not willful and was due to reasonable cause. Amended us tax form 1040x This tax cannot exceed $20,000 ($10,000 for transactions entered in a tax year beginning before August 18, 2006), for each transaction. Amended us tax form 1040x There is also joint and several liability for this tax. Amended us tax form 1040x A person can be liable for both the tax paid by the disqualified person and the organization manager tax for a particular excess benefit transaction. Amended us tax form 1040x Organization Manager. Amended us tax form 1040x   An organization manager is any officer, director, or trustee of an applicable tax-exempt organization, or any individual having powers or responsibilities similar to officers, directors, or trustees of the organization, regardless of title. Amended us tax form 1040x An organization manager is not considered to have participated in an excess benefit transaction where the manager has opposed the transaction in a manner consistent with the fulfillment of the manager's responsibilities to the organization. Amended us tax form 1040x For example, a director who votes against giving an excess benefit would ordinarily not be subject to the 10% tax. Amended us tax form 1040x A person participates in a transaction knowingly if the person: Has actual knowledge of sufficient facts so that, based solely upon those facts, such transaction would be an excess benefit transaction; Is aware that such a transaction under these circumstances may violate the provisions of federal tax law governing excess benefit transactions; and Negligently fails to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction, or the manager is in fact aware that it is such a transaction. Amended us tax form 1040x Knowing does not mean having reason to know. Amended us tax form 1040x The organization manager ordinarily will not be considered knowing if, after full disclosure of the factual situation to an appropriate professional, the organization manager relied on the professional's reasoned written opinion on matters within the professional's expertise or if the manager relied on the fact that the requirements for the rebuttable presumption of reasonableness have been satisfied. Amended us tax form 1040x Participation by an organization manager is willful if it is voluntary, conscious, and intentional. Amended us tax form 1040x An organization manager's participation is due to reasonable cause if the manager has exercised responsibility on behalf of the organization with ordinary business care and prudence. Amended us tax form 1040x Excess Benefit Transaction An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit. Amended us tax form 1040x The excess benefit transaction rules apply to all transactions with disqualified persons, regardless of whether the amount of the benefit provided is determined in whole or in part by the revenues of one or more activities of the organization. Amended us tax form 1040x To determine whether an excess benefit transaction has occurred, all consideration and benefits exchanged between a disqualified person and the applicable tax-exempt organization, and all entities it controls, are taken into account. Amended us tax form 1040x For purposes of determining the value of economic benefits, the value of property, including the right to use property, is the fair market value. Amended us tax form 1040x Fair market value is the price at which property, or the right to use property, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts. Amended us tax form 1040x Donor advised fund transactions occurring after August 17, 2006. Amended us tax form 1040x   For a donor advised fund, an excess benefit transaction includes a grant, loan, compensation, or other similar payment from the fund to a: Donor or donor advisor, Family member of a donor, or donor advisor, 35% controlled entity of a donor, or donor advisor, or 35% controlled entity of a family member of a donor, or donor advisor. Amended us tax form 1040x   The excess benefit in this transaction is the amount of the grant, loan, compensation, or other similar payment. Amended us tax form 1040x For additional information, see the Instructions for Form 4720. Amended us tax form 1040x Supporting organization transactions occurring after July 25, 2006. Amended us tax form 1040x   For any supporting organization, defined in section 509(a)(3), an excess benefit transaction includes grants, loans, compensation, or other similar payment provided by the supporting organization to a: Substantial contributor, Family member of a substantial contributor, 35% controlled entity of a substantial contributor, or 35% controlled entity of a family member of a substantial contributor. Amended us tax form 1040x   Additionally, an excess benefit transaction includes any loans provided by the supporting organization to a disqualified person (other than an organization described in section 509(a)(1), (2), or (4)). Amended us tax form 1040x   The excess benefit for substantial contributors and parties related to those contributors includes the amount of the grant, loan, compensation, or other similar payment. Amended us tax form 1040x For additional information, see the Instructions for Form 4720. Amended us tax form 1040x   Excess benefit transaction rules generally do not apply to transactions between a supporting organization and its supported organization described in section 501(c)(4), (5), or (6) in furtherance of charitable purposes. Amended us tax form 1040x Date of Occurrence An excess benefit transaction occurs on the date the disqualified person receives the economic benefit from the organization for federal income tax purposes. Amended us tax form 1040x However, when a single contractual arrangement provides for a series of compensation or other payments to or for the use of a disqualified person during the disqualified person's tax year, any excess benefit transaction with respect to these payments occurs on the last day of the taxpayer's tax year. Amended us tax form 1040x In the case of benefits provided to a qualified pension, profit-sharing, or stock bonus plan, the transaction occurs on the date the benefit is vested. Amended us tax form 1040x In the case of the transfer of property subject to a substantial risk of forfeiture, or in the case of rights to future compensation or property, the transaction occurs on the date the property, or the rights to future compensation or property, is not subject to a substantial risk of forfeiture. Amended us tax form 1040x Where the disqualified person elects to include an amount in gross income in the tax year of transfer under section 83(b), the excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. Amended us tax form 1040x Correcting the excess benefit. Amended us tax form 1040x   An excess benefit transaction is corrected by undoing the excess benefit to the extent possible, and by taking any additional measures necessary to place the organization in a financial position not worse than what it would have been if the disqualified person were dealing under the highest fiduciary standards. Amended us tax form 1040x   A disqualified person corrects an excess benefit by making a payment in cash or cash equivalents, excluding payment by a promissory note, equal to the correction amount to the applicable tax-exempt organization. Amended us tax form 1040x The correction amount equals the excess benefit plus the interest on the excess benefit. Amended us tax form 1040x The interest rate can be no lower than the applicable federal rate, compounded annually, for the month the transaction occurred. Amended us tax form 1040x   A disqualified person can, with the agreement of the applicable tax-exempt organization, make a payment by returning the specific property previously transferred in the excess transaction. Amended us tax form 1040x In this case, the disqualified person is treated as making a payment equal to the lesser of: The fair market value of the property on the date the property is returned to the organization, or The fair market value of the property on the date the excess benefit transaction occurred. Amended us tax form 1040x   If the payment resulting from the return of property is less than the correction amount, the disqualified person must make an additional cash payment to the organization equal to the difference. Amended us tax form 1040x   If the payment resulting from the return of the property exceeds the correction amount described above, the organization can make a cash payment to the disqualified person equal to the difference. Amended us tax form 1040x Exception. Amended us tax form 1040x   For a correction of an excess benefit transaction (discussed earlier), no amount repaid in a manner prescribed by the Secretary can be held in a donor advised fund. Amended us tax form 1040x Applicable Tax-Exempt Organization An applicable tax-exempt organization is a section 501(c)(3), 501(c)(4), or 501(c)(29) organization that is tax-exempt under section 501(a), or was such an organization at any time during a 5-year period ending on the day of the excess benefit transaction. Amended us tax form 1040x An applicable tax-exempt organization does not include: A private foundation as defined in section 509(a), A governmental entity that is: Exempt from (or not subject to) taxation without regard to section 501(a), or Not required to file an annual return, or A foreign organization, recognized by the IRS or by treaty, that receives substantially all of its support (other than gross investment income) from sources outside the United States. Amended us tax form 1040x An organization is not treated as a section 501(c)(3), 501(c)(4), or 501(c)(29) organization for any period covered by a final determination that the organization was not tax-exempt under section 501(a), but only if the determination was not based on private inurement or one or more excess benefit transactions. Amended us tax form 1040x Disqualified Person A disqualified person is: Any person (at any time during the 5-year period ending on the date of the transaction) in a position to exercise substantial influence over the affairs of the organization, A family member of an individual described in 1, and A 35% controlled entity. Amended us tax form 1040x For donor advised funds, sponsoring organizations, and certain supporting organizations occurring after August 17, 2006. Amended us tax form 1040x   The following persons will be considered disqualified persons along with certain family members and 35% controlled entities associated with them. Amended us tax form 1040x Donors of donor advised funds, Investment advisors of sponsoring organizations, and Disqualified persons of a section 509(a)(3) supporting organization that supports the applicable tax-exempt organization. Amended us tax form 1040x For certain supporting organization transactions occurring after July 25, 2006. Amended us tax form 1040x   Substantial contributors to supporting organizations will also be considered disqualified persons with respect to the supporting organizations, along with their family members and 35% controlled entities. Amended us tax form 1040x Investment advisor. Amended us tax form 1040x   Investment advisor means for any sponsoring organization, any person compensated by such organization (but not an employee of such organization) for managing the investment of, or providing investment advice for, assets maintained in donor advised funds owned by such sponsoring organization. Amended us tax form 1040x Substantial contributor. Amended us tax form 1040x   In general, a substantial contributor means any person who contributed or bequeathed an aggregate of more than $5,000 to the organization, if that amount is more than 2% of the total contributions and bequests received by the end of the organization's tax year in which the contribution or bequest is received. Amended us tax form 1040x A substantial contributor includes the grantor of a trust. Amended us tax form 1040x Family members. Amended us tax form 1040x   Family members of a disqualified person include a disqualified person's spouse, brothers or sisters (whether by whole or half-blood), spouses of brothers or sisters (whether by whole or half-blood), ancestors, children (including a legally adopted child), grandchildren, great grandchildren, and spouses of children, grandchildren, and great grandchildren (whether by whole or half-blood). Amended us tax form 1040x 35% controlled entity. Amended us tax form 1040x   A 35% controlled entity is: A corporation in which disqualified persons own more than 35% of the total combined voting power, A partnership in which such persons own more than 35% of the profits interest, or A trust or estate in which such persons own more than 35% of the beneficial interest. Amended us tax form 1040x   In determining the holdings of a business enterprise, any stock or other interest owned directly or indirectly shall apply. Amended us tax form 1040x Persons having substantial influence. Amended us tax form 1040x   Among those who are in a position to exercise substantial influence over the affairs of the organization are, for example, voting members of the governing body, and persons holding the power of: Presidents, chief executives, or chief operating officers. Amended us tax form 1040x Treasurers and chief financial officers. Amended us tax form 1040x Persons with a material financial interest in a provider-sponsored organization. Amended us tax form 1040x Persons not considered to have substantial influence. Amended us tax form 1040x   Persons who are not considered to be in a position to exercise substantial influence over the affairs of an organization include: An employee who receives benefits that total less than the highly compensated amount in section 414(q)(1)(B)(i) and who does not hold the executive or voting powers mentioned earlier in the discussion on Disqualified Person, is not a family member of a disqualified person, and is not a substantial contributor, Tax-exempt organizations described in section 501(c)(3), and Section 501(c)(4) organizations with respect to transactions engaged in with other section 501(c)(4) organizations. Amended us tax form 1040x Facts and circumstances. Amended us tax form 1040x   The determination of whether a person has substantial influence over the affairs of an organization is based on all the facts and circumstances. Amended us tax form 1040x Facts and circumstances that tend to show a person has substantial influence over the affairs of an organization include, but are not limited to, the following. Amended us tax form 1040x The person founded the organization. Amended us tax form 1040x The person is a substantial contributor to the organization under the section 507(d)(2)(A) definition, only taking into account contributions to the organization for the past 5 years. Amended us tax form 1040x The person's compensation is primarily based on revenues derived from activities of the organization that the person controls. Amended us tax form 1040x The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees. Amended us tax form 1040x The person manages a discrete segment or activity of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. Amended us tax form 1040x The person owns a controlling interest (measured by either vote or value) in a corporation, partnership, or trust that is a disqualified person. Amended us tax form 1040x The person is a nonstock organization controlled directly or indirectly by one or more disqualified persons. Amended us tax form 1040x   Facts and circumstances tending to show that a person does not have substantial influence over the affairs of an organization include, but are not limited to, the following. Amended us tax form 1040x The person has taken a bona fide vow of poverty as an employee or agent of a religious organization or on its behalf. Amended us tax form 1040x The person is an independent contractor whose sole relationship to the organization is providing professional advice (without having decision-making authority) with respect to transactions from which the independent contractor will not economically benefit either directly or indirectly aside from customary fees received for the professional advice rendered. Amended us tax form 1040x Any preferential treatment the person receives based on the size of the person's donation is also offered to others making comparable widely solicited donations. Amended us tax form 1040x The direct supervisor of the person is not a disqualified person. Amended us tax form 1040x The person does not participate in any management decisions affecting the organization as a whole or a discrete segment of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. Amended us tax form 1040x   In the case of multiple organizations affiliated by common control or governing documents, the determination of whether a person does or does not have substantial influence is made separately for each applicable tax-exempt organization. Amended us tax form 1040x A person may be a disqualified person with respect to transactions with more than one organization. Amended us tax form 1040x Reasonable Compensation. Amended us tax form 1040x    Reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. Amended us tax form 1040x The section 162 standard will apply in determining the reasonableness of compensation. Amended us tax form 1040x The fact that a bonus or revenue-sharing arrangement is subject to a cap is a relevant factor in determining reasonableness of compensation. Amended us tax form 1040x   To determine the reasonableness of compensation, all items of compensation provided by an applicable tax-exempt organization in exchange for performance of services are taken into account in determining the value of compensation (except for economic benefits that are disregarded under the discussion Disregarded benefits , later). Amended us tax form 1040x Items of compensation include: All forms of cash and noncash compensation, including salary, fees, bonuses, severance payments, and deferred noncash compensation, The payment of liability insurance premiums for, or the payment or reimbursement by the organization of penalties, taxes, or certain expenses under section 4958, unless excludable from income as a de minimis fringe benefit under section 132(a)(4), All other compensatory benefits, whether or not included in gross income for income tax purposes, Taxable and nontaxable fringe benefits, except fringe benefits described in section 132, and Foregone interest on loans. Amended us tax form 1040x    Intent to treat benefits as compensation. Amended us tax form 1040x An economic benefit is not treated as consideration for the performance of services unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid. Amended us tax form 1040x   An applicable tax-exempt organization (or entity that it controls) is treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the organization provides written substantiation that is contemporaneous with the transfer of the economic benefits under consideration. Amended us tax form 1040x Ways to provide contemporaneous written substantiation of its intent to provide an economic benefit as compensation include: The organization produces a signed written employment contract, The organization reports the benefit as compensation on an original Form W-2, Form 1099, or Form 990, or on an amended form filed before starting an IRS examination, or The disqualified person reports the benefit as income on the person's original Form 1040, or on an amended form filed before starting an IRS examination. Amended us tax form 1040x Exception. Amended us tax form 1040x   If the economic benefit is excluded from the disqualified person's gross income for income tax purposes, the applicable tax-exempt organization is not required to indicate its intent to provide an economic benefit as compensation for services. Amended us tax form 1040x Rebuttable presumption that a transaction is not an excess benefit transaction. Amended us tax form 1040x   Payments under a compensation arrangement are presumed to be reasonable and the transfer of property (or right to use property) is presumed to be at fair market value, if the following three conditions are met. Amended us tax form 1040x The transaction is approved in advance by an authorized body of the organization (or an entity it controls) which is composed of individuals who do not have a conflict of interest concerning the transaction. Amended us tax form 1040x Before making its determination, the authorized body obtained and relied upon appropriate data as to comparability. Amended us tax form 1040x (There is a special safe harbor for small organizations. Amended us tax form 1040x If the organization has gross receipts of less than $1 million, appropriate comparability data includes data on compensation paid by three comparable organizations in the same or similar communities for similar services. Amended us tax form 1040x ) The authorized body adequately documents the basis for its determination concurrently with making that determination. Amended us tax form 1040x The documentation should include: The terms of the approved transaction and the date approved, The members of the authorized body who were present during debate on the transaction that was approved and those who voted on it, The comparability data obtained and relied upon by the authorized body and how the data was obtained, Any actions by a member of the authorized body having conflict of interest, and Documentation of the basis of the determination before the later of the next meeting of the authorized body or 60 days after the final actions of the authorized body are taken, and approval of records as reasonable, accurate, and complete within a reasonable time thereafter. Amended us tax form 1040x Disregarded benefits. Amended us tax form 1040x   The following economic benefits are disregarded for section 4958 purposes. Amended us tax form 1040x Nontaxable fringe benefits that are excluded from income under section 132. Amended us tax form 1040x Benefits provided to a volunteer for the organization if the benefit is provided to the general public in exchange for a membership fee or contribution of $75 or less. Amended us tax form 1040x Benefits provided to a member of an organization due to the payment of a membership fee or to a donor as a result of a deductible contribution, if a significant number of disqualified persons make similar payments or contributions and are offered a similar economic benefit. Amended us tax form 1040x Benefits provided to a person solely as a member of a charitable class that the applicable tax-exempt organization intends to benefit as part of the accomplishment of its exempt purpose. Amended us tax form 1040x A transfer of an economic benefit to or for the use of a governmental unit, as defined in section 170(c)(1), if exclusively for public purposes. Amended us tax form 1040x Special Exception for Initial Contracts      Section 4958 does not apply to any fixed payment made to a person under an initial contract. Amended us tax form 1040x   A fixed payment is an amount of cash or other property specified in the contract, or determined by a fixed formula that is specified in the contract, which is to be paid or transferred in exchange for the provision of specified services or property. Amended us tax form 1040x   A fixed formula can, generally, incorporate an amount that depends upon future specified events or contingencies, as long as no one has discretion when calculating the amount of a payment or deciding whether to make a payment (such as a bonus). Amended us tax form 1040x   An initial contract is a binding written contract between an applicable tax-exempt organization and a person who was not a disqualified person immediately before entering into the contract. Amended us tax form 1040x   A binding written contract, providing it can be terminated or canceled by the applicable tax-exempt organization without the other party's consent (except as a result of substantial nonperformance) and without substantial penalty, is treated as a new contract, as of the earliest date any termination or cancellation would be effective. Amended us tax form 1040x Also, if the parties make a material change to a contract, which includes an extension or renewal of the contract (except for an extension or renewal resulting from the exercise of an option by the disqualified person), or a more than incidental change to the amount payable under the contract, it is treated as a new contract as of the effective date of the material change. Amended us tax form 1040x More information. Amended us tax form 1040x   For more information, see the Instructions to Forms 990 and 4720. Amended us tax form 1040x Excess Business Holdings Private foundations are generally not permitted to hold more than a 20% interest in an unrelated business enterprise. Amended us tax form 1040x They may be subject to an excise tax on the amount of any excess business holdings. Amended us tax form 1040x For purposes of section 4943, for tax years beginning after August 17, 2006, donor advised funds and certain supporting organizations are considered private foundations. Amended us tax form 1040x Donor advised fund. Amended us tax form 1040x   In general, a donor advised fund is a fund or account separately identified by reference to contributions of a donor or donors that is owned and controlled by a sponsoring organization and for which the donor has or expects to have advisory privileges concerning the distribution or investment of the funds. Amended us tax form 1040x Supporting organizations. Amended us tax form 1040x   Only certain supporting organizations are subject to the excess business holdings tax under section 4943. Amended us tax form 1040x These include (1) Type III supporting organizations that are not functionally integrated and (2) Type II supporting organizations that accept any gift or contribution from a person who by himself or in connection with a related party controls the supported organization that the Type II supporting organization supports. Amended us tax form 1040x Taxes. Amended us tax form 1040x   A private foundation that has excess holdings in a business enterprise may become liable for an excise tax based on the amount of holdings. Amended us tax form 1040x The initial tax is 10% (5% for tax years beginning before August 18, 2006) of the value of the excess holdings and is imposed on the last day of each tax year that ends during the taxable period. Amended us tax form 1040x The excess holdings are determined on the day during the tax year when they were the largest. Amended us tax form 1040x   A foundation that fails to correct the excess business holdings becomes liable for an additional tax of 200% of the remaining excess business holdings as of the earlier of tax assessment or mailing of a notice of deficiency. Amended us tax form 1040x   For more information on the tax on excess business holdings, see the Instructions for Form 4720. Amended us tax form 1040x Taxable Distributions of Sponsoring Organizations An excise tax is imposed on a sponsoring organization for each taxable distribution it makes from a donor advised fund. Amended us tax form 1040x An excise tax is also imposed on any fund manager of the sponsoring organization who agreed to the making of a distribution, knowing that it is a taxable distribution. Amended us tax form 1040x Taxable distribution. Amended us tax form 1040x   A taxable distribution is any distribution from a donor advised fund to any natural person or to any other person if: The distribution is for any purpose other than one specified in section 170(c)(2)(B), or The sponsoring organization maintaining the donor advised fund does not exercise expenditure responsibility with respect to the distribution in accordance with section 4945(h). Amended us tax form 1040x    However, a taxable distribution does not include a distribution from a donor advised fund to: Any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), The sponsoring organization of the donor advised fund, or Any other donor advised fund. Amended us tax form 1040x The tax on taxable distributions applies to distributions occurring in tax years beginning after August 17, 2006. Amended us tax form 1040x Sponsoring organization. Amended us tax form 1040x   A sponsoring organization is a section 170(c) organization that is neither a government organization (as referred to in section 170(c)(1) and (2)(A)) nor a private foundation. Amended us tax form 1040x Donor advised fund. Amended us tax form 1040x    A donor advised fund is a fund or account: Which is separately identified by reference to contributions of a donor or donors, Which is owned and controlled by a sponsoring organization, and For which the donor (or any person appointed or designated by the donor) has or expects to have advisory privileges concerning the distribution or investment of the funds held in the donor advised funds or accounts because of the donor's status as a donor. Amended us tax form 1040x Exception. Amended us tax form 1040x A donor advised fund does not include:    A fund or account that makes distributions only to a single identified organization or governmental entity, or Any fund or account for a person described in 3 above that gives advice about which individuals receive grants for travel, study, or similar purposes, if the following three requirements are met: The person's advisory privileges are performed exclusively by such person in their capacity as a committee member of which all the committee members are appointed by the sponsoring organization, No combination of persons with advisory privileges, described in 3 above, or persons related to those in 3 above directly or indirectly control the committee, and All grants from the fund or account are awarded on an objective and nondiscriminatory basis according to a procedure approved in advance by the board of directors of the sponsoring organization. Amended us tax form 1040x The procedure must be designed to ensure that all grants meet the requirements of section 4945(g)(1), (2), or (3). Amended us tax form 1040x Disqualified supporting organization. Amended us tax form 1040x   A disqualified supporting organization includes (1) a Type III supporting organization that is not functionally integrated and (2) any supporting organization where the donor or donor advisor (and any related parties) directly or indirectly controls a supported organization of the supporting organization. Amended us tax form 1040x Tax on sponsoring organization. Amended us tax form 1040x   A tax of 20% of the amount of each taxable distribution is imposed on the sponsoring organization. Amended us tax form 1040x Tax on fund manager. Amended us tax form 1040x   If a tax is imposed on a taxable distribution of the sponsoring organization, a tax of 5% of the distribution will be imposed on any fund manager who agreed to the distribution knowing that it was a taxable distribution. Amended us tax form 1040x Any fund manager who took part in the distribution and is liable for the tax must pay the tax. Amended us tax form 1040x The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. Amended us tax form 1040x If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. Amended us tax form 1040x   For more information on the tax on taxable distributions of sponsoring organizations, see the Instructions for Form 4720. Amended us tax form 1040x Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Prohibited benefit. Amended us tax form 1040x   If any donor, donor advisor, or related party advises the sponsoring organization about making a distribution which results in a donor, donor advisor, or related party receiving (either directly or indirectly) a more than incidental benefit, then such benefit is a prohibited benefit. Amended us tax form 1040x The tax on prohibited benefits applies to distributions occurring in tax years beginning after August 17, 2006. Amended us tax form 1040x Donor advisor. Amended us tax form 1040x   A donor advisor is any person appointed or designated by a donor to advise a sponsoring organization on the distribution or investment of amounts held in the donor's fund or account. Amended us tax form 1040x Related party. Amended us tax form 1040x   A related party includes any family member or 35% controlled entity. Amended us tax form 1040x See the definition of those terms under Disqualified Person , earlier. Amended us tax form 1040x Tax on donor, donor advisor, or related person. Amended us tax form 1040x    A tax of 125% of the benefit resulting from the distribution is imposed on both the party who advised as to the distribution (which might be a donor, donor advisor, or related party) and the party who received such benefit (which might be a donor, donor advisor, or related party). Amended us tax form 1040x The advisor and the party who received the benefit are jointly and severally liable for the tax. Amended us tax form 1040x Tax on fund managers. Amended us tax form 1040x   If a tax is imposed on a prohibited benefit received by a donor, donor advisor, or related person, a tax of 10% of the amount of the prohibited benefit is imposed on any fund manager who agreed to the distribution knowing that it would confer a prohibited benefit. Amended us tax form 1040x Any fund manager who took part in the distribution and is liable for the tax must pay the tax. Amended us tax form 1040x The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. Amended us tax form 1040x If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. Amended us tax form 1040x Exception. Amended us tax form 1040x   If a person engaged in an excess benefit transaction and received a prohibited benefit for the same transaction, the person is taxed under section 4958, and no tax is imposed under section 4967 for a prohibited benefit. Amended us tax form 1040x   For more information on taxes on prohibited benefits distributed from donor advised funds, see the Instructions for Form 4720. Amended us tax form 1040x Excise Taxes on Private Foundations There is an excise tax on the net investment income of most domestic private foundations. Amended us tax form 1040x Capital gains from appreciation are included in the tax base on private foundation net investment income. Amended us tax form 1040x This tax must be reported on Form 990-PF and must be paid annually at the time for filing that return or in quarterly estimated tax payments if the total tax for the year (section 4940 tax minus credits) is $500 or more. Amended us tax form 1040x Form 990-W is used to calculate the estimated tax. Amended us tax form 1040x In addition, there are several other rules that apply to excise taxes on private foundations. Amended us tax form 1040x These include: Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons, Requirements that the foundation annually distribute income for charitable purposes, Limits on their holdings in any business enterprise (see Excess Business Holdings, earlier), Provisions that investments must not jeopardize the carrying out of exempt purposes, and Provisions to assure that expenditures further the organization's exempt purposes. Amended us tax form 1040x Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related persons. Amended us tax form 1040x For more information on the excise taxes imposed on private foundations, see the Instructions for Form 4720 and the Instructions for Form 990-PF. Amended us tax form 1040x Excise Taxes on Black Lung Benefit Trusts A black lung benefit trust that makes any expenditures, payments, or investments other than those described in chapter 4 under 501(c)(21) - Black Lung Benefit Trusts must pay a tax equal to 10% of the amount of such expenditures. Amended us tax form 1040x If there are any acts of self-dealing between the trust and a disqualified person, a tax equal to 10% of the amount involved is imposed on the disqualified person. Amended us tax form 1040x Both of these excise taxes are reported on Schedule A (Form 990-BL). Amended us tax form 1040x See the Form 990-BL instructions for more information on these taxes and what has to be filed, even if the trust is excepted from filing. Amended us tax form 1040x Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements For tax years beginning after March 23, 2012, new section 4959 imposes an excise tax on hospital organizations which fail to meet certain section 501(r) requirements for each of their hospital facilities. Amended us tax form 1040x These entities must meet section 501(r)(3) requirements at all times during their tax year. Amended us tax form 1040x Section 501(r)(3) requirements pertain to a hospital organization preparing a community health needs assessment (CHNA). Amended us tax form 1040x See Schedule H, Hospitals (Form 990), for details. Amended us tax form 1040x Prev  Up  Next   Home   More Online Publications