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Ammended Return

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Ammended Return

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

The 2010 Affordable Care Act puts in place comprehensive health insurance reforms that will roll out over several years. Most changes will take effect by 2014; a timeline of the provisions is available. The law is intended to lower health care costs, provide more health care choices, and enhance the quality of health care for all Americans. Major provisions affecting consumers include:

  • Coverage for seniors who hit the Medicare Prescription Drug "Donut Hole," including a rebate for those who reach the gap in drug coverage;
  • Expanded coverage for young adults, allowing them to stay on their parents' plan until they turn 26 years old;
  • Small-business tax credits to help these companies provide insurance coverage to their workers; and
  • Providing access to insurance for uninsured Americans with pre-existing conditions.

For more information about the new law, go to healthcare.gov.

Group Policies

Many consumers have health care coverage from their employer. Others have medical care paid through a government program such as Medicare, Medicaid, or the Veterans Administration.

If you have lost your group coverage from an employer as the result of unemployment, death, divorce, or loss of "dependent child" status, you may be able to continue your coverage temporarily under the Consolidated Omnibus Budget Reconciliation Act (COBRA). You, not the employer, pay for this coverage. When one of these events occurs, you must be given at least 60 days to decide whether you wish to purchase the coverage.

Some states offer an insurance pool to residents who are unable to obtain coverage because of a health condition. To find out if a pool is available in your state, check with your state department of insurance

Medicare and Medicaid

There are also health insurance programs for people who are seniors, disabled, or have low incomes.

  • Medicaid provides health insurance for people with low incomes, children, and pregnant women. Eligibility is determined by your state.
  • Medicare provides health insurance for people who are 65 years or older, some younger people with disabilities, and those with kidney failure.

Most states also offer free or low-cost coverage for children who do not have health insurance. Visit insurekidsnow.gov or call 1-877-KIDS-NOW (543-7669) for more information.

Healthcare Plans

When purchasing health insurance, your choices will typically fall into one of three categories:

  • Traditional fee-for-service health insurance plans are usually the most expensive choice. But they offer you the most flexibility when choosing healthcare providers.
  • Health Maintenance Organizations (HMOs) offer lower co-payments and cover the costs of more preventative care, but your choice of healthcare providers is limited. The National Committee for Quality Assurance evaluates and accredits HMOs. You can find out whether one is accredited in your state by calling 1-888-275-7585. You can also get this information as well as report cards on HMOs.
  • Preferred Provider Organizations (PPOs) offer lower co-payments like HMOs but give you more flexibility when selecting a provider. A PPO gives you a list of providers you can choose from.

WARNING: If you go outside the HMO or PPO network of providers, you may have to pay a portion or all of the costs.

When choosing among different health care plans, you'll need to read the fine print and ask lots of questions, such as:

  • Do I have the right to go to any doctor, hospital, clinic or pharmacy I choose?
  • Are specialists such as eye doctors and dentists covered?
  • Does the plan cover special conditions or treatments such as pregnancy, psychiatric care and physical therapy?
  • Does the plan cover home care or nursing home care?
  • Will the plan cover all medications my physician might prescribe?
  • What are the deductibles? Are there any co-payments?
  • What is the most I will have to pay out of my own pocket to cover expenses?
  • If there is a dispute about a bill or service, how is it handled? In some plans, you may be required to have a third-party decide how to settle the problem.

Appealing Health Insurance Claims

If your health insurer has denied coverage for medical care you received you have a right to appeal the claim and ask that the company reverse that decision. You can be your own health care advocate. Here's what you can do:

Step 1: Review your policy and explanation of benefits.
Step 2: Contact your insurer and keep detailed records of your contacts (copies of letters, time and date of conversations).
Step 3: Request documentation from your doctor or employer to support your case.
Step 4: Write a formal complaint letter explaining what care was denied and why you are appealing through use of the company's internal review process.
Step 5: If the internal appeal is not granted through step 4, file a claim with your state's insurance department.

The Ammended Return

Ammended return 2. Ammended return   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. Ammended return You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. Ammended return This chapter discusses accounting methods. Ammended return For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. Ammended return Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. Ammended return Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. Ammended return Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Ammended return A material item is one that affects the proper time for inclusion of income or allowance of a deduction. Ammended return An item considered material for financial statement purposes is generally also considered material for income tax purposes. Ammended return See Publication 538 for more information. Ammended return You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Ammended return If you later want to change your accounting method, you generally must get IRS approval. Ammended return How to obtain IRS approval is discussed later under Changes in Methods of Accounting . Ammended return Types of accounting methods. Ammended return   Generally, you can use any of the following accounting methods. Ammended return Each method is discussed in detail below. Ammended return Cash method. Ammended return Accrual method. Ammended return Special methods of accounting for certain items of income and expenses. Ammended return Combination (hybrid) method using elements of two or more of the above. Ammended return Business and other items. Ammended return   You can account for business and personal items using different accounting methods. Ammended return For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Ammended return Two or more businesses. Ammended return   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Ammended return Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Ammended return Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. Ammended return However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. Ammended return See Accrual Method Required , later. Ammended return Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Ammended return Items of income include money received as well as property or services received. Ammended return If you receive property or services, you must include the fair market value (FMV) of the property or services in income. Ammended return See chapter 3 for information on how to report farm income on your income tax return. Ammended return Constructive receipt. Ammended return   Income is constructively received when an amount is credited to your account or made available to you without restriction. Ammended return You do not need to have possession of the income for it to be treated as income for the tax year. Ammended return If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. Ammended return Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. Ammended return Direct payments and counter-cyclical payments. Ammended return   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. Ammended return Delaying receipt of income. Ammended return   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Ammended return You must report the income in the year the money or property is received or made available to you without restriction. Ammended return Example. Ammended return Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. Ammended return She was told in December that her payment was available. Ammended return She requested not to be paid until January 2014. Ammended return However, she must still include this payment in her 2013 income because it was made available to her in 2013. Ammended return Debts paid by another person or canceled. Ammended return   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Ammended return If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Ammended return See Cancellation of Debt in chapter 3. Ammended return Deferred payment contract. Ammended return   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. Ammended return However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. Ammended return Example. Ammended return You are a farmer who uses the cash method and a calendar tax year. Ammended return You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. Ammended return You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. Ammended return However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. Ammended return Repayment of income. Ammended return   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. Ammended return If the repayment is more than $3,000, a special rule applies. Ammended return For details, see Repayments in chapter 11 of Publication 535, Business Expenses. Ammended return Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. Ammended return This includes business expenses for which you contest liability. Ammended return However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. Ammended return See chapter 4 for information on how to deduct farm business expenses on your income tax return. Ammended return Prepayment. Ammended return   Generally, you cannot deduct expenses paid in advance. Ammended return This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Ammended return Example. Ammended return On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. Ammended return In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. Ammended return In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. Ammended return An exception applies if the expense qualifies for the 12-month rule. Ammended return See Publication 538 for more information and examples. Ammended return See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Ammended return Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Ammended return The purpose of an accrual method of accounting is to correctly match income and expenses. Ammended return Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. Ammended return See Accrual Method Required and Farm Inventory , later. Ammended return Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Ammended return Under this rule, include an amount in income on the earliest of the following dates. Ammended return When you receive payment. Ammended return When the income amount is due to you. Ammended return When you earn the income. Ammended return When title passes. Ammended return If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. Ammended return Inventory. Ammended return   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. Ammended return An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Ammended return See Publication 538 for more information. Ammended return Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. Ammended return Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Ammended return The all-events test has been met. Ammended return This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. Ammended return Economic performance has occurred. Ammended return Economic performance. Ammended return   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Ammended return If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Ammended return If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Ammended return Example. Ammended return Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. Ammended return She entered into a contract with ABC Farm Consulting in 2012. Ammended return The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. Ammended return It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. Ammended return Jane paid ABC Farm Consulting $2,000 in December 2012. Ammended return Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. Ammended return Economic performance for Jane's liability in the contract occurs as the services are provided. Ammended return Jane incurs the $2,000 cost in 2013. Ammended return An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Ammended return For more information, see Economic Performance in Publication 538. Ammended return Special rule for related persons. Ammended return   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Ammended return Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Ammended return For more information, see Internal Revenue Code section 267. Ammended return Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. Ammended return A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. Ammended return A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. Ammended return A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. Ammended return A tax shelter. Ammended return Note. Ammended return Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). Ammended return Family corporation. Ammended return   A family corporation is generally a corporation that meets one of the following ownership requirements. Ammended return Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. Ammended return Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. Ammended return Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. Ammended return For more information on family corporations, see Internal Revenue Code section 447. Ammended return Tax shelter. Ammended return   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. Ammended return Its principal purpose is the avoidance or evasion of federal income tax. Ammended return It is a farming syndicate. Ammended return A farming syndicate is an entity that meets either of the following tests. Ammended return Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. Ammended return More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. Ammended return   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. Ammended return   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. Ammended return Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. Ammended return This record should show the actual count or measurement of the inventory. Ammended return It should also show all factors that enter into its valuation, including quality and weight, if applicable. Ammended return Hatchery business. Ammended return   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. Ammended return Products held for sale. Ammended return   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Ammended return , must be included in inventory. Ammended return Supplies. Ammended return   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Ammended return Deduct the cost of supplies in the year used or consumed in operations. Ammended return Do not include incidental supplies in inventory as these are deductible in the year of purchase. Ammended return Livestock. Ammended return   Livestock held primarily for sale must be included in inventory. Ammended return Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Ammended return See also Unit-livestock-price method , later. Ammended return If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. Ammended return Growing crops. Ammended return   Generally, growing crops are not required to be included in inventory. Ammended return However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. Ammended return See Uniform capitalization rules below. Ammended return Also see Uniform Capitalization Rules in  chapter 6. Ammended return Items to include in inventory. Ammended return   Your inventory should include all items held for sale, or for use as feed, seed, etc. Ammended return , whether raised or purchased, that are unsold at the end of the year. Ammended return Uniform capitalization rules. Ammended return   The following applies if you are required to use an accrual method of accounting. Ammended return The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. Ammended return The costs of animals are subject to the uniform capitalization rules. Ammended return Inventory valuation methods. Ammended return   The following methods, described below, are those generally available for valuing inventory. Ammended return The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Ammended return Cost. Ammended return Lower of cost or market. Ammended return Farm-price method. Ammended return Unit-livestock-price method. Ammended return Cost and lower of cost or market methods. Ammended return   See Publication 538 for information on these valuation methods. Ammended return If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. Ammended return However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. Ammended return Farm-price method. Ammended return   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Ammended return Market price is the current price at the nearest market in the quantities you usually sell. Ammended return Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. Ammended return If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. Ammended return Unit-livestock-price method. Ammended return   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. Ammended return You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. Ammended return The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Ammended return Unit prices and classifications are subject to approval by the IRS on examination of your return. Ammended return You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. Ammended return IRS approval is not required for these adjustments. Ammended return Any other changes in unit prices or classifications do require IRS approval. Ammended return   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. Ammended return This method accounts only for the increase in cost of raising an animal to maturity. Ammended return It does not provide for any decrease in the animal's market value after it reaches maturity. Ammended return Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Ammended return   Do not include sold or lost animals in the year-end inventory. Ammended return If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. Ammended return The animals on hand at the end of the year are considered those most recently acquired. Ammended return   You must include in inventory all livestock purchased primarily for sale. Ammended return You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. Ammended return However, you must be consistent from year to year, regardless of the method you have chosen. Ammended return You cannot change your method without obtaining approval from the IRS. Ammended return   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. Ammended return If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. Ammended return However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. Ammended return This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. Ammended return It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. Ammended return Uniform capitalization rules. Ammended return   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. Ammended return This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. Ammended return Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. Ammended return Example 1. Ammended return You are a farmer who uses an accrual method of accounting. Ammended return You keep your books on the calendar year basis. Ammended return You sell grain in December 2013 but you are not paid until January 2014. Ammended return Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. Ammended return Example 2. Ammended return Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. Ammended return Under this method, you include the sales proceeds in income for 2014, the year you receive payment. Ammended return Deduct the costs of producing the grain in the year you pay for them. Ammended return Special Methods of Accounting There are special methods of accounting for certain items of income and expense. Ammended return Crop method. Ammended return   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. Ammended return You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Ammended return Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. Ammended return    See chapter 4 for details on deducting the costs of operating a farm. Ammended return Also see Regulations section 1. Ammended return 162-12. Ammended return Other special methods. Ammended return   Other special methods of accounting apply to the following items. Ammended return Amortization, see chapter 7. Ammended return Casualties, see chapter 11. Ammended return Condemnations, see chapter 11. Ammended return Depletion, see chapter 7. Ammended return Depreciation, see chapter 7. Ammended return Farm business expenses, see chapter 4. Ammended return Farm income, see chapter 3. Ammended return Installment sales, see chapter 10. Ammended return Soil and water conservation expenses, see chapter 5. Ammended return Thefts, see chapter 11. Ammended return Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Ammended return However, the following restrictions apply. Ammended return If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Ammended return If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Ammended return Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). Ammended return Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. Ammended return You may also have to pay a fee. Ammended return To obtain approval, you must generally file Form 3115. Ammended return There are instances when you can obtain automatic consent to change certain methods of accounting. Ammended return See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. Ammended return For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. Ammended return Also see Publication 538. Ammended return Prev  Up  Next   Home   More Online Publications