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Federal Tax Preparation

Federal tax preparation 11. Federal tax preparation   Patient-Centered Outcomes Research Fee Table of Contents The patient-centered outcomes research fee is imposed on issuers of specified health insurance policies (section 4375) and plan sponsors of applicable self-insured health plans (section 4376) for policy and plan years ending on or after October 1, 2012. Federal tax preparation Generally, references to taxes on Form 720 include this fee. Federal tax preparation Specified health insurance policies. Federal tax preparation   For issuers of specified health insurance policies, the fee for a policy year ending before October 1, 2013, is $1. Federal tax preparation 00, multiplied by the average number of lives covered under the policy for that policy year. Federal tax preparation Generally, issuers of specified health insurance polices must use one of the following four alternative methods to determine the average number of lives covered under a policy for the policy year. Federal tax preparation The actual count method. Federal tax preparation For policy years that end on or after October 1, 2012, issuers using the actual count method may begin counting lives covered under a policy as of May 14, 2012, rather than the first day of the policy year, and divide by the appropriate number of days remaining in the policy year. Federal tax preparation The snapshot method. Federal tax preparation For policy years that end on or after October 1, 2012, but that began before May 14, 2012, issuers using the snapshot method may use counts from quarters beginning on or after May 14, 2012, to determine the average number of lives covered under the policy. Federal tax preparation The member months method. Federal tax preparation And, 4. Federal tax preparation The state form method. Federal tax preparation The member months data and the data reported on state forms are based on the calendar year. Federal tax preparation To adjust for 2012, issuers will use a pro rata approach for calculating the average number of lives covered using the member months method or the state form method for 2012. Federal tax preparation For example, issuers using the member months number for 2012 will divide the member months number by 12 and multiply the resulting number by one quarter to arrive at the average number of lives covered for October through December 2012. Federal tax preparation Applicable self-insured health plans. Federal tax preparation   For plan sponsors of applicable self-insured health plans, the fee for a plan year ending on or after October 1, 2012, and ending before October 1, 2013 is $1. Federal tax preparation 00, multiplied by the average number of lives covered under the plan for that plan year. Federal tax preparation Generally, plan sponsors of applicable self-insured health plans must use one of the following three alternative methods to determine the average number of lives covered under a plan for the plan year. Federal tax preparation Actual count method. Federal tax preparation Snapshot method. Federal tax preparation Form 5500 method. Federal tax preparation However, for plan years beginning before July 11, 2012, and ending on or after October 1, 2012, plan sponsors may determine the average number of lives covered under the plan for the plan year using any reasonable method. Federal tax preparation Reporting and paying the fee. Federal tax preparation   File Form 720 annually to report and pay the fee on the second quarter Form 720, no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. Federal tax preparation If you file Form 720 only to report the fee, do not file Form 720 for the 1st, 3rd, or 4th quarters of the year. Federal tax preparation If you file Form 720 to report quarterly excise tax liability for the 1st, 3rd, or 4th quarter of the year (for example, filers reporting the foreign insurance tax (IRS No. Federal tax preparation 30)), do not make an entry on the line for IRS No. Federal tax preparation 133 on those filings. Federal tax preparation   Deposits are not required for this fee, so issuers and plan sponsors are not required to pay the fee using Electronic Federal Tax Payment System (EFTPS). Federal tax preparation   However, if the fee is paid using EFTPS, the payment should be applied to the second quarter. Federal tax preparation See Electronic deposit requirement under How To Make Deposits in chapter 13, later. Federal tax preparation More information. Federal tax preparation   For more information, including methods for calculating the average number of lives covered, see sections 4375, 4376, and 4377; also see T. Federal tax preparation D. Federal tax preparation 9602, which is on page 746 of I. Federal tax preparation R. Federal tax preparation B. Federal tax preparation 2012-52 at www. Federal tax preparation irs. Federal tax preparation gov/pub/irs-irbs/irb12-52. Federal tax preparation pdf. Federal tax preparation Prev  Up  Next   Home   More Online Publications
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The Federal Tax Preparation

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