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File Corporate Tax Extension Online

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File Corporate Tax Extension Online

File corporate tax extension online Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). File corporate tax extension online Cost Basis The basis of property you buy is usually its cost. File corporate tax extension online The cost is the amount you pay in cash, debt obligations, other property, or services. File corporate tax extension online Your cost also includes amounts you pay for the following items. File corporate tax extension online Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). File corporate tax extension online  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. File corporate tax extension online Loans with low or no interest. File corporate tax extension online   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. File corporate tax extension online You generally have unstated interest if your interest rate is less than the applicable federal rate. File corporate tax extension online For more information, see Unstated Interest and Original Issue Discount in Publication 537. File corporate tax extension online Purchase of a business. File corporate tax extension online   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. File corporate tax extension online Allocate the price among the various assets, including any section 197 intangibles. File corporate tax extension online See Allocating the Basis, later. File corporate tax extension online Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. File corporate tax extension online If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. File corporate tax extension online You must adjust the basis of stocks for certain events that occur after purchase. File corporate tax extension online See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. File corporate tax extension online Identifying stock or bonds sold. File corporate tax extension online   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. File corporate tax extension online If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. File corporate tax extension online For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. File corporate tax extension online Mutual fund shares. File corporate tax extension online   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. File corporate tax extension online For more information, see Publication 550. File corporate tax extension online Real Property Real property, also called real estate, is land and generally anything built on or attached to it. File corporate tax extension online If you buy real property, certain fees and other expenses become part of your cost basis in the property. File corporate tax extension online Real estate taxes. File corporate tax extension online   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. File corporate tax extension online You cannot deduct them as taxes. File corporate tax extension online   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. File corporate tax extension online Do not include that amount in the basis of the property. File corporate tax extension online If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. File corporate tax extension online Settlement costs. File corporate tax extension online   Your basis includes the settlement fees and closing costs for buying property. File corporate tax extension online You cannot include in your basis the fees and costs for getting a loan on property. File corporate tax extension online A fee for buying property is a cost that must be paid even if you bought the property for cash. File corporate tax extension online   The following items are some of the settlement fees or closing costs you can include in the basis of your property. File corporate tax extension online Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. File corporate tax extension online   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. File corporate tax extension online   The following items are some settlement fees and closing costs you cannot include in the basis of the property. File corporate tax extension online Casualty insurance premiums. File corporate tax extension online Rent for occupancy of the property before closing. File corporate tax extension online Charges for utilities or other services related to occupancy of the property before closing. File corporate tax extension online Charges connected with getting a loan. File corporate tax extension online The following are examples of these charges. File corporate tax extension online Points (discount points, loan origination fees). File corporate tax extension online Mortgage insurance premiums. File corporate tax extension online Loan assumption fees. File corporate tax extension online Cost of a credit report. File corporate tax extension online Fees for an appraisal required by a lender. File corporate tax extension online Fees for refinancing a mortgage. File corporate tax extension online If these costs relate to business property, items (1) through (3) are deductible as business expenses. File corporate tax extension online Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. File corporate tax extension online Points. File corporate tax extension online   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. File corporate tax extension online Generally, you deduct the points over the term of the loan. File corporate tax extension online For more information on how to deduct points, see Points in chapter 4 of Publication 535. File corporate tax extension online Points on home mortgage. File corporate tax extension online   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. File corporate tax extension online If certain requirements are met, you can deduct the points in full for the year in which they are paid. File corporate tax extension online Reduce the basis of your home by any seller-paid points. File corporate tax extension online For more information, see Points in Publication 936, Home Mortgage Interest Deduction. File corporate tax extension online Assumption of mortgage. File corporate tax extension online   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. File corporate tax extension online Example. File corporate tax extension online If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. File corporate tax extension online Constructing assets. File corporate tax extension online   If you build property or have assets built for you, your expenses for this construction are part of your basis. File corporate tax extension online Some of these expenses include the following costs. File corporate tax extension online Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. File corporate tax extension online In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. File corporate tax extension online You must include them in the asset's basis. File corporate tax extension online Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. File corporate tax extension online    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. File corporate tax extension online Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. File corporate tax extension online If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. File corporate tax extension online In certain circumstances, you may be subject to the uniform capitalization rules, next. File corporate tax extension online Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. File corporate tax extension online Activities subject to the rules. File corporate tax extension online   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. File corporate tax extension online Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. File corporate tax extension online However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. File corporate tax extension online   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. File corporate tax extension online Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. File corporate tax extension online Tangible personal property includes films, sound recordings, video tapes, books, or similar property. File corporate tax extension online    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. File corporate tax extension online To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. File corporate tax extension online You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. File corporate tax extension online   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. File corporate tax extension online Example. File corporate tax extension online If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. File corporate tax extension online The nondeductible part of the cost is not subject to the uniform capitalization rules. File corporate tax extension online More information. File corporate tax extension online   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. File corporate tax extension online Exceptions. File corporate tax extension online   The following are not subject to the uniform capitalization rules. File corporate tax extension online Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. File corporate tax extension online For other exceptions to the uniform capitalization rules, see section 1. File corporate tax extension online 263A-1(b) of the regulations. File corporate tax extension online   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. File corporate tax extension online Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. File corporate tax extension online The basis of an intangible asset is usually the cost to buy or create it. File corporate tax extension online If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. File corporate tax extension online The basis of certain intangibles can be amortized. File corporate tax extension online See chapter 8 of Publication 535 for information on the amortization of these costs. File corporate tax extension online Patents. File corporate tax extension online   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. File corporate tax extension online If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. File corporate tax extension online The value of the inventor's time spent on an invention is not part of the basis. File corporate tax extension online Copyrights. File corporate tax extension online   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. File corporate tax extension online Do not include the value of your time as the author, or any other person's time you did not pay for. File corporate tax extension online Franchises, trademarks, and trade names. File corporate tax extension online   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. File corporate tax extension online Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. File corporate tax extension online You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. File corporate tax extension online See Trade or Business Acquired below. File corporate tax extension online Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. File corporate tax extension online If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. File corporate tax extension online However, see Trade or Business Acquired, next. File corporate tax extension online Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. File corporate tax extension online Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. File corporate tax extension online Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. File corporate tax extension online Certificates of deposit, U. File corporate tax extension online S. File corporate tax extension online Government securities, foreign currency, and actively traded personal property, including stock and securities. File corporate tax extension online Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. File corporate tax extension online Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. File corporate tax extension online All other assets except section 197 intangibles, goodwill, and going concern value. File corporate tax extension online Section 197 intangibles except goodwill and going concern value. File corporate tax extension online Goodwill and going concern value (whether or not they qualify as section 197 intangibles). File corporate tax extension online Agreement. File corporate tax extension online   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. File corporate tax extension online This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. File corporate tax extension online Reporting requirement. File corporate tax extension online   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. File corporate tax extension online Use Form 8594 to provide this information. File corporate tax extension online The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. File corporate tax extension online More information. File corporate tax extension online   See Sale of a Business in chapter 2 of Publication 544 for more information. File corporate tax extension online Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. File corporate tax extension online Figure the basis of each asset by multiplying the lump sum by a fraction. File corporate tax extension online The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. File corporate tax extension online If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. File corporate tax extension online Demolition of building. File corporate tax extension online   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. File corporate tax extension online Do not claim the costs as a current deduction. File corporate tax extension online Modification of building. File corporate tax extension online   A modification of a building will not be treated as a demolition if the following conditions are satisfied. File corporate tax extension online 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. File corporate tax extension online   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. File corporate tax extension online   If these conditions are met, add the costs of the modifications to the basis of the building. File corporate tax extension online Subdivided lots. File corporate tax extension online   If you buy a tract of land and subdivide it, you must determine the basis of each lot. File corporate tax extension online This is necessary because you must figure the gain or loss on the sale of each individual lot. File corporate tax extension online As a result, you do not recover your entire cost in the tract until you have sold all of the lots. File corporate tax extension online   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. File corporate tax extension online The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. File corporate tax extension online Future improvement costs. File corporate tax extension online   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. File corporate tax extension online See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. File corporate tax extension online Use of erroneous cost basis. File corporate tax extension online   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. File corporate tax extension online Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. File corporate tax extension online Example. File corporate tax extension online You bought a tract of land to which you assigned a cost of $15,000. File corporate tax extension online You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. File corporate tax extension online You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. File corporate tax extension online Several years later you determine that your original basis in the tract was $22,500 and not $15,000. File corporate tax extension online You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. File corporate tax extension online You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). File corporate tax extension online You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. File corporate tax extension online Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. File corporate tax extension online The result of these adjustments to the basis is the adjusted basis. File corporate tax extension online Increases to Basis Increase the basis of any property by all items properly added to a capital account. File corporate tax extension online These include the cost of any improvements having a useful life of more than 1 year. File corporate tax extension online Rehabilitation expenses also increase basis. File corporate tax extension online However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. File corporate tax extension online If you have to recapture any of the credit, increase your basis by the recaptured amount. File corporate tax extension online If you make additions or improvements to business property, keep separate accounts for them. File corporate tax extension online Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. File corporate tax extension online For more information, see Publication 946. File corporate tax extension online The following items increase the basis of property. File corporate tax extension online The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. File corporate tax extension online Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. File corporate tax extension online Do not deduct them as taxes. File corporate tax extension online However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. File corporate tax extension online Example. File corporate tax extension online Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. File corporate tax extension online Add the assessment to your property's basis. File corporate tax extension online In this example, the assessment is a depreciable asset. File corporate tax extension online Deducting vs. File corporate tax extension online Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. File corporate tax extension online For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. File corporate tax extension online However, you can choose either to deduct or to capitalize certain other costs. File corporate tax extension online If you capitalize these costs, include them in your basis. File corporate tax extension online If you deduct them, do not include them in your basis. File corporate tax extension online See Uniform Capitalization Rules earlier. File corporate tax extension online The costs you can choose to deduct or to capitalize include the following. File corporate tax extension online Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. File corporate tax extension online If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. File corporate tax extension online For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. File corporate tax extension online Table 1. File corporate tax extension online Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. File corporate tax extension online Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. File corporate tax extension online Some of these items are discussed next. File corporate tax extension online Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. File corporate tax extension online You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. File corporate tax extension online To make this determination, compare the repaired property to the property before the casualty. File corporate tax extension online For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. File corporate tax extension online Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. File corporate tax extension online It reduces the basis of the affected part of the property. File corporate tax extension online If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. File corporate tax extension online Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. File corporate tax extension online For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. File corporate tax extension online Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. File corporate tax extension online This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. File corporate tax extension online If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. File corporate tax extension online Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. File corporate tax extension online For more information about the section 179 deduction, see Publication 946. File corporate tax extension online Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. File corporate tax extension online Reduce the basis of the property for which you received the subsidy by the excluded amount. File corporate tax extension online For more information on this subsidy, see Publication 525. File corporate tax extension online Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. File corporate tax extension online If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. File corporate tax extension online If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. File corporate tax extension online Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. File corporate tax extension online If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. File corporate tax extension online In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. File corporate tax extension online For information on figuring depreciation, see Publication 946. File corporate tax extension online If you are claiming depreciation on a business vehicle, see Publication 463. File corporate tax extension online If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. File corporate tax extension online Include the excess depreciation in your gross income and add it to your basis in the property. File corporate tax extension online For information on the computation of excess depreciation, see chapter 4 in Publication 463. File corporate tax extension online Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. File corporate tax extension online A debt includes any indebtedness for which you are liable or which attaches to property you hold. File corporate tax extension online You can exclude canceled debt from income in the following situations. File corporate tax extension online Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). File corporate tax extension online If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. File corporate tax extension online However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. File corporate tax extension online For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. File corporate tax extension online For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. File corporate tax extension online For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. File corporate tax extension online Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. File corporate tax extension online For more information on the rules for the sale of a home, see Publication 523. File corporate tax extension online Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. File corporate tax extension online This also applies to amounts you received under an employer's adoption assistance program and excluded from income. File corporate tax extension online For more information Form 8839, Qualified Adoption Expenses. File corporate tax extension online Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. File corporate tax extension online You must reduce your basis in that property by the credit claimed. File corporate tax extension online For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. File corporate tax extension online Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. File corporate tax extension online You also paid commissions of $2,000 and title search and legal fees of $600. File corporate tax extension online You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. File corporate tax extension online Immediately you spent $20,000 in remodeling the building before you placed it in service. File corporate tax extension online You were allowed depreciation of $14,526 for the years 2005 through 2009. File corporate tax extension online In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. File corporate tax extension online You claimed a deduction for this loss. File corporate tax extension online You spent $5,500 to repair the damages and extend the useful life of the building. File corporate tax extension online The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. File corporate tax extension online It is not affected by any of the above adjustments. File corporate tax extension online Basis Other Than Cost There are many times when you cannot use cost as basis. File corporate tax extension online In these cases, the fair market value or the adjusted basis of property may be used. File corporate tax extension online Adjusted basis is discussed earlier. File corporate tax extension online Fair market value (FMV). File corporate tax extension online   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. File corporate tax extension online Sales of similar property on or about the same date may be helpful in figuring the property's FMV. File corporate tax extension online Property Received for Services If you receive property for services, include the property's FMV in income. File corporate tax extension online The amount you include in income becomes your basis. File corporate tax extension online If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. File corporate tax extension online Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. File corporate tax extension online If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. File corporate tax extension online Your basis in the property is its FMV (your purchase price plus the amount you include in income). File corporate tax extension online If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. File corporate tax extension online However, your basis in the property is still its FMV. File corporate tax extension online See Employee Discounts in Publication 15-B. File corporate tax extension online Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. File corporate tax extension online Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. File corporate tax extension online There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. File corporate tax extension online When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. File corporate tax extension online Example. File corporate tax extension online Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. File corporate tax extension online The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. File corporate tax extension online You do not report any income until you have completed the 5 years of service that satisfy the condition. File corporate tax extension online Fair market value. File corporate tax extension online   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. File corporate tax extension online Example. File corporate tax extension online You received stock from your employer for services you performed. File corporate tax extension online If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. File corporate tax extension online At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. File corporate tax extension online This is a restriction that by its terms will never end and you must consider it when you figure the FMV. File corporate tax extension online Election. File corporate tax extension online   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. File corporate tax extension online If you make this choice, the substantially vested rules do not apply. File corporate tax extension online Your basis is the amount you paid plus the amount you included in income. File corporate tax extension online   See the discussion of Restricted Property in Publication 525 for more information. File corporate tax extension online Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. File corporate tax extension online A taxable gain or deductible loss is also known as a recognized gain or loss. File corporate tax extension online If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. File corporate tax extension online A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. File corporate tax extension online Example. File corporate tax extension online You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. File corporate tax extension online You must report a taxable gain of $3,000 for the land. File corporate tax extension online The tractor has a basis of $6,000. File corporate tax extension online Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. File corporate tax extension online Similar or related property. File corporate tax extension online   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. File corporate tax extension online However, make the following adjustments. File corporate tax extension online Decrease the basis by the following. File corporate tax extension online Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. File corporate tax extension online Increase the basis by the following. File corporate tax extension online Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. File corporate tax extension online Money or property not similar or related. File corporate tax extension online   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. File corporate tax extension online Example. File corporate tax extension online The state condemned your property. File corporate tax extension online The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. File corporate tax extension online You realized a gain of $5,000 ($31,000 − $26,000). File corporate tax extension online You bought replacement property similar in use to the converted property for $29,000. File corporate tax extension online You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. File corporate tax extension online Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. File corporate tax extension online The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. File corporate tax extension online   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. File corporate tax extension online Example. File corporate tax extension online The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. File corporate tax extension online Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. File corporate tax extension online More information. File corporate tax extension online   For more information about condemnations, see Involuntary Conversions in Publication 544. File corporate tax extension online For more information about casualty and theft losses, see Publication 547. File corporate tax extension online Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. File corporate tax extension online If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. File corporate tax extension online A nontaxable gain or loss is also known as an unrecognized gain or loss. File corporate tax extension online Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. File corporate tax extension online To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. File corporate tax extension online There must also be an exchange of like-kind property. File corporate tax extension online For more information, see Like-Kind Exchanges in Publication 544. File corporate tax extension online The basis of the property you receive is the same as the basis of the property you gave up. File corporate tax extension online Example. File corporate tax extension online You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. File corporate tax extension online Your basis in the new property is the same as the basis of the old ($50,000). File corporate tax extension online Exchange expenses. File corporate tax extension online   Exchange expenses are generally the closing costs you pay. File corporate tax extension online They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. File corporate tax extension online Add them to the basis of the like-kind property received. File corporate tax extension online Property plus cash. File corporate tax extension online   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. File corporate tax extension online Example. File corporate tax extension online You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. File corporate tax extension online Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). File corporate tax extension online Special rules for related persons. File corporate tax extension online   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. File corporate tax extension online Each person must report any gain or loss not recognized on the original exchange. File corporate tax extension online Each person reports it on the tax return filed for the year in which the later disposition occurs. File corporate tax extension online If this rule applies, the basis of the property received in the original exchange will be its fair market value. File corporate tax extension online   These rules generally do not apply to the following kinds of property dispositions. File corporate tax extension online Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. File corporate tax extension online Related persons. File corporate tax extension online   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. File corporate tax extension online   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. File corporate tax extension online ), see Nondeductible Loss in chapter 2 of Publication 544. File corporate tax extension online Exchange of business property. File corporate tax extension online   Exchanging the assets of one business for the assets of another business is a multiple property exchange. File corporate tax extension online For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. File corporate tax extension online Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. File corporate tax extension online The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. File corporate tax extension online Decrease the basis by the following amounts. File corporate tax extension online Any money you receive, and Any loss you recognize on the exchange. File corporate tax extension online Increase the basis by the following amounts. File corporate tax extension online Any additional costs you incur, and Any gain you recognize on the exchange. File corporate tax extension online If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. File corporate tax extension online Example. File corporate tax extension online You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. File corporate tax extension online You realized a gain of $200 ($6,200 − $6,000). File corporate tax extension online This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). File corporate tax extension online You include all the gain in income (recognized gain) because the gain is less than the cash received. File corporate tax extension online Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. File corporate tax extension online   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. File corporate tax extension online The rest is the basis of the like property. File corporate tax extension online Example. File corporate tax extension online You had an adjusted basis of $15,000 in real estate you held for investment. File corporate tax extension online You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. File corporate tax extension online The truck is unlike property. File corporate tax extension online You realized a gain of $1,500 ($16,500 − $15,000). File corporate tax extension online This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). File corporate tax extension online You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. File corporate tax extension online Your basis in the properties you received is figured as follows. File corporate tax extension online Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). File corporate tax extension online This is the truck's FMV. File corporate tax extension online The rest ($12,500) is the basis of the real estate. File corporate tax extension online Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. File corporate tax extension online Example. File corporate tax extension online You are a salesperson and you use one of your cars 100% for business. File corporate tax extension online You have used this car in your sales activities for 2 years and have depreciated it. File corporate tax extension online Your adjusted basis in the car is $22,600 and its FMV is $23,100. File corporate tax extension online You are interested in a new car, which sells for $28,000. File corporate tax extension online If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). File corporate tax extension online However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. File corporate tax extension online Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). File corporate tax extension online Your basis for depreciating the new car is $27,500, the same as if you traded the old car. File corporate tax extension online Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. File corporate tax extension online The first is an exchange of like-kind property. File corporate tax extension online The second is personal-use property on which gain is recognized and loss is not recognized. File corporate tax extension online First, figure your adjusted basis in the property as if you transferred two separate properties. File corporate tax extension online Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. File corporate tax extension online Deduct the depreciation you took or could have taken from the adjusted basis of the business part. File corporate tax extension online Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. File corporate tax extension online The business part of the property is permitted to be exchanged tax free. File corporate tax extension online However, you must recognize any gain from the exchange of the nonbusiness part. File corporate tax extension online You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. File corporate tax extension online The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. File corporate tax extension online If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. File corporate tax extension online For more information, see Publication 523. File corporate tax extension online Trade of car used partly in business. File corporate tax extension online   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. File corporate tax extension online   For information on figuring your basis for depreciation, see Publication 463. File corporate tax extension online Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. File corporate tax extension online However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. File corporate tax extension online This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. File corporate tax extension online If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. File corporate tax extension online Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. File corporate tax extension online For more information on these bonds, see Publication 550. File corporate tax extension online At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. File corporate tax extension online For more information, see Publication 504, Divorced or Separated Individuals. File corporate tax extension online Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. File corporate tax extension online FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. File corporate tax extension online Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. File corporate tax extension online Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). File corporate tax extension online If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. File corporate tax extension online Example. File corporate tax extension online You received an acre of land as a gift. File corporate tax extension online At the time of the gift, the land had an FMV of $8,000. File corporate tax extension online The donor's adjusted basis was $10,000. File corporate tax extension online After you received the land, no events occurred to increase or decrease your basis. File corporate tax extension online If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. File corporate tax extension online If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. File corporate tax extension online If the sales price is between $8,000 and $10,000, you have neither gain nor loss. File corporate tax extension online For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. File corporate tax extension online If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. File corporate tax extension online Business property. File corporate tax extension online   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. File corporate tax extension online FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. File corporate tax extension online Increase your basis by all or part of any gift tax paid, depending on the date of the gift. File corporate tax extension online Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. File corporate tax extension online See Adjusted Basis earlier. File corporate tax extension online Gift received before 1977. File corporate tax extension online   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. File corporate tax extension online However, do not increase your basis above the FMV of the gift at the time it was given to you. File corporate tax extension online Example 1. File corporate tax extension online You were given a house in 1976 with an FMV of $21,000. File corporate tax extension online The donor's adjusted basis was $20,000. File corporate tax extension online The donor paid a gift tax of $500. File corporate tax extension online Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. File corporate tax extension online Example 2. File corporate tax extension online If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. File corporate tax extension online This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. File corporate tax extension online Gift received after 1976. File corporate tax extension online   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. File corporate tax extension online Figure the increase by multiplying the gift tax paid by a fraction. File corporate tax extension online The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. File corporate tax extension online   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. File corporate tax extension online The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. File corporate tax extension online For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. File corporate tax extension online Example. File corporate tax extension online In 2010, you received a gift of property from your mother that had an FMV of $50,000. File corporate tax extension online Her adjusted basis was $20,000. File corporate tax extension online The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). File corporate tax extension online She paid a gift tax of $9,000. File corporate tax extension online Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . File corporate tax extension online 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. File corporate tax extension online See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. File corporate tax extension online If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. File corporate tax extension online The FMV of the property at the date of the individual's death. File corporate tax extension online The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. File corporate tax extension online For information on the alternate valuation date, see the Instructions for Form 706. File corporate tax extension online The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. File corporate tax extension online This method is discussed later. File corporate tax extension online The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. File corporate tax extension online For information on a qualified conservation easement, see the Instructions for Form 706. File corporate tax extension online If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. File corporate tax extension online For more information, see the Instructions for Form 706. File corporate tax extension online Appreciated property. File corporate tax extension online   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. File corporate tax extension online Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. File corporate tax extension online Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. File corporate tax extension online Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. File corporate tax extension online When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. File corporate tax extension online For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. File corporate tax extension online For example, you and your spouse owned community property that had a basis of $80,000. File corporate tax extension online When your spouse died, half the FMV of the community interest was includible in your spouse's estate. File corporate tax extension online The FMV of the community interest was $100,000. File corporate tax extension online The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). File corporate tax extension online The basis of the other half to your spouse's heirs is also $50,000. File corporate tax extension online For more information on community property, see Publication 555, Community Property. File corporate tax extension online Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. File corporate tax extension online Example. File corporate tax extension online John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. File corporate tax extension online John furnished two-thirds of the purchase price and Jim furnished one-third. File corporate tax extension online Depreciation deductions allowed before John's death were $12,000. File corporate tax extension online Under local law, each had a half interest in the income from the property. File corporate tax extension online At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. File corporate tax extension online Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. File corporate tax extension online This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. File corporate tax extension online If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. File corporate tax extension online Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. File corporate tax extension online It does not matter how much each spouse contributed to the purchase price. File corporate tax extension online Also, it does not matter which spouse dies first. File corporate tax extension online A qualified joint interest is any interest in property held by husband and wife as either of the following. File corporate tax extension online Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. File corporate tax extension online Basis. File corporate tax extension online   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. File corporate tax extension online Decrease the cost by any deductions allowed to you for depreciation and depletion. File corporate tax extension online Increase the reduced cost by your basis in the half you inherited. File corporate tax extension online Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. File corporate tax extension online If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. File corporate tax extension online If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. File corporate tax extension online Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. File corporate tax extension online Special-use valuation. File corporate tax extension online   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. File corporate tax extension online Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. File corporate tax extension online Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. File corporate tax extension online Figure all FMVs without regard to the special-use valuation. File corporate tax extension online   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. File corporate tax extension online This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. File corporate tax extension online   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. File corporate tax extension online If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. File corporate tax extension online The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. File corporate tax extension online   You make the election by filing with Form 706-A a statement that does all of the following. File corporate tax extension online Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. File corporate tax extension online   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. File corporate tax extension online Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. File corporate tax extension online An example of changing property held for personal use to business use would be renting out your former main home. File corporate tax extension online Basis for depreciation. File corporate tax extension online   The basis for depreciation is the lesser of the following amounts. File corporate tax extension online The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. File corporate tax extension online Example. File corporate tax extension online Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. File corporate tax extension online You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. File corporate tax extension online Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. File corporate tax extension online Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). File corporate tax extension online On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. File corporate tax extension online The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). File corporate tax extension online Sale of property. File corporate tax extension online   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. File corporate tax extension online Gain. File corporate tax extension online   The basis for figuring a gain is your adjusted basis when you sell the property. File corporate tax extension online Example. File corporate tax extension online Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. File corporate tax extension online Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). File corporate tax extension online Loss. File corporate tax extension online   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. File corporate tax extension online Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. File corporate tax extension online Example. File corporate tax extension online Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. File corporate tax extension online In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. File corporate tax extension online Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). File corporate tax extension online How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. File corporate tax extension online By selecting the method that is best for you, you will have quick and easy access to tax help. File corporate tax extension online Contacting your Taxpayer Advocate. File corporate tax extension online   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. File corporate tax extension online We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. File corporate tax extension online Here are seven things every taxpayer should know about TAS. File corporate tax extension online TAS is your voice at the IRS. File corporate tax extension online Our service is free, confidential, and tailored to meet your needs. File corporate tax extension online You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. 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File corporate tax extension online Publication 547 - Main Content Table of Contents CasualtyFamily pet. File corporate tax extension online Progressive deterioration. File corporate tax extension online Special Procedure for Damage From Corrosive Drywall Theft Loss on Deposits Proof of Loss Figuring a LossGain from reimbursement. File corporate tax extension online Business or income-producing property. File corporate tax extension online Loss of inventory. File corporate tax extension online Leased property. File corporate tax extension online Exception for personal-use real property. File corporate tax extension online 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. File corporate tax extension online Lessee's loss. File corporate tax extension online Disaster Area LossesDisaster loss to inventory. File corporate tax extension online Main home in disaster area. File corporate tax extension online Unsafe home. File corporate tax extension online Time limit for making choice. File corporate tax extension online Revoking your choice. File corporate tax extension online Figuring the loss deduction. File corporate tax extension online How to report the loss on Form 1040X. File corporate tax extension online Records. File corporate tax extension online 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. File corporate tax extension online Property held more than 1 year. File corporate tax extension online Depreciable property. File corporate tax extension online 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. File corporate tax extension online A sudden event is one that is swift, not gradual or progressive. File corporate tax extension online An unexpected event is one that is ordinarily unanticipated and unintended. File corporate tax extension online 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. File corporate tax extension online Generally, casualty losses are deductible during the taxable year that the loss occurred. File corporate tax extension online See Table 3, later. File corporate tax extension online Deductible losses. File corporate tax extension online   Deductible casualty losses can result from a number of different causes, including the following. File corporate tax extension online Car accidents (but see Nondeductible losses , next, for exceptions). File corporate tax extension online Earthquakes. File corporate tax extension online Fires (but see Nondeductible losses , next, for exceptions). File corporate tax extension online Floods. File corporate tax extension online Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses , later. File corporate tax extension online Mine cave-ins. File corporate tax extension online Shipwrecks. File corporate tax extension online Sonic booms. File corporate tax extension online Storms, including hurricanes and tornadoes. File corporate tax extension online Terrorist attacks. File corporate tax extension online Vandalism. File corporate tax extension online Volcanic eruptions. File corporate tax extension online Nondeductible losses. File corporate tax extension online   A casualty loss is not deductible if the damage or destruction is caused by the following. File corporate tax extension online Accidentally breaking articles such as glassware or china under normal conditions. File corporate tax extension online A family pet (explained below). File corporate tax extension online A fire if you willfully set it, or pay someone else to set it. File corporate tax extension online A car accident if your willful negligence or willful act caused it. File corporate tax extension online The same is true if the willful act or willful negligence of someone acting for you caused the accident. File corporate tax extension online Progressive deterioration (explained below). File corporate tax extension online However, see Special Procedure for Damage From Corrosive Drywall , later. File corporate tax extension online Family pet. File corporate tax extension online   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. File corporate tax extension online Example. File corporate tax extension online Your antique oriental rug was damaged by your new puppy before it was housebroken. File corporate tax extension online Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. File corporate tax extension online Progressive deterioration. File corporate tax extension online   Loss of property due to progressive deterioration is not deductible as a casualty loss. File corporate tax extension online This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. File corporate tax extension online The following are examples of damage due to progressive deterioration. File corporate tax extension online The steady weakening of a building due to normal wind and weather conditions. File corporate tax extension online The deterioration and damage to a water heater that bursts. File corporate tax extension online However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. File corporate tax extension online Most losses of property caused by droughts. File corporate tax extension online To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. File corporate tax extension online Termite or moth damage. File corporate tax extension online The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. File corporate tax extension online However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. File corporate tax extension online 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. File corporate tax extension online Under this procedure, you treat the amounts paid for repairs as a casualty loss in the year of payment. File corporate tax extension online 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. File corporate tax extension online Note. File corporate tax extension online 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. File corporate tax extension online S. File corporate tax extension online Individual Income Tax Return, and attaching a completed Form 4684 for the appropriate year. File corporate tax extension online Form 4684 for the appropriate year can be found at IRS. File corporate tax extension online gov. File corporate tax extension online 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. File corporate tax extension online Corrosive drywall. File corporate tax extension online   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. File corporate tax extension online The revised identification guidance and remediation guidelines are available at www. File corporate tax extension online cpsc. File corporate tax extension online gov/Safety-Education/Safety-Education-Centers/Drywall. File corporate tax extension online Special instructions for completing Form 4684. File corporate tax extension online   If you choose to follow this special procedure, complete Form 4684, Section A, according to the instructions below. File corporate tax extension online 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. File corporate tax extension online Top margin of Form 4684. File corporate tax extension online   Enter “Revenue Procedure 2010-36”. File corporate tax extension online Line 1. File corporate tax extension online   Enter the information required by the line 1 instructions. File corporate tax extension online Line 2. File corporate tax extension online   Skip this line. File corporate tax extension online Line 3. File corporate tax extension online   Enter the amount of insurance or other reimbursements you received (including through litigation). File corporate tax extension online If none, enter -0-. File corporate tax extension online Lines 4–7. File corporate tax extension online   Skip these lines. File corporate tax extension online Line 8. File corporate tax extension online   Enter the amount you paid to repair the damage to your home and household appliances due to corrosive drywall. File corporate tax extension online Enter only the amounts you paid to restore your home to the condition existing immediately before the damage. File corporate tax extension online Do not enter any amounts you paid for improvements or additions that increased the value of your home above its pre-loss value. File corporate tax extension online 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). File corporate tax extension online Line 9. File corporate tax extension online   If line 8 is more than line 3, do one of the following. File corporate tax extension online If you have a pending claim for reimbursement (or you intend to pursue reimbursement), enter 75% of the difference between lines 3 and 8. File corporate tax extension online If item (1) does not apply to you, enter the full amount of the difference between lines 3 and 8. File corporate tax extension online If line 8 is less than or equal to line 3, you cannot claim a casualty loss deduction using this special procedure. File corporate tax extension online    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. File corporate tax extension online See Reimbursement Received After Deducting Loss, later. File corporate tax extension online Lines 10–18. File corporate tax extension online   Complete these lines according to the Instructions for Form 4684. File corporate tax extension online Choosing not to follow this special procedure. File corporate tax extension online   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. File corporate tax extension online 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 . File corporate tax extension online Furthermore, you must have proof that shows the following. File corporate tax extension online The loss is properly deductible in the tax year you claimed it and not in some other year. File corporate tax extension online See When To Report Gains and Losses , later. File corporate tax extension online The amount of the claimed loss. File corporate tax extension online See Proof of Loss , later. File corporate tax extension online No claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery. File corporate tax extension online See When To Report Gains and Losses , later. File corporate tax extension online Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. File corporate tax extension online 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. File corporate tax extension online You do not need to show a conviction for theft. File corporate tax extension online Theft includes the taking of money or property by the following means. File corporate tax extension online Blackmail. File corporate tax extension online Burglary. File corporate tax extension online Embezzlement. File corporate tax extension online Extortion. File corporate tax extension online Kidnapping for ransom. File corporate tax extension online Larceny. File corporate tax extension online Robbery. File corporate tax extension online The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. File corporate tax extension online Decline in market value of stock. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online You report a capital loss on Schedule D (Form 1040). File corporate tax extension online For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. File corporate tax extension online Mislaid or lost property. File corporate tax extension online    The simple disappearance of money or property is not a theft. File corporate tax extension online 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. File corporate tax extension online Sudden, unexpected, and unusual events were defined earlier under Casualty . File corporate tax extension online Example. File corporate tax extension online A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. File corporate tax extension online The diamond falls from the ring and is never found. File corporate tax extension online The loss of the diamond is a casualty. File corporate tax extension online Losses from Ponzi-type investment schemes. File corporate tax extension online   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. File corporate tax extension online R. File corporate tax extension online B. File corporate tax extension online 735 (available at www. File corporate tax extension online irs. File corporate tax extension online gov/irb/2009-14_IRB/ar07. File corporate tax extension online html). File corporate tax extension online Revenue Procedure 2009-20, 2009-14 I. File corporate tax extension online R. File corporate tax extension online B. File corporate tax extension online 749 (available at www. File corporate tax extension online irs. File corporate tax extension online gov/irb/2009-14_IRB/ar11. File corporate tax extension online html). File corporate tax extension online Revenue Procedure 2011-58, 2011-50 I. File corporate tax extension online R. File corporate tax extension online B. File corporate tax extension online 847 (available at www. File corporate tax extension online irs. File corporate tax extension online gov/irb/2011-50_IRB/ar11. File corporate tax extension online html). File corporate tax extension online 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. File corporate tax extension online Skip lines 19 to 27, but you must fill out Section B, lines 29 to 39, as appropriate. File corporate tax extension online Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. File corporate tax extension online You do not need to complete Appendix A. File corporate tax extension online For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. File corporate tax extension online   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. File corporate tax extension online Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. File corporate tax extension online If you incurred this type of loss, you can choose one of the following ways to deduct the loss. File corporate tax extension online As a casualty loss. File corporate tax extension online As an ordinary loss. File corporate tax extension online As a nonbusiness bad debt. File corporate tax extension online Casualty loss or ordinary loss. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online Once you make the choice, you cannot change it without permission from the Internal Revenue Service. File corporate tax extension online   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. File corporate tax extension online The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. File corporate tax extension online Your loss is subject to the 2%-of-adjusted-gross-income limit. File corporate tax extension online You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. File corporate tax extension online Nonbusiness bad debt. File corporate tax extension online   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. File corporate tax extension online How to report. File corporate tax extension online   The kind of deduction you choose for your loss on deposits determines how you report your loss. File corporate tax extension online See Table 1. File corporate tax extension online More information. File corporate tax extension online   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684. File corporate tax extension online Deducted loss recovered. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online For more information, see Recoveries in Publication 525. File corporate tax extension online Proof of Loss To deduct a casualty or theft loss, you must be able to show that there was a casualty or theft. File corporate tax extension online You also must be able to support the amount you take as a deduction. File corporate tax extension online Casualty loss proof. File corporate tax extension online   For a casualty loss, you should be able to show all of the following. File corporate tax extension online The type of casualty (car accident, fire, storm, etc. File corporate tax extension online ) and when it occurred. File corporate tax extension online That the loss was a direct result of the casualty. File corporate tax extension online 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. File corporate tax extension online Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. File corporate tax extension online Theft loss proof. File corporate tax extension online   For a theft loss, you should be able to show all of the following. File corporate tax extension online When you discovered that your property was missing. File corporate tax extension online That your property was stolen. File corporate tax extension online That you were the owner of the property. File corporate tax extension online Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. File corporate tax extension online    It is important that you have records that will prove your deduction. File corporate tax extension online If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. File corporate tax extension online Figuring a Loss To determine your deduction for a casualty or theft loss, you must first figure your loss. File corporate tax extension online Table 1. File corporate tax extension online Reporting Loss on Deposits IF you choose to report the loss as a(n). File corporate tax extension online . File corporate tax extension online . File corporate tax extension online   THEN report it on. File corporate tax extension online . File corporate tax extension online . File corporate tax extension online casualty loss   Form 4684 and Schedule A  (Form 1040). File corporate tax extension online ordinary loss   Schedule A (Form 1040). File corporate tax extension online nonbusiness bad debt   Form 8949 and Schedule D (Form 1040). File corporate tax extension online Amount of loss. File corporate tax extension online   Figure the amount of your loss using the following steps. File corporate tax extension online Determine your adjusted basis in the property before the casualty or theft. File corporate tax extension online Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. File corporate tax extension online From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. File corporate tax extension online 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. File corporate tax extension online Gain from reimbursement. File corporate tax extension online   If your reimbursement is more than your adjusted basis in the property, you have a gain. File corporate tax extension online This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. File corporate tax extension online If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. File corporate tax extension online See Figuring a Gain , later. File corporate tax extension online Business or income-producing property. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online   There are two ways you can deduct a casualty or theft loss of inventory, including items you hold for sale to customers. File corporate tax extension online   One way is to deduct the loss through the increase in the cost of goods sold by properly reporting your opening and closing inventories. File corporate tax extension online Do not claim this loss again as a casualty or theft loss. File corporate tax extension online 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. File corporate tax extension online   The other way is to deduct the loss separately. File corporate tax extension online 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. File corporate tax extension online Reduce the loss by the reimbursement you received. File corporate tax extension online Do not include the reimbursement in gross income. File corporate tax extension online 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. File corporate tax extension online Leased property. File corporate tax extension online   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. File corporate tax extension online Separate computations. File corporate tax extension online   Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. File corporate tax extension online Then combine the losses to determine the total loss from that casualty or theft. File corporate tax extension online Exception for personal-use real property. File corporate tax extension online   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. File corporate tax extension online Figure the loss using the smaller of the following. File corporate tax extension online The decrease in FMV of the entire property. File corporate tax extension online The adjusted basis of the entire property. File corporate tax extension online   See Real property under Figuring the Deduction, later. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online FMV of stolen property. File corporate tax extension online   The FMV of property immediately after a theft is considered to be zero because you no longer have the property. File corporate tax extension online Example. File corporate tax extension online Several years ago, you purchased silver dollars at face value for $150. File corporate tax extension online This is your adjusted basis in the property. File corporate tax extension online Your silver dollars were stolen this year. File corporate tax extension online The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. File corporate tax extension online Your theft loss is $150. File corporate tax extension online Recovered stolen property. File corporate tax extension online   Recovered stolen property is your property that was stolen and later returned to you. File corporate tax extension online 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. File corporate tax extension online Use this amount to refigure your total loss for the year in which the loss was deducted. File corporate tax extension online   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. File corporate tax extension online But report the difference only up to the amount of the loss that reduced your tax. File corporate tax extension online For more information on the amount to report, see Recoveries in Publication 525. File corporate tax extension online 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. File corporate tax extension online However, other measures also can be used to establish certain decreases. File corporate tax extension online See Appraisal and Cost of cleaning up or making repairs , next. File corporate tax extension online Appraisal. File corporate tax extension online   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. File corporate tax extension online The appraiser must recognize the effects of any general market decline that may occur along with the casualty. File corporate tax extension online This information is needed to limit any deduction to the actual loss resulting from damage to the property. File corporate tax extension online   Several factors are important in evaluating the accuracy of an appraisal, including the following. File corporate tax extension online The appraiser's familiarity with your property before and after the casualty or theft. File corporate tax extension online The appraiser's knowledge of sales of comparable property in the area. File corporate tax extension online The appraiser's knowledge of conditions in the area of the casualty. File corporate tax extension online The appraiser's method of appraisal. File corporate tax extension online 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. File corporate tax extension online For more information on disasters, see Disaster Area Losses, later. File corporate tax extension online Cost of cleaning up or making repairs. File corporate tax extension online   The cost of repairing damaged property is not part of a casualty loss. File corporate tax extension online Neither is the cost of cleaning up after a casualty. File corporate tax extension online 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. File corporate tax extension online The repairs are actually made. File corporate tax extension online The repairs are necessary to bring the property back to its condition before the casualty. File corporate tax extension online The amount spent for repairs is not excessive. File corporate tax extension online The repairs take care of the damage only. File corporate tax extension online The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. File corporate tax extension online Landscaping. File corporate tax extension online   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. File corporate tax extension online You may be able to measure your loss by what you spend on the following. File corporate tax extension online Removing destroyed or damaged trees and shrubs, minus any salvage you receive. File corporate tax extension online Pruning and other measures taken to preserve damaged trees and shrubs. File corporate tax extension online Replanting necessary to restore the property to its approximate value before the casualty. File corporate tax extension online Car value. File corporate tax extension online   Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online If your car is not listed in the books, determine its value from other sources. File corporate tax extension online A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. File corporate tax extension online 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. File corporate tax extension online Cost of protection. File corporate tax extension online   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. File corporate tax extension online The amount you spend on insurance or to board up your house against a storm is not part of your loss. File corporate tax extension online If the property is business property, these expenses are deductible as business expenses. File corporate tax extension online   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. File corporate tax extension online An example would be the cost of a dike to prevent flooding. File corporate tax extension online Exception. File corporate tax extension online   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 ). File corporate tax extension online Related expenses. File corporate tax extension online   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. File corporate tax extension online However, they may be deductible as business expenses if the damaged or stolen property is business property. File corporate tax extension online Replacement cost. File corporate tax extension online   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. File corporate tax extension online Example. File corporate tax extension online You bought a new chair 4 years ago for $300. File corporate tax extension online In April, a fire destroyed the chair. File corporate tax extension online You estimate that it would cost $500 to replace it. File corporate tax extension online 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. File corporate tax extension online The chair was not insured. File corporate tax extension online Your loss is $100, the FMV of the chair before the fire. File corporate tax extension online It is not $500, the replacement cost. File corporate tax extension online Sentimental value. File corporate tax extension online   Do not consider sentimental value when determining your loss. File corporate tax extension online 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. File corporate tax extension online Decline in market value of property in or near casualty area. File corporate tax extension online   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. File corporate tax extension online You have a loss only for actual casualty damage to your property. File corporate tax extension online However, if your home is in a federally declared disaster area, see Disaster Area Losses , later. File corporate tax extension online Costs of photographs and appraisals. File corporate tax extension online   Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. File corporate tax extension online Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. File corporate tax extension online   Appraisals are used to figure the decrease in FMV because of a casualty or theft. File corporate tax extension online See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. File corporate tax extension online   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. File corporate tax extension online They are expenses in determining your tax liability. File corporate tax extension online You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). File corporate tax extension online Adjusted Basis The measure of your investment in the property you own is its basis. File corporate tax extension online For property you buy, your basis is usually its cost to you. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online Adjustments to basis. File corporate tax extension online    While you own the property, various events may take place that change your basis. File corporate tax extension online Some events, such as additions or permanent improvements to the property, increase basis. File corporate tax extension online Others, such as earlier casualty losses and depreciation deductions, decrease basis. File corporate tax extension online When you add the increases to the basis and subtract the decreases from the basis, the result is your adjusted basis. File corporate tax extension online See Publication 551 for more information on figuring the basis of your property. File corporate tax extension online Insurance and Other Reimbursements If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. File corporate tax extension online You do not have a casualty or theft loss to the extent you are reimbursed. File corporate tax extension online If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. File corporate tax extension online You must reduce your loss even if you do not receive payment until a later tax year. File corporate tax extension online See Reimbursement Received After Deducting Loss , later. File corporate tax extension online Failure to file a claim for reimbursement. File corporate tax extension online   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. File corporate tax extension online Otherwise, you cannot deduct this loss as a casualty or theft. File corporate tax extension online The portion of the loss usually not covered by insurance (for example, a deductible) is not subject to this rule. File corporate tax extension online Example. File corporate tax extension online You have a car insurance policy with a $1,000 deductible. File corporate tax extension online 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). File corporate tax extension online This is true, even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. File corporate tax extension online Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. File corporate tax extension online Other types of reimbursements are discussed next. File corporate tax extension online Also see the Instructions for Form 4684. File corporate tax extension online Employer's emergency disaster fund. File corporate tax extension online   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. File corporate tax extension online Take into consideration only the amount you used to replace your destroyed or damaged property. File corporate tax extension online Example. File corporate tax extension online Your home was extensively damaged by a tornado. File corporate tax extension online Your loss after reimbursement from your insurance company was $10,000. File corporate tax extension online Your employer set up a disaster relief fund for its employees. File corporate tax extension online Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. File corporate tax extension online You received $4,000 from the fund and spent the entire amount on repairs to your home. File corporate tax extension online In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. File corporate tax extension online Your casualty loss before applying the deduction limits (discussed later) is $6,000. File corporate tax extension online Cash gifts. File corporate tax extension online   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. File corporate tax extension online This applies even if you use the money to pay for repairs to property damaged in the disaster. File corporate tax extension online Example. File corporate tax extension online Your home was damaged by a hurricane. File corporate tax extension online Relatives and neighbors made cash gifts to you that were excludable from your income. File corporate tax extension online You used part of the cash gifts to pay for repairs to your home. File corporate tax extension online There were no limits or restrictions on how you could use the cash gifts. File corporate tax extension online 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. File corporate tax extension online Insurance payments for living expenses. File corporate tax extension online   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. File corporate tax extension online You lose the use of your main home because of a casualty. File corporate tax extension online Government authorities do not allow you access to your main home because of a casualty or threat of one. File corporate tax extension online Inclusion in income. File corporate tax extension online   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. File corporate tax extension online Report this amount on Form 1040, line 21. File corporate tax extension online However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. File corporate tax extension online See Qualified disaster relief payments , later, under Disaster Area Losses. File corporate tax extension online   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. File corporate tax extension online Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. File corporate tax extension online Generally, these expenses include the amounts you pay for the following. File corporate tax extension online Renting suitable housing. File corporate tax extension online Transportation. File corporate tax extension online Food. File corporate tax extension online Utilities. File corporate tax extension online Miscellaneous services. File corporate tax extension online 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. File corporate tax extension online Example. File corporate tax extension online As a result of a fire, you vacated your apartment for a month and moved to a motel. File corporate tax extension online You normally pay $525 a month for rent. File corporate tax extension online None was charged for the month the apartment was vacated. File corporate tax extension online Your motel rent for this month was $1,200. File corporate tax extension online You normally pay $200 a month for food. File corporate tax extension online Your food expenses for the month you lived in the motel were $400. File corporate tax extension online You received $1,100 from your insurance company to cover your living expenses. File corporate tax extension online You determine the payment you must include in income as follows. File corporate tax extension online 1. File corporate tax extension online Insurance payment for living expenses $1,100 2. File corporate tax extension online Actual expenses during the month you are unable to use your home because of the fire $1,600   3. File corporate tax extension online Normal living expenses 725   4. File corporate tax extension online Temporary increase in living expenses: Subtract line 3  from line 2 875 5. File corporate tax extension online Amount of payment includible in income: Subtract line 4 from line 1 $ 225 Tax year of inclusion. File corporate tax extension online   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. File corporate tax extension online Example. File corporate tax extension online Your main home was destroyed by a tornado in August 2011. File corporate tax extension online You regained use of your home in November 2012. File corporate tax extension online The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. File corporate tax extension online You include this amount in income on your 2012 Form 1040. File corporate tax extension online 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. File corporate tax extension online Disaster relief. File corporate tax extension online   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. File corporate tax extension online Table 2. File corporate tax extension online 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. File corporate tax extension online Apply this rule to personal-use property after you have figured the amount of your loss. File corporate tax extension online You must reduce your total casualty or theft loss by 10% of your adjusted gross income. File corporate tax extension online Apply this rule to personal-use property after you reduce each loss by $100 (the $100 rule). File corporate tax extension online You must reduce your total casualty or theft loss by 2% of your adjusted gross income. File corporate tax extension online 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. File corporate tax extension online Single Event Apply this rule only once, even if many pieces of property are affected. File corporate tax extension online Apply this rule only once, even if many pieces of property are affected. File corporate tax extension online Apply this rule only once, even if many pieces of property are affected. File corporate tax extension online More Than One Event Apply to the loss from each event. File corporate tax extension online Apply to the total of all your losses from all events. File corporate tax extension online Apply to the total of all your losses from all events. File corporate tax extension online More Than One Person— With Loss From the   Same Event  (other than a married couple  filing jointly) Apply separately to each person. File corporate tax extension online Apply separately to each person. File corporate tax extension online Apply separately to each person. File corporate tax extension online Married Couple—  With Loss From the  Same Event Filing Joint Return Apply as if you were one person. File corporate tax extension online Apply as if you were one person. File corporate tax extension online Apply as if you were one person. File corporate tax extension online Filing Separate Return Apply separately to each spouse. File corporate tax extension online Apply separately to each spouse. File corporate tax extension online Apply separately to each spouse. File corporate tax extension online More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. File corporate tax extension online Apply separately to each owner of jointly owned property. File corporate tax extension online Apply separately to each owner of jointly owned property. File corporate tax extension online    Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster, are not taxable income to you. File corporate tax extension online For more information, see Qualified disaster relief payments under Disaster Area Losses, later. File corporate tax extension online   Disaster unemployment assistance payments are unemployment benefits that are taxable. File corporate tax extension online   Generally, disaster relief grants received under the Robert T. File corporate tax extension online Stafford Disaster Relief and Emergency Assistance Act are not included in your income. File corporate tax extension online See Federal disaster relief grants , later, under Disaster Area Losses. File corporate tax extension online Loan proceeds. File corporate tax extension online   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. File corporate tax extension online If you have a federal loan that is canceled (forgiven), see Federal loan canceled , later, under Disaster Area Losses. File corporate tax extension online 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. File corporate tax extension online This section explains the adjustment you may have to make. File corporate tax extension online Actual reimbursement less than expected. File corporate tax extension online   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. File corporate tax extension online Example. File corporate tax extension online Your personal car had a FMV of $2,000 when it was destroyed in a collision with another car in 2012. File corporate tax extension online The accident was due to the negligence of the other driver. File corporate tax extension online At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. File corporate tax extension online You did not have a deductible loss in 2012. File corporate tax extension online In January 2013, the court awards you a judgment of $2,000. File corporate tax extension online However, in July it becomes apparent that you will be unable to collect any amount from the other driver. File corporate tax extension online 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). File corporate tax extension online Actual reimbursement more than expected. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online You do not refigure your tax for the year you claimed the deduction. File corporate tax extension online See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. File corporate tax extension online Example. File corporate tax extension online In 2012, a hurricane destroyed your motorboat. File corporate tax extension online Your loss was $3,000, and you estimated that your insurance would cover $2,500 of it. File corporate tax extension online You did not itemize deductions on your 2012 return, so you could not deduct the loss. File corporate tax extension online When the insurance company reimburses you for the loss, you do not report any of the reimbursement as income. File corporate tax extension online This is true even if it is for the full $3,000 because you did not deduct the loss on your 2012 return. File corporate tax extension online The loss did not reduce your tax. File corporate tax extension online    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. File corporate tax extension online 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. File corporate tax extension online Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. File corporate tax extension online You may be able to postpone reporting any remaining gain as explained under Postponement of Gain, later. File corporate tax extension online Actual reimbursement same as expected. File corporate tax extension online   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. File corporate tax extension online Example. File corporate tax extension online In December 2013, you had a collision while driving your personal car. File corporate tax extension online Repairs to the car cost $950. File corporate tax extension online You had $100 deductible collision insurance. File corporate tax extension online Your insurance company agreed to reimburse you for the rest of the damage. File corporate tax extension online Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. File corporate tax extension online Due to the $100 rule, you cannot deduct the $100 you paid as the deductible. File corporate tax extension online When you receive the $850 from the insurance company in 2014, do not report it as income. File corporate tax extension online Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. File corporate tax extension online The deduction for casualty and theft losses of employee property and personal-use property is limited. File corporate tax extension online A loss on employee property is subject to the 2% rule, discussed next. File corporate tax extension online With certain exceptions, a loss on property you own for your personal use is subject to the $100 and 10% rules, discussed later. File corporate tax extension online The 2%, $100, and 10% rules are also summarized in Table 2 . File corporate tax extension online Losses on business property (other than employee property) and income-producing property are not subject to these rules. File corporate tax extension online However, if your casualty or theft loss involved a home you used for business or rented out, your deductible loss may be limited. File corporate tax extension online See the Instructions for Form 4684, Section B. File corporate tax extension online If the casualty or theft loss involved property used in a passive activity, see Form 8582, Passive Activity Loss Limitations, and its instructions. File corporate tax extension online 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. File corporate tax extension online Employee property is property used in performing services as an employee. File corporate tax extension online $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. File corporate tax extension online This reduction applies to each total casualty or theft loss. File corporate tax extension online It does not matter how many pieces of property are involved in an event. File corporate tax extension online Only a single $100 reduction applies. File corporate tax extension online Example. File corporate tax extension online You have $750 deductible collision insurance on your car. File corporate tax extension online The car is damaged in a collision. File corporate tax extension online The insurance company pays you for the damage minus the $750 deductible. File corporate tax extension online The amount of the casualty loss is based solely on the deductible. File corporate tax extension online The casualty loss is $650 ($750 − $100) because the first $100 of a casualty loss on personal-use property is not deductible. File corporate tax extension online Single event. File corporate tax extension online   Generally, events closely related in origin cause a single casualty. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online Example 1. File corporate tax extension online A thunderstorm destroyed your pleasure boat. File corporate tax extension online You also lost some boating equipment in the storm. File corporate tax extension online Your loss was $5,000 on the boat and $1,200 on the equipment. File corporate tax extension online Your insurance company reimbursed you $4,500 for the damage to your boat. File corporate tax extension online You had no insurance coverage on the equipment. File corporate tax extension online Your casualty loss is from a single event and the $100 rule applies once. File corporate tax extension online Figure your loss before applying the 10% rule (discussed later) as follows. File corporate tax extension online     Boat Equipment 1. File corporate tax extension online Loss $5,000 $1,200 2. File corporate tax extension online Subtract insurance 4,500 -0- 3. File corporate tax extension online Loss after reimbursement $ 500 $1,200 4. File corporate tax extension online Total loss $1,700 5. File corporate tax extension online Subtract $100 100 6. File corporate tax extension online Loss before 10% rule $1,600 Example 2. File corporate tax extension online Thieves broke into your home in January and stole a ring and a fur coat. File corporate tax extension online You had a loss of $200 on the ring and $700 on the coat. File corporate tax extension online This is a single theft. File corporate tax extension online The $100 rule applies to the total $900 loss. File corporate tax extension online Example 3. File corporate tax extension online In September, hurricane winds blew the roof off your home. File corporate tax extension online Flood waters caused by the hurricane further damaged your home and destroyed your furniture and personal car. File corporate tax extension online This is considered a single casualty. File corporate tax extension online The $100 rule is applied to your total loss from the flood waters and the wind. File corporate tax extension online More than one loss. File corporate tax extension online   If you have more than one casualty or theft loss during your tax year, you must reduce each loss by $100. File corporate tax extension online Example. File corporate tax extension online Your family car was damaged in an accident in January. File corporate tax extension online Your loss after the insurance reimbursement was $75. File corporate tax extension online In February, your car was damaged in another accident. File corporate tax extension online This time your loss after the insurance reimbursement was $90. File corporate tax extension online Apply the $100 rule to each separate casualty loss. File corporate tax extension online Since neither accident resulted in a loss of over $100, you are not entitled to any deduction for these accidents. File corporate tax extension online More than one person. File corporate tax extension online   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. File corporate tax extension online Example. File corporate tax extension online A fire damaged your house and also damaged the personal property of your house guest. File corporate tax extension online You must reduce your loss by $100. File corporate tax extension online Your house guest must reduce his or her loss by $100. File corporate tax extension online Married taxpayers. File corporate tax extension online   If you and your spouse file a joint return, you are treated as one individual in applying the $100 rule. File corporate tax extension online It does not matter whether you own the property jointly or separately. File corporate tax extension online   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. File corporate tax extension online This is true even if you own the property jointly. File corporate tax extension online If one spouse owns the property, only that spouse can figure a loss deduction on a separate return. File corporate tax extension online   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. File corporate tax extension online Neither of you can figure your deduction on the entire loss on a separate return. File corporate tax extension online Each of you must reduce the loss by $100. File corporate tax extension online More than one owner. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online Apply this rule after you reduce each loss by $100. File corporate tax extension online For more information, see the Form 4684 instructions. File corporate tax extension online If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. File corporate tax extension online Example. File corporate tax extension online In June, you discovered that your house had been burglarized. File corporate tax extension online Your loss after insurance reimbursement was $2,000. File corporate tax extension online Your adjusted gross income for the year you discovered the theft is $29,500. File corporate tax extension online Figure your theft loss as follows. File corporate tax extension online 1. File corporate tax extension online Loss after insurance $2,000 2. File corporate tax extension online Subtract $100 100 3. File corporate tax extension online Loss after $100 rule $1,900 4. File corporate tax extension online Subtract 10% of $29,500 AGI $2,950 5. File corporate tax extension online 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). File corporate tax extension online More than one loss. File corporate tax extension online   If you have more than one casualty or theft loss during your tax year, reduce each loss by any reimbursement and by $100. File corporate tax extension online Then you must reduce the total of all your losses by 10% of your adjusted gross income. File corporate tax extension online Example. File corporate tax extension online In March, you had a car accident that totally destroyed your car. File corporate tax extension online You did not have collision insurance on your car, so you did not receive any insurance reimbursement. File corporate tax extension online Your loss on the car was $1,800. File corporate tax extension online In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items you had stored there. File corporate tax extension online Your loss on the basement items after reimbursement was $2,100. File corporate tax extension online Your adjusted gross income for the year that the accident and fire occurred is $25,000. File corporate tax extension online You figure your casualty loss deduction as follows. File corporate tax extension online     Car Basement 1. File corporate tax extension online Loss $1,800 $2,100 2. File corporate tax extension online Subtract $100 per incident 100 100 3. File corporate tax extension online Loss after $100 rule $1,700 $2,000 4. File corporate tax extension online Total loss $3,700 5. File corporate tax extension online Subtract 10% of $25,000 AGI 2,500 6. File corporate tax extension online Casualty loss deduction $1,200 Married taxpayers. File corporate tax extension online   If you and your spouse file a joint return, you are treated as one individual in applying the 10% rule. File corporate tax extension online It does not matter if you own the property jointly or separately. File corporate tax extension online   If you file separate returns, the 10% rule applies to each return on which a loss is claimed. File corporate tax extension online More than one owner. File corporate tax extension online   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. File corporate tax extension online Gains and losses. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online Casualty or theft gains do not include gains you choose to postpone. File corporate tax extension online See Postponement of Gain, later. File corporate tax extension online Losses more than gains. File corporate tax extension online   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. File corporate tax extension online The rest, if any, is your deductible loss from personal-use property. File corporate tax extension online Example. File corporate tax extension online Your theft loss after reducing it by reimbursements and by $100 is $2,700. File corporate tax extension online Your casualty gain is $700. File corporate tax extension online 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. File corporate tax extension online Gains more than losses. File corporate tax extension online   If your recognized gains are more than your losses, subtract your losses from your gains. File corporate tax extension online The difference is treated as a capital gain and must be reported on Schedule D (Form 1040). File corporate tax extension online The 10% rule does not apply to your gains. File corporate tax extension online Example. File corporate tax extension online Your theft loss is $600 after reducing it by reimbursements and by $100. File corporate tax extension online Your casualty gain is $1,600. File corporate tax extension online Because your gain is more than your loss, you must report the $1,000 net gain ($1,600 − $600) on Schedule D (Form 1040). File corporate tax extension online More information. File corporate tax extension online   For information on how to figure recognized gains, see Figuring a Gain , later. File corporate tax extension online Figuring the Deduction Generally, you must figure your loss separately for each item stolen, damaged, or destroyed. File corporate tax extension online However, a special rule applies to real property you own for personal use. File corporate tax extension online Real property. File corporate tax extension online   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. File corporate tax extension online Example 1. File corporate tax extension online In June, a fire destroyed your lakeside cottage, which cost $144,800 (including $14,500 for the land) several years ago. File corporate tax extension online (Your land was not damaged. File corporate tax extension online ) This was your only casualty or theft loss for the year. File corporate tax extension online The FMV of the property immediately before the fire was $180,000 ($145,000 for the cottage and $35,000 for the land). File corporate tax extension online The FMV immediately after the fire was $35,000 (value of the land). File corporate tax extension online You collected $130,000 from the insurance company. File corporate tax extension online Your adjusted gross income for the year the fire occurred is $80,000. File corporate tax extension online Your deduction for the casualty loss is $6,700, figured in the following manner. File corporate tax extension online 1. File corporate tax extension online Adjusted basis of the entire property (cost in this example) $144,800 2. File corporate tax extension online FMV of entire property  before fire $180,000 3. File corporate tax extension online FMV of entire property after fire 35,000 4. File corporate tax extension online Decrease in FMV of entire property (line 2 − line 3) $145,000 5. File corporate tax extension online Loss (smaller of line 1 or line 4) $144,800 6. File corporate tax extension online Subtract insurance 130,000 7. File corporate tax extension online Loss after reimbursement $14,800 8. File corporate tax extension online Subtract $100 100 9. File corporate tax extension online Loss after $100 rule $14,700 10. File corporate tax extension online Subtract 10% of $80,000 AGI 8,000 11. File corporate tax extension online Casualty loss deduction $ 6,700 Example 2. File corporate tax extension online You bought your home a few years ago. File corporate tax extension online You paid $150,000 ($10,000 for the land and $140,000 for the house). File corporate tax extension online You also spent an additional $2,000 for landscaping. File corporate tax extension online This year a fire destroyed your home. File corporate tax extension online The fire also damaged the shrubbery and trees in your yard. File corporate tax extension online The fire was your only casualty or theft loss this year. File corporate tax extension online Competent appraisers valued the property as a whole at $175,000 before the fire, but only $50,000 after the fire. File corporate tax extension online Shortly after the fire, the insurance company paid you $95,000 for the loss. File corporate tax extension online Your adjusted gross income for this year is $70,000. File corporate tax extension online You figure your casualty loss deduction as follows. File corporate tax extension online 1. File corporate tax extension online Adjusted basis of the entire property (cost of land, building, and landscaping) $152,000 2. File corporate tax extension online FMV of entire property  before fire $175,000 3. File corporate tax extension online FMV of entire property after fire 50,000 4. File corporate tax extension online Decrease in FMV of entire property (line 2 − line 3) $125,000 5. File corporate tax extension online Loss (smaller of line 1 or line 4) $125,000 6. File corporate tax extension online Subtract insurance 95,000 7. File corporate tax extension online Loss after reimbursement $30,000 8. File corporate tax extension online Subtract $100 100 9. File corporate tax extension online Loss after $100 rule $29,900 10. File corporate tax extension online Subtract 10% of $70,000 AGI 7,000 11. File corporate tax extension online Casualty loss deduction $ 22,900 Personal property. File corporate tax extension online   Personal property is any property that is not real property. File corporate tax extension online 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. File corporate tax extension online Then combine these separate losses to figure the total loss. File corporate tax extension online Reduce the total loss by $100 and 10% of your adjusted gross income to figure the loss deduction. File corporate tax extension online Example 1. File corporate tax extension online In August, a storm destroyed your pleasure boat, which cost $18,500. File corporate tax extension online This was your only casualty or theft loss for the year. File corporate tax extension online Its FMV immediately before the storm was $17,000. File corporate tax extension online You had no insurance, but were able to salvage the motor of the boat and sell it for $200. File corporate tax extension online Your adjusted gross income for the year the casualty occurred is $70,000. File corporate tax extension online Although the motor was sold separately, it is part of the boat and not a separate item of property. File corporate tax extension online You figure your casualty loss deduction as follows. File corporate tax extension online 1. File corporate tax extension online Adjusted basis (cost in this example) $18,500 2. File corporate tax extension online FMV before storm $17,000 3. File corporate tax extension online FMV after storm 200 4. File corporate tax extension online Decrease in FMV  (line 2 − line 3) $16,800 5. File corporate tax extension online Loss (smaller of line 1 or line 4) $16,800 6. File corporate tax extension online Subtract insurance -0- 7. File corporate tax extension online Loss after reimbursement $16,800 8. File corporate tax extension online Subtract $100 100 9. File corporate tax extension online Loss after $100 rule $16,700 10. File corporate tax extension online Subtract 10% of $70,000 AGI 7,000 11. File corporate tax extension online Casualty loss deduction $ 9,700 Example 2. File corporate tax extension online In June, you were involved in an auto accident that totally destroyed your personal car and your antique pocket watch. File corporate tax extension online You had bought the car for $30,000. File corporate tax extension online The FMV of the car just before the accident was $17,500. File corporate tax extension online Its FMV just after the accident was $180 (scrap value). File corporate tax extension online Your insurance company reimbursed you $16,000. File corporate tax extension online Your watch was not insured. File corporate tax extension online You had purchased it for $250. File corporate tax extension online Its FMV just before the accident was $500. File corporate tax extension online Your adjusted gross income for the year the accident occurred is $97,000. File corporate tax extension online Your casualty loss deduction is zero, figured as follows. File corporate tax extension online     Car Watch 1. File corporate tax extension online Adjusted basis (cost) $30,000 $250 2. File corporate tax extension online FMV before accident $17,500 $500 3. File corporate tax extension online FMV after accident 180 -0- 4. File corporate tax extension online Decrease in FMV (line 2 − line 3) $17,320 $500 5. File corporate tax extension online Loss (smaller of line 1 or line 4) $17,320 $250 6. File corporate tax extension online Subtract insurance 16,000 -0- 7. File corporate tax extension online Loss after reimbursement $1,320 $250 8. File corporate tax extension online Total loss $1,570 9. File corporate tax extension online Subtract $100 100 10. File corporate tax extension online Loss after $100 rule $1,470 11. File corporate tax extension online Subtract 10% of $97,000 AGI 9,700 12. File corporate tax extension online Casualty loss deduction $ -0- Both real and personal properties. File corporate tax extension online   When a casualty involves both real and personal properties, you must figure the loss separately for each type of property. File corporate tax extension online However, you apply a single $100 reduction to the total loss. File corporate tax extension online Then, you apply the 10% rule to figure the casualty loss deduction. File corporate tax extension online Example. File corporate tax extension online In July, a hurricane damaged your home, which cost you $164,000 including land. File corporate tax extension online 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. File corporate tax extension online Your household furnishings were also damaged. File corporate tax extension online You separately figured the loss on each damaged household item and arrived at a total loss of $600. File corporate tax extension online You collected $50,000 from the insurance company for the damage to your home, but your household furnishings were not insured. File corporate tax extension online Your adjusted gross income for the year the hurricane occurred is $65,000. File corporate tax extension online You figure your casualty loss deduction from the hurricane in the following manner. File corporate tax extension online 1. File corporate tax extension online Adjusted basis of real property (cost in this example) $164,000 2. File corporate tax extension online FMV of real property before hurricane $170,000 3. File corporate tax extension online FMV of real property after hurricane 100,000 4. File corporate tax extension online Decrease in FMV of real property (line 2 − line 3) $70,000 5. File corporate tax extension online Loss on real property (smaller of line 1 or line 4) $70,000 6. File corporate tax extension online Subtract insurance 50,000 7. File corporate tax extension online Loss on real property after reimbursement $20,000 8. File corporate tax extension online Loss on furnishings $600 9. File corporate tax extension online Subtract insurance -0- 10. File corporate tax extension online Loss on furnishings after reimbursement $600 11. File corporate tax extension online Total loss (line 7 plus line 10) $20,600 12. File corporate tax extension online Subtract $100 100 13. File corporate tax extension online Loss after $100 rule $20,500 14. File corporate tax extension online Subtract 10% of $65,000 AGI 6,500 15. File corporate tax extension online Casualty loss deduction $14,000 Property used partly for business and partly for personal purposes. File corporate tax extension online   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. File corporate tax extension online You must figure each loss separately because the losses attributed to these two uses are figured in two different ways. File corporate tax extension online 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. File corporate tax extension online The $100 rule and the 10% rule apply only to the casualty or theft loss on the personal-use portion of the property. File corporate tax extension online Example. File corporate tax extension online You own a building that you constructed on leased land. File corporate tax extension online You use half of the building for your business and you live in the other half. File corporate tax extension online The cost of the building was $400,000. File corporate tax extension online You made no further improvements or additions to it. File corporate tax extension online A flood in March damaged the entire building. File corporate tax extension online The FMV of the building was $380,000 immediately before the flood and $320,000 afterwards. File corporate tax extension online Your insurance company reimbursed you $40,000 for the flood damage. File corporate tax extension online Depreciation on the business part of the building before the flood totaled $24,000. File corporate tax extension online Your adjusted gross income for the year the flood occurred is $125,000. File corporate tax extension online You have a deductible business casualty loss of $10,000. File corporate tax extension online You do not have a deductible personal casualty loss because of the 10% rule. File corporate tax extension online You figure your loss as follows. File corporate tax extension online     Business   Personal     Part   Part 1. File corporate tax extension online Cost (total $400,000) $200,000   $200,000 2. File corporate tax extension online Subtract depreciation 24,000   -0- 3. File corporate tax extension online Adjusted basis $176,000   $200,000 4. File corporate tax extension online FMV before flood (total $380,000) $190,000   $190,000 5. File corporate tax extension online FMV after flood (total $320,000) 160,000   160,000 6. File corporate tax extension online Decrease in FMV  (line 4 − line 5) $30,000   $30,000 7. File corporate tax extension online Loss (smaller of line 3 or line 6) $30,000   $30,000 8. File corporate tax extension online Subtract insurance 20,000   20,000 9. File corporate tax extension online Loss after reimbursement $10,000   $10,000 10. File corporate tax extension online Subtract $100 on personal-use property -0-   100 11. File corporate tax extension online Loss after $100 rule $10,000   $9,900 12. File corporate tax extension online Subtract 10% of $125,000 AGI on personal-use property -0-   12,500 13. File corporate tax extension online Deductible business loss $10,000     14. File corporate tax extension online 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. File corporate tax extension online Your gain is figured as follows. File corporate tax extension online The amount you receive (discussed next), minus Your adjusted basis in the property at the time of the casualty or theft. File corporate tax extension online See Adjusted Basis , earlier, for information on adjusted basis. File corporate tax extension online 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. File corporate tax extension online Amount you receive. File corporate tax extension online   The amount you receive includes any money plus the value of any property you receive minus any expenses you have in obtaining reimbursement. File corporate tax extension online It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. File corporate tax extension online Example. File corporate tax extension online A hurricane destroyed your personal residence and the insurance company awarded you $145,000. File corporate tax extension online You received $140,000 in cash. File corporate tax extension online The remaining $5,000 was paid directly to the holder of a mortgage on the property. File corporate tax extension online The amount you received includes the $5,000 reimbursement paid on the mortgage. File corporate tax extension online Main home destroyed. File corporate tax extension online   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. File corporate tax extension online You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). File corporate tax extension online 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. File corporate tax extension online For information on this exclusion, see Publication 523. File corporate tax extension online 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. File corporate tax extension online See Postponement of Gain , later. File corporate tax extension online Reporting a gain. File corporate tax extension online   You generally must report your gain as income in the year you receive the reimbursement. File corporate tax extension online 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. File corporate tax extension online   For information on how to report a gain, see How To Report Gains and Losses , later. File corporate tax extension online    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. File corporate tax extension online See 10% Rule under Deduction Limits, earlier. File corporate tax extension online 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. File corporate tax extension online Your basis in the new property is generally the same as your adjusted basis in the property it replaces. File corporate tax extension online You must ordinarily report the gain on your stolen or destroyed property if you receive money or unlike property as reimbursement. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online See Controlling interest in a corporation , later. File corporate tax extension online If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. File corporate tax extension online To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. File corporate tax extension online 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. File corporate tax extension online Example. File corporate tax extension online In 1970, you bought an oceanfront cottage for your personal use at a cost of $18,000. File corporate tax extension online You made no further improvements or additions to it. File corporate tax extension online When a storm destroyed the cottage this January, the cottage was worth $250,000. File corporate tax extension online You received $146,000 from the insurance company in March. File corporate tax extension online You had a gain of $128,000 ($146,000 − $18,000). File corporate tax extension online You spent $144,000 to rebuild the cottage. File corporate tax extension online Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. File corporate tax extension online Buying replacement property from a related person. File corporate tax extension online   You cannot postpone reporting a gain from a casualty or theft if you buy the replacement property from a related person (discussed later). File corporate tax extension online This rule applies to the following taxpayers. File corporate tax extension online C corporations. File corporate tax extension online Partnerships in which more than 50% of the capital or profits interests is owned by C corporations. File corporate tax extension online 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. File corporate tax extension online 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. File corporate tax extension online If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. File corporate tax extension online If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. File corporate tax extension online Exception. File corporate tax extension online   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. File corporate tax extension online Related persons. File corporate tax extension online   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. File corporate tax extension online For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. File corporate tax extension online Death of a taxpayer. File corporate tax extension online   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. File corporate tax extension online 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. File corporate tax extension online Replacement Property You must buy replacement property for the specific purpose of replacing your destroyed or stolen property. File corporate tax extension online Property you acquire as a gift or inheritance does not qualify. File corporate tax extension online You do not have to use the same funds you receive as