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File For Extension 2012 Taxes

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File For Extension 2012 Taxes

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

File for extension 2012 taxes 3. File for extension 2012 taxes   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. File for extension 2012 taxes Leveraged leases. File for extension 2012 taxes Leveraged leases of limited-use property. File for extension 2012 taxes Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. File for extension 2012 taxes It also discusses how to treat other kinds of payments you make that are related to your use of this property. File for extension 2012 taxes These include payments you make for taxes on the property. File for extension 2012 taxes Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. File for extension 2012 taxes In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. File for extension 2012 taxes If you have or will receive equity in or title to the property, the rent is not deductible. File for extension 2012 taxes Unreasonable rent. File for extension 2012 taxes   You cannot take a rental deduction for unreasonable rent. File for extension 2012 taxes Ordinarily, the issue of reasonableness arises only if you and the lessor are related. File for extension 2012 taxes Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. File for extension 2012 taxes Rent is not unreasonable just because it is figured as a percentage of gross sales. File for extension 2012 taxes For examples of related persons, see Related persons in chapter 2, Publication 544. File for extension 2012 taxes Rent on your home. File for extension 2012 taxes   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. File for extension 2012 taxes You must meet the requirements for business use of your home. File for extension 2012 taxes For more information, see Business use of your home in chapter 1. File for extension 2012 taxes Rent paid in advance. File for extension 2012 taxes   Generally, rent paid in your trade or business is deductible in the year paid or accrued. File for extension 2012 taxes If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. File for extension 2012 taxes You can deduct the rest of your payment only over the period to which it applies. File for extension 2012 taxes Example 1. File for extension 2012 taxes You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. File for extension 2012 taxes Your rent is $12,000 per year. File for extension 2012 taxes You paid the first year's rent ($12,000) on June 30. File for extension 2012 taxes You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. File for extension 2012 taxes Example 2. File for extension 2012 taxes You are a calendar year taxpayer. File for extension 2012 taxes Last January you leased property for 3 years for $6,000 a year. File for extension 2012 taxes You paid the full $18,000 (3 × $6,000) during the first year of the lease. File for extension 2012 taxes Each year you can deduct only $6,000, the part of the lease that applies to that year. File for extension 2012 taxes Canceling a lease. File for extension 2012 taxes   You generally can deduct as rent an amount you pay to cancel a business lease. File for extension 2012 taxes Lease or purchase. File for extension 2012 taxes   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. File for extension 2012 taxes You must first determine whether your agreement is a lease or a conditional sales contract. File for extension 2012 taxes Payments made under a conditional sales contract are not deductible as rent expense. File for extension 2012 taxes Conditional sales contract. File for extension 2012 taxes   Whether an agreement is a conditional sales contract depends on the intent of the parties. File for extension 2012 taxes Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. File for extension 2012 taxes No single test, or special combination of tests, always applies. File for extension 2012 taxes However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. File for extension 2012 taxes The agreement applies part of each payment toward an equity interest you will receive. File for extension 2012 taxes You get title to the property after you make a stated amount of required payments. File for extension 2012 taxes The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. File for extension 2012 taxes You pay much more than the current fair rental value of the property. File for extension 2012 taxes You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. File for extension 2012 taxes Determine this value when you make the agreement. File for extension 2012 taxes You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. File for extension 2012 taxes The agreement designates part of the payments as interest, or that part is easy to recognize as interest. File for extension 2012 taxes Leveraged leases. File for extension 2012 taxes   Leveraged lease transactions may not be considered leases. File for extension 2012 taxes Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. File for extension 2012 taxes Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. File for extension 2012 taxes   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. File for extension 2012 taxes Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. File for extension 2012 taxes Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. File for extension 2012 taxes Internal Revenue Bulletin 2001-19 is available at www. File for extension 2012 taxes irs. File for extension 2012 taxes gov/pub/irs-irbs/irb01-19. File for extension 2012 taxes pdf. File for extension 2012 taxes   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. File for extension 2012 taxes The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. File for extension 2012 taxes The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. File for extension 2012 taxes The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. File for extension 2012 taxes The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. File for extension 2012 taxes The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. File for extension 2012 taxes   The IRS may charge you a user fee for issuing a tax ruling. File for extension 2012 taxes For more information, see Revenue Procedure 2014-1 available at  www. File for extension 2012 taxes irs. File for extension 2012 taxes gov/irb/2014-1_IRB/ar05. File for extension 2012 taxes html. File for extension 2012 taxes Leveraged leases of limited-use property. File for extension 2012 taxes   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. File for extension 2012 taxes Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. File for extension 2012 taxes See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. File for extension 2012 taxes Leases over $250,000. File for extension 2012 taxes   Special rules are provided for certain leases of tangible property. File for extension 2012 taxes The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. File for extension 2012 taxes Rents increase during the lease. File for extension 2012 taxes Rents decrease during the lease. File for extension 2012 taxes Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). File for extension 2012 taxes Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). File for extension 2012 taxes These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). File for extension 2012 taxes   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. File for extension 2012 taxes In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. File for extension 2012 taxes For details, see section 467 of the Internal Revenue Code. File for extension 2012 taxes Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. File for extension 2012 taxes When you can deduct these taxes as additional rent depends on your accounting method. File for extension 2012 taxes Cash method. File for extension 2012 taxes   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. File for extension 2012 taxes Accrual method. File for extension 2012 taxes   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. File for extension 2012 taxes That you have a liability for taxes on the leased property. File for extension 2012 taxes How much the liability is. File for extension 2012 taxes That economic performance occurred. File for extension 2012 taxes   The liability and amount of taxes are determined by state or local law and the lease agreement. File for extension 2012 taxes Economic performance occurs as you use the property. File for extension 2012 taxes Example 1. File for extension 2012 taxes Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. File for extension 2012 taxes Oak leases land for use in its business. File for extension 2012 taxes Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. File for extension 2012 taxes However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. File for extension 2012 taxes Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. File for extension 2012 taxes If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. File for extension 2012 taxes Oak cannot deduct the real estate taxes as rent until the tax bill is issued. File for extension 2012 taxes This is when Oak's liability under the lease becomes fixed. File for extension 2012 taxes Example 2. File for extension 2012 taxes The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. File for extension 2012 taxes As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. File for extension 2012 taxes This is the year in which Oak's liability under the lease becomes fixed. File for extension 2012 taxes Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. File for extension 2012 taxes Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. File for extension 2012 taxes If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. File for extension 2012 taxes For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. File for extension 2012 taxes The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. File for extension 2012 taxes Option to renew. File for extension 2012 taxes   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. File for extension 2012 taxes However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). File for extension 2012 taxes Allocate the lease cost to the original term and any option term based on the facts and circumstances. File for extension 2012 taxes In some cases, it may be appropriate to make the allocation using a present value computation. File for extension 2012 taxes For more information, see Regulations section 1. File for extension 2012 taxes 178-1(b)(5). File for extension 2012 taxes Example 1. File for extension 2012 taxes You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. File for extension 2012 taxes Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. File for extension 2012 taxes Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. File for extension 2012 taxes That is the remaining life of your present lease plus the periods for renewal. File for extension 2012 taxes Example 2. File for extension 2012 taxes The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. File for extension 2012 taxes You can amortize the entire $10,000 over the 20-year remaining life of the original lease. File for extension 2012 taxes The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). File for extension 2012 taxes Cost of a modification agreement. File for extension 2012 taxes   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. File for extension 2012 taxes You must capitalize these payments and amortize them over the remaining period of the lease. File for extension 2012 taxes You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. File for extension 2012 taxes Example. File for extension 2012 taxes You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. File for extension 2012 taxes However, before you occupy it, you decide that you really need less space. File for extension 2012 taxes The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. File for extension 2012 taxes In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. File for extension 2012 taxes   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. File for extension 2012 taxes Your amortization deduction each year will be $150 ($3,000 ÷ 20). File for extension 2012 taxes You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. File for extension 2012 taxes Commissions, bonuses, and fees. File for extension 2012 taxes   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. File for extension 2012 taxes You must amortize these costs over the term of the lease. File for extension 2012 taxes Loss on merchandise and fixtures. File for extension 2012 taxes   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. File for extension 2012 taxes You must capitalize the loss and amortize it over the remaining term of the lease. File for extension 2012 taxes Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). File for extension 2012 taxes Depreciate the property over its appropriate recovery period. File for extension 2012 taxes You cannot amortize the cost over the remaining term of the lease. File for extension 2012 taxes If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. File for extension 2012 taxes For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. File for extension 2012 taxes Assignment of a lease. File for extension 2012 taxes   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. File for extension 2012 taxes If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. File for extension 2012 taxes The rest is for your investment in the permanent improvements. File for extension 2012 taxes   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. File for extension 2012 taxes You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. File for extension 2012 taxes Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. File for extension 2012 taxes Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. File for extension 2012 taxes You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. File for extension 2012 taxes Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. File for extension 2012 taxes Uniform capitalization rules. File for extension 2012 taxes   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. File for extension 2012 taxes Produce real property or tangible personal property. File for extension 2012 taxes For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. File for extension 2012 taxes Acquire property for resale. File for extension 2012 taxes However, these rules do not apply to the following property. File for extension 2012 taxes Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. File for extension 2012 taxes Property you produce if you meet either of the following conditions. File for extension 2012 taxes Your indirect costs of producing the property are $200,000 or less. File for extension 2012 taxes You use the cash method of accounting and do not account for inventories. File for extension 2012 taxes Example 1. File for extension 2012 taxes You rent construction equipment to build a storage facility. File for extension 2012 taxes If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. File for extension 2012 taxes You recover your cost by claiming a deduction for depreciation on the building. File for extension 2012 taxes Example 2. File for extension 2012 taxes You rent space in a facility to conduct your business of manufacturing tools. File for extension 2012 taxes If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. File for extension 2012 taxes More information. File for extension 2012 taxes   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. File for extension 2012 taxes Prev  Up  Next   Home   More Online Publications