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