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Free File State Return

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Suspicious e-Mails and Identity Theft

The Internal Revenue Service has issued several recent consumer warnings on the fraudulent use of the IRS name or logo by scamsters trying to gain access to consumers’ financial information in order to steal their identity and assets. When identity theft takes place over the Internet, it is called phishing.

Suspicious e-Mail/Phishing

Phishing (as in “fishing for information” and “hooking” victims) is a scam where Internet fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity. Current scams include phony e-mails which claim to come from the IRS and which lure the victims into the scam by telling them that they are due a tax refund.

Phishing and Other Schemes Using the IRS Name

The IRS periodically alerts taxpayers to, and maintains a list of, phishing schemes using the IRS name, logo or Web site clone. If you've received an e-mail, phone call or fax claiming to come from the IRS that seemed a little suspicious, you just may find it on this list.

News Releases

  • IR-2013-84, IRS Warns of Pervasive Telephone Scam
  • IR-2013-17, IRS Intensifies National Crackdown on Identity Theft; Part of Wider Effort to Protect Taxpayers, Prevent Refund Fraud
  • IR-2013-3, National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Tax Reform, IRS Funding and Identity Theft
  • IR-2012-29, Tax Scam Warning: Beware of Phony Refund Scheme Abusing Popular College Tax Credit; Senior Citizens, Working Families and Church Members Are Targets
  • IR-2012-23, IRS Releases the Dirty Dozen Tax Scams for 2012
  • IR-2011-73, IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams
  • IR-2009-71, IRS Alerts Public to New Identity Theft Scams
  • IR-2008-11, IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting
  • IR-2007-183, IRS Warns of E-Mail Scam Soliciting Donations to California Wildfire Victims
  • IR-2007-148, IRS Warns of New E-mail Scam Offering Cash for Participation in “Member Satisfaction Survey”
  • IR-2007-109, IRS Warns Taxpayers of New E-mail Scams
  • IR-2007-75, IRS Warns of Phony e-Mails Claiming to Come from the IRS
  • IR-2006-116, Electronic Federal Tax Payment System Cited in New E-mail Scam
  • IR-2006-104, IRS Renews E-mail Alert Following New Scams
  • IR-2006-49, IRS Establishes e-Mail Box for Taxpayers to Report Phony e-Mails

Fact Sheets

  • FS-2014-3, IRS Criminal Investigation Combats Identity Theft Refund Fraud
  • FS-2014-2, Tips for Taxpayers, Victims about Identity Theft and Tax Returns
  • FS-2014-1, IRS Combats Identity Theft and Refund Fraud on Many Fronts
  • FS-2013-4, IRS Criminal Investigation Combats Identity Theft Refund Fraud
  • FS-2013-3, Tips for Taxpayers, Victims about Identity Theft and Tax Returns
  • FS-2013-2, IRS Combats Identity Theft and Refund Fraud on Many Fronts 
  • FS-2012-7, Protect Yourself from Identity Theft
  • FS-2010-9, Online Scams that Impersonate the IRS
  • FS-2009-4, The Official Internal Revenue Service Web Site Is IRS.gov
  • FS-2008-9, Identity Theft E-mail Scams a Growing Problem

Videos

Articles

You Can Help Shut Down Phishing Schemes

The good news is that you can help shut down these schemes and prevent others from being victimized. If you receive a suspicious e-mail that claims to come from the IRS, you can relay that e-mail to a new IRS mailbox, phishing@irs.gov. Follow instructions in the link below for sending the bogus e-mail to ensure that it retains critical elements found in the original e-mail. The IRS can use the information, URLs and links in the suspicious e-mails you send to trace the hosting Web site and alert authorities to help shut down the fraudulent sites. Unfortunately, due to the expected volume, the IRS will not be able to acknowledge receipt or respond to you.

Identity Theft

Identity theft can be committed through e-mail (phishing) or other means, such as regular mail, fax or telephone, or even by going through someone's trash.

Identity theft occurs when someone uses your personal information such as your name, Social Security number or other identifying information without your permission to commit fraud or other crimes. Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their good name and credit record. In the meantime, victims may lose job opportunities, be refused loans, education, housing or cars, or even get arrested for crimes they didn't commit.

Employment Verification Contacts

You may receive a call from an IRS employee requesting verification of income and/or withholding information that has been reported to the IRS through other means. This contact may be made through a telephone call or a faxed request.  

If you receive a telephone call or a fax from someone claiming to be with the IRS and you are not comfortable providing the information, you should contact our customer service line at 1-800-829-4933 to verify the validity of the call or fax. You may then contact the IRS employee who requested the information and provide the required information.

Recent Schemes

The IRS periodically alerts taxpayers to schemes that fraudulently use the IRS name, logo or Web site clone to to gain access to consumers’ financial information in order to steal their identity and assets. The scams may take place through e-mail, fax or phone. The IRS also maintains a list of phishing and other schemes.

For more information on various schemes, see the following:

To Report Fraud

For other than phishing schemes, you may report the fraudulent misuse of the IRS name, logo, forms or other IRS property by calling the TIGTA toll-free hotline at 1-800-366-4484 or visiting the TIGTA Web site.

Other Federal Resources

For more information on understanding and preventing identity theft and suspicious e-mails (phishing), or dealing with their aftermath, check out the following federal resources:

Page Last Reviewed or Updated: 14-Mar-2014

The Free File State Return

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