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H&r Block Military

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H&r Block Military

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

H&r block military 3. H&r block military   Credit for Withholding and Estimated Tax for 2013 Table of Contents Introduction Topics - This chapter discusses: WithholdingForm W-2 Form W-2G The 1099 Series Form Not Correct Form Received After Filing Separate Returns Fiscal Years (FY) Estimated TaxSeparate Returns Divorced Taxpayers Excess Social Security or Railroad Retirement Tax WithholdingJoint returns. H&r block military Worksheet for Nonrailroad Employees Worksheets for Railroad Employees Introduction When you file your 2013 income tax return, take credit for all the income tax and excess social security or railroad retirement tax withheld from your salary, wages, pensions, etc. H&r block military Also take credit for the estimated tax you paid for 2013. H&r block military These credits are subtracted from your total tax. H&r block military Because these credits are refundable, you should file a return and claim these credits, even if you do not owe tax. H&r block military If the total of your withholding and your estimated tax payments for any payment period is less than the amount you needed to pay by the due date for that period, you may be charged a penalty, even if the total of these credits is more than your tax for the year. H&r block military Topics - This chapter discusses: How to take credit for withholding, How to take credit for estimated taxes you paid, and How to take credit for excess social security, Medicare, or railroad retirement tax withholding. H&r block military Withholding If you had income tax withheld during 2013, you generally should be sent a statement by January 31, 2014, showing your income and the tax withheld. H&r block military Depending on the source of your income, you will receive: Form W-2, Wage and Tax Statement, Form W-2G, Certain Gambling Winnings, or A form in the 1099 series. H&r block military Form W-2 Your employer is required to provide or send Form W-2 to you no later than January 31, 2014. H&r block military You should receive a separate Form W-2 from each employer you worked for. H&r block military If you stopped working before the end of 2013, your employer could have given you your Form W-2 at any time after you stopped working. H&r block military However, your employer must provide or send it to you by January 31, 2014. H&r block military If you ask for the form, your employer must send it to you within 30 days after receiving your written request or within 30 days after your final wage payment, whichever is later. H&r block military If you have not received your Form W-2 by January 31, contact your employer or payer to request a copy. H&r block military If you still do not get the form by February 15, the IRS can help you by requesting the form from your employer. H&r block military The phone number for the IRS is listed in chapter 5. H&r block military You will be asked for the following information. H&r block military Your name, address, city and state, zip code, and social security number. H&r block military Your employer's name, address, city, state, zip code, and the employer's identification number (if known). H&r block military An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. H&r block military The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible. H&r block military Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year. H&r block military Total the federal income tax withheld (shown in box 2 of all Forms W-2 received) and enter that amount on the appropriate line of your tax return. H&r block military In addition, Form W-2 is used to report any taxable sick pay you received and any income tax withheld from your sick pay. H&r block military Your sick pay may be combined with other wages in one Form W-2 or you may receive a separate Form W-2 for sick pay. H&r block military If you file a paper tax return, attach Copy B of Form W-2 to your return. H&r block military Form W-2G If you had gambling winnings in 2013, the payer may have withheld income tax. H&r block military If tax was withheld, the payer will give you a Form W-2G showing the amount you won and the amount of tax withheld. H&r block military Report the amounts you won on line 21 of Form 1040. H&r block military Take credit for the tax withheld on line 62 of Form 1040. H&r block military If you had gambling winnings, you must use Form 1040; you cannot use Form 1040A or Form 1040EZ. H&r block military Gambling losses can be deducted on Schedule A (Form 1040) as a miscellaneous itemized deduction. H&r block military However, you cannot deduct more than the gambling winnings you report on Form 1040. H&r block military File Form W-2G with your income tax return only if it shows any federal income tax withheld in box 2. H&r block military The 1099 Series Most forms in the 1099 series are not filed with your return. H&r block military In general, these forms should be furnished to you by January 31, 2014. H&r block military Unless instructed to file any of these forms with your return, keep them for your records. H&r block military There are several different forms in this series, including: Form 1099-B, Proceeds From Broker and Barter Exchange Transactions; Form 1099-C, Cancellation of Debt; Form 1099-DIV, Dividends and Distributions; Form 1099-G, Certain Government Payments; Form 1099-INT, Interest Income; Form 1099-K, Payment Card and Third-Party Network Transactions; Form 1099-MISC, Miscellaneous Income; Form 1099-OID, Original Issue Discount; Form 1099-PATR, Taxable Distributions Received From Cooperatives; Form 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530); Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. H&r block military ; Form SSA-1099, Social Security Benefit Statement; and Form RRB-1099, Payments by the Railroad Retirement Board. H&r block military If you received the types of income reported on some forms in the 1099 series, you may not be able to use Form 1040A or Form 1040EZ. H&r block military See the instructions to these forms for details. H&r block military Reporting your withholding. H&r block military   Report on your tax return all federal income tax withholding shown on your Form 1099, Form SSA-1099, and/or Form RRB-1099. H&r block military Include the amount withheld in the total on line 62 of Form 1040, line 36 of Form 1040A, or line 7 of Form 1040EZ. H&r block military Form 1099-R. H&r block military   Attach Form 1099-R to your paper return if federal income tax withholding is shown in box 4. H&r block military Do not attach any other Form 1099. H&r block military Form Not Correct If you receive a form with incorrect information, you should ask the payer for a corrected form. H&r block military Call the telephone number or write to the address given for the payer on the form. H&r block military The corrected Form W-2G or Form 1099 you receive will have an “X” in the “CORRECTED” box at the top of the form. H&r block military A special form, Form W-2c, Corrected Wage and Tax Statement, is used to correct a Form W-2. H&r block military In certain situations, you will receive two forms in place of the original incorrect form. H&r block military This will happen when your taxpayer identification number is wrong or missing, your name and address are wrong, or you received the wrong type of form (for example, a Form 1099-DIV instead of a Form 1099-INT). H&r block military One new form you receive will be the same incorrect form or have the same incorrect information, but all money amounts will be zero. H&r block military This form will have an “X” in the “CORRECTED” box at the top of the form. H&r block military The second new form should have all the correct information, prepared as though it is the original (the “CORRECTED” box will not be checked). H&r block military Form Received After Filing If you file your return and you later receive a form for income that you did not include on your return, report the income and take credit for any income tax withheld by filing Form 1040X, Amended U. H&r block military S. H&r block military Individual Income Tax Return. H&r block military Separate Returns If you are married but file a separate return, you can take credit only for the tax withheld from your own income. H&r block military Do not include any amount withheld from your spouse's income. H&r block military However, different rules may apply if you live in a community property state. H&r block military Community property states. H&r block military   The following are community property states. H&r block military Arizona. H&r block military California. H&r block military Idaho. H&r block military Louisiana. H&r block military Nevada. H&r block military New Mexico. H&r block military Texas. H&r block military Washington. H&r block military Wisconsin. H&r block military Generally, if you live in a community property state and file a separate return, you and your spouse each must report half of all community income in addition to your own separate income. H&r block military If you are required to report half of all community income, you are entitled to take credit for half of all taxes withheld on the community income. H&r block military If you were divorced during the year, each of you generally must report half the community income and can take credit for half the withholding on that community income for the period before the divorce. H&r block military   For more information on these rules, and some exceptions, see Publication 555, Community Property. H&r block military Fiscal Years (FY) If you file your tax return on the basis of a fiscal year (a 12-month period ending on the last day of any month except December), you must follow special rules, described below, to determine your credit for federal income tax withholding. H&r block military Fiscal year withholding. H&r block military    You can claim credit on your tax return only for the tax withheld during the calendar year (CY) ending within your fiscal year. H&r block military You cannot claim credit for any of the tax withheld during the calendar year beginning in your fiscal year. H&r block military You will be able to claim credit for that withholding on your return for your next fiscal year. H&r block military   The Form W-2 or 1099 you receive for the calendar year that ends during your fiscal year will show the tax withheld and the income you received during that calendar year. H&r block military   Although you take credit for all the withheld tax shown on the form, report only the part of the income shown on the form that you received during your fiscal year. H&r block military Add to that the income you received during the rest of your fiscal year. H&r block military Example. H&r block military Miles Hanson files his return for a fiscal year ending June 30, 2013. H&r block military In January 2013, he received a Form W-2 that showed that his wages for 2012 were $31,200 and that his income tax withheld was $3,380. H&r block military His records show that he had received $15,000 of the wages by June 30, 2012, and $16,200 from July 1 through December 31, 2012. H&r block military See Table 3-1 . H&r block military On his return for the fiscal year ending June 30, 2013, Miles will report the $16,200 he was paid in July through December of 2012, plus the $18,850 he was paid during the rest of the fiscal year, January 1, 2013, through June 30, 2013. H&r block military However, he takes credit for all $3,380 that was withheld during 2012. H&r block military On his return for the fiscal year ending June 30, 2012, he reported the $15,000 he was paid in January through June 2012, but took no credit for the tax withheld during that time. H&r block military On his return for the fiscal year ending June 30, 2014, he will take the credit for any tax withheld during 2013 but not for any tax withheld during 2014. H&r block military Table 3-1. H&r block military Example for Fiscal Year Ending June 30, 2013—Miles Hanson Date Form W-2 Miles' records Tax return for FY ending 6/30/20121 Tax return for FY ending 6/30/2013 Wages With- holding Wages With- holding Wages With- holding Wages With- holding CY 20122 $31,200 $3,380             1/1/2012 –  6/30/2012     $15,000 $1,600 $15,000       7/1/2012 –  12/31/2012     $16,200 $1,780     $16,200 $3,380 CY 2013 $37,700 $4,316 3             1/1/2013 –  6/30/2013     $18,850 $2,158     $18,850   7/1/2013 –  12/31/2013     $18,850 4 $2,158         1Miles' tax return for FY ending 6/30/2012 also included his wages for 7/1–12/31/2011 and the withholding shown on his 2011 Form W-2. H&r block military  2Calendar year (January 1 – December 31). H&r block military   3Withholding shown on 2013 Form W-2 ($4,316) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which calendar year 2013 ends. H&r block military   4Wages for 7/1–12/31/2013 ($18,850) will be included in Miles' tax return for FY ending 6/30/2014, the fiscal year in which the wages were received. H&r block military Backup withholding. H&r block military   If income tax has been withheld under the backup withholding rule, take credit for it on your tax return for the fiscal year in which you received the income. H&r block military Example. H&r block military Emily Smith's records show that she received income in November 2013 and February 2014 from which there was backup withholding ($100 and $50, respectively). H&r block military Emily takes credit for the entire $150 of backup withholding on her tax return for the fiscal year ending September 30, 2014. H&r block military Estimated Tax Take credit for all your estimated tax payments for 2013 on line 63 of Form 1040 or line 37 of Form 1040A. H&r block military Include any overpayment from 2012 that you had credited to your 2013 estimated tax. H&r block military You must use Form 1040 or Form 1040A if you paid estimated tax. H&r block military You cannot file Form 1040EZ. H&r block military If you were a beneficiary of an estate or trust, you should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. H&r block military , from the fiduciary. H&r block military If you have estimated taxes credited to you from the estate or trust (from Schedule K-1 (Form 1041)), you must report the estimated taxes on Schedule E (Form 1040). H&r block military On the dotted line next to the entry space for line 37 of Schedule E (Form 1040), enter “ES payment claimed” and the amount. H&r block military However, do not include this amount in the total on line 37. H&r block military Instead, enter the amount on Form 1040, line 63. H&r block military This estimated tax payment for 2013 is treated as being made by you on January 15, 2014. H&r block military Name changed. H&r block military   If you changed your name, and you made estimated tax payments using your former name, attach a statement to the front of your paper tax return indicating: When you made the payments, The amount of each payment, Your name when you made the payments, and The social security number under which you made the payments. H&r block military  The statement should cover payments you made jointly with your spouse as well as any you made separately. H&r block military   Be sure to report the change to your local Social Security Administration office before filing your 2014 tax return. H&r block military This prevents delays in processing your return and issuing refunds. H&r block military It also safeguards your future social security benefits. H&r block military For more information, call the Social Security Administration at 1-800-772-1213. H&r block military Separate Returns If you and your spouse made separate estimated tax payments for 2013 and you file separate returns, you can take credit only for your own payments. H&r block military If you made joint estimated tax payments, you must decide how to divide the payments between your returns. H&r block military One of you can claim all of the estimated tax paid and the other none, or you can divide it in any other way you agree on. H&r block military If you cannot agree, you must divide the payments in proportion to each spouse's individual tax as shown on your separate returns for 2013. H&r block military Example. H&r block military James and Evelyn Brown made joint estimated tax payments for 2013 totaling $3,000. H&r block military They file separate 2013 Forms 1040. H&r block military James' tax is $4,000 and Evelyn's is $1,000. H&r block military If they do not agree on how to divide the $3,000, they must divide it proportionately between their returns. H&r block military Because James' tax ($4,000) is 80% of the total tax ($5,000), his share of the estimated tax is $2,400 (80% of $3,000). H&r block military The balance, $600 (20% of $3,000), is Evelyn's share. H&r block military Divorced Taxpayers If you made joint estimated tax payments for 2013 and you were divorced during the year, either you or your former spouse can claim all of the joint payments, or you each can claim part of them. H&r block military If you cannot agree on how to divide the payments, you must divide them in proportion to each spouse's individual tax as shown on your separate returns for 2013. H&r block military See Example earlier under Separate Returns. H&r block military If you claim any of the joint payments on your tax return, enter your former spouse's social security number (SSN) in the space provided at the top of page 1 of Form 1040 or Form 1040A. H&r block military If you divorced and remarried in 2013, enter your present spouse's SSN in that space. H&r block military Enter your former spouse's SSN, followed by “DIV,” under Payments to the left of Form 1040, line 63, or in the blank space to the left of Form 1040A, line 37. H&r block military Excess Social Security or Railroad Retirement Tax Withholding Most employers must withhold social security tax from your wages. H&r block military In some cases, however, the federal government and state and local governments do not have to withhold social security tax from their employees' wages. H&r block military If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax. H&r block military Two or more employers. H&r block military   If you worked for two or more employers in 2013, too much social security tax or tier 1 RRTA tax may have been withheld from your pay. H&r block military You may be able to claim the excess as a credit against your income tax when you file your return. H&r block military Table 3-2 shows the maximum amount that should have been withheld for any of these taxes for 2013. H&r block military Figure the excess withholding on the appropriate worksheet. H&r block military    Table 3-2. H&r block military Maximum Social Security and RRTA Withholding for 2013 Type of tax Maximum wages subject to tax Tax rate Maximum tax to be withheld Social security $113,700 6. H&r block military 2% $7,049. H&r block military 40 Tier 1 RRTA $113,700 6. H&r block military 2% $7,049. H&r block military 40 Tier 2 RRTA $84,300 4. H&r block military 4% $3,709. H&r block military 20 Joint returns. H&r block military   If you are filing a joint return, you and your spouse must figure any excess social security or tier 1 RRTA separately. H&r block military Note. H&r block military All wages are subject to Medicare tax withholding. H&r block military Employer's error. H&r block military   If you had only one employer and he or she withheld too much social security, Medicare, or tier 1 RRTA tax, ask the employer to refund the excess amount to you. H&r block military If the employer refuses to refund the overcollection, ask for a statement indicating the amount of the overcollection to support your claim. H&r block military File a claim for refund using Form 843, Claim for Refund and Request for Abatement. H&r block military Worksheet for Nonrailroad Employees If you did not work for a railroad during 2013, figure the excess social security withholding on Worksheet 3-1. H&r block military Note. H&r block military If you worked for both a railroad employer and a nonrailroad employer, use Worksheet 3-2, to figure excess social security and tier 1 RRTA tax. H&r block military Where to claim credit for excess social security withholding. H&r block military   If you file Form 1040, enter the excess on line 69. H&r block military   If you file Form 1040A, include the excess in the total on line 41. H&r block military Write “Excess SST” and show the amount of the credit in the space to the left of the line. H&r block military   You cannot claim excess social security tax withholding on Form 1040EZ. H&r block military Worksheets for Railroad Employees If you worked for a railroad during 2013, figure your excess withholding on Worksheet 3-2 and 3-3, as appropriate. H&r block military Where to claim credit for excess tier 1 RRTA withholding. H&r block military   If you file Form 1040, enter the excess on line 69. H&r block military   If you file Form 1040A, include the excess in the total on line 41. H&r block military Write “Excess SST” and show the amount of the credit in the space to the left of the line. H&r block military   You cannot claim excess tier 1 RRTA withholding on Form 1040EZ. H&r block military How to claim refund of excess tier 2 RRTA. H&r block military   To claim a refund of tier 2 tax, use Form 843. H&r block military Be sure to attach a copy of all of your Forms W-2. H&r block military   See Worksheet 3-3 and the Instructions for Form 843, for more details. H&r block military Worksheet 3-1. H&r block military Excess Social Security—Nonrailroad Employees 1. H&r block military Add all social security tax withheld (but not more than  $7,049. H&r block military 40 for each employer). H&r block military This tax should be shown  in box 4 of your Forms W-2. H&r block military Enter the total here 1. H&r block military   2. H&r block military Enter any uncollected social security tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. H&r block military   3. H&r block military Add lines 1 and 2. H&r block military If $7,049. H&r block military 40 or less, stop here. H&r block military You cannot claim the credit 3. H&r block military   4. H&r block military Social security limit 4. H&r block military $7,049. H&r block military 40 5. H&r block military Excess. H&r block military Subtract line 4 from line 3 5. H&r block military   Worksheet 3-2. H&r block military Excess Social Security and Tier 1 RRTA—Railroad Employees 1. H&r block military Add all social security and tier 1 RRTA tax withheld (but not more than $7,049. H&r block military 40 for each employer). H&r block military Social security tax should be shown in box 4 and tier 1 RRTA should be shown  in box 14 of your Forms W-2. H&r block military Enter the total here 1. H&r block military   2. H&r block military Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. H&r block military   3. H&r block military Add lines 1 and 2. H&r block military If $7,049. H&r block military 40 or less, stop here. H&r block military You cannot claim the credit 3. H&r block military   4. H&r block military Social security and tier 1 RRTA tax limit 4. H&r block military $7,049. H&r block military 40 5. H&r block military Excess. H&r block military Subtract line 4 from line 3 5. H&r block military   Worksheet 3-3. H&r block military Excess Tier 2 RRTA—Railroad Employees 1. H&r block military Add all tier 2 RRTA tax withheld (but not more than $3,709. H&r block military 20 for each employer). H&r block military Box 14 of your Forms W-2 should show tier 2 RRTA tax. H&r block military Enter the total here 1. H&r block military   2. H&r block military Enter any uncollected tier 2 RRTA tax on tips or group-term life insurance on Form 1040, line 60, identified by “UT” 2. H&r block military   3. H&r block military Add lines 1 and 2. H&r block military If $3,709. H&r block military 20 or less, stop here. H&r block military You cannot claim the credit. H&r block military 3. H&r block military   4. H&r block military Tier 2 RRTA tax limit 4. H&r block military $3,709. H&r block military 20 5. H&r block military Excess. H&r block military Subtract line 4 from line 3. H&r block military 5. H&r block military   Prev  Up  Next   Home   More Online Publications