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Tax planning us 1040 11. Tax planning us 1040   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Tax planning us 1040 Nondeductible losses. Tax planning us 1040 Family pet. Tax planning us 1040 Progressive deterioration. Tax planning us 1040 Decline in market value of stock. Tax planning us 1040 Mislaid or lost property. Tax planning us 1040 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. Tax planning us 1040 Related persons. Tax planning us 1040 Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Tax planning us 1040 Covered disaster area. Tax planning us 1040 Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Tax planning us 1040 A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Tax planning us 1040 A theft occurs when property is stolen. Tax planning us 1040 A condemnation occurs when private property is legally taken for public use without the owner's consent. Tax planning us 1040 A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 For more information, see Postponing Gain , later. Tax planning us 1040 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. Tax planning us 1040 Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Tax planning us 1040 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. Tax planning us 1040 Casualty. Tax planning us 1040   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Tax planning us 1040 A sudden event is one that is swift, not gradual or progressive. Tax planning us 1040 An unexpected event is one that is ordinarily unanticipated and unintended. Tax planning us 1040 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. Tax planning us 1040 Deductible losses. Tax planning us 1040   Deductible casualty losses can result from a number of different causes, including the following. Tax planning us 1040 Airplane crashes. Tax planning us 1040 Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Tax planning us 1040 Earthquakes. Tax planning us 1040 Fires (but see Nondeductible losses next for exceptions). Tax planning us 1040 Floods. Tax planning us 1040 Freezing. Tax planning us 1040 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. Tax planning us 1040 Lightning. Tax planning us 1040 Storms, including hurricanes and tornadoes. Tax planning us 1040 Terrorist attacks. Tax planning us 1040 Vandalism. Tax planning us 1040 Volcanic eruptions. Tax planning us 1040 Nondeductible losses. Tax planning us 1040   A casualty loss is not deductible if the damage or destruction is caused by the following. Tax planning us 1040 Accidentally breaking articles such as glassware or china under normal conditions. Tax planning us 1040 A family pet (explained below). Tax planning us 1040 A fire if you willfully set it, or pay someone else to set it. Tax planning us 1040 A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Tax planning us 1040 The same is true if the willful act or willful negligence of someone acting for you caused the accident. Tax planning us 1040 Progressive deterioration (explained below). Tax planning us 1040 Family pet. Tax planning us 1040   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. Tax planning us 1040 Example. Tax planning us 1040 You keep your horse in your yard. Tax planning us 1040 The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Tax planning us 1040 Some of the trees were completely girdled and died. Tax planning us 1040 Because the damage was not unexpected or unusual, the loss is not deductible. Tax planning us 1040 Progressive deterioration. Tax planning us 1040   Loss of property due to progressive deterioration is not deductible as a casualty loss. Tax planning us 1040 This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Tax planning us 1040 Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Tax planning us 1040 However, weather-related conditions or disease may cause another type of involuntary conversion. Tax planning us 1040 See Other Involuntary Conversions , later. Tax planning us 1040 Theft. Tax planning us 1040   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Tax planning us 1040 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. Tax planning us 1040 You do not need to show a conviction for theft. Tax planning us 1040   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Tax planning us 1040 The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Tax planning us 1040 Decline in market value of stock. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 You report a capital loss on Schedule D (Form 1040). Tax planning us 1040 For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Tax planning us 1040 Mislaid or lost property. Tax planning us 1040   The simple disappearance of money or property is not a theft. Tax planning us 1040 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. Tax planning us 1040 Example. Tax planning us 1040 A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Tax planning us 1040 The diamond falls from the ring and is never found. Tax planning us 1040 The loss of the diamond is a casualty. Tax planning us 1040 Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Tax planning us 1040 The following is a discussion of some losses you can deduct and some you cannot deduct. Tax planning us 1040 Livestock or produce bought for resale. Tax planning us 1040   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Tax planning us 1040 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. Tax planning us 1040 You cannot take a separate deduction. Tax planning us 1040 Livestock, plants, produce, and crops raised for sale. Tax planning us 1040   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Tax planning us 1040 You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Tax planning us 1040   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. Tax planning us 1040 You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Tax planning us 1040 The uniform capitalization rules are discussed in chapter 6. Tax planning us 1040   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. Tax planning us 1040 You get the deduction by omitting the item from your inventory at the close of your tax year. Tax planning us 1040 You cannot take a separate casualty or theft deduction. Tax planning us 1040 Income loss. Tax planning us 1040   A loss of future income is not deductible. Tax planning us 1040 Example. Tax planning us 1040 A severe flood destroyed your crops. Tax planning us 1040 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 . Tax planning us 1040 You estimate that the crop loss will reduce your farm income by $25,000. Tax planning us 1040 This loss of future income is also not deductible. Tax planning us 1040 Loss of timber. Tax planning us 1040   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Tax planning us 1040 If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Tax planning us 1040 See Postponing Gain , later. Tax planning us 1040 Property used in farming. Tax planning us 1040   Casualty and theft losses of property used in your farm business usually result in deductible losses. Tax planning us 1040 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. Tax planning us 1040 See How To Figure a Loss , later. Tax planning us 1040 Raised draft, breeding, dairy, or sporting animals. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 You use inventories to determine your income and you included the animals in your inventory. Tax planning us 1040 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. Tax planning us 1040 When you include livestock in inventory, its last inventory value is its basis. Tax planning us 1040 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. Tax planning us 1040 You cannot take a separate deduction. Tax planning us 1040 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. Tax planning us 1040 Farm property. Tax planning us 1040   Farm property is the property you use in your farming business. Tax planning us 1040 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. Tax planning us 1040   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Tax planning us 1040 However, the deduction limits, discussed later, do not apply to farm property. Tax planning us 1040 Personal-use property. Tax planning us 1040   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. Tax planning us 1040 The following items are examples of personal-use property: Your main home. Tax planning us 1040 Furniture and electronics used in your main home and not used in a home office or for business purposes. Tax planning us 1040 Clothing and jewelry. Tax planning us 1040 An automobile used for nonbusiness purposes. Tax planning us 1040 You figure the casualty or theft loss on this property by taking the following steps. Tax planning us 1040 Determine your adjusted basis in the property before the casualty or theft. Tax planning us 1040 Determine the decrease in fair market value of the property as a result of the casualty or theft. Tax planning us 1040 From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Tax planning us 1040 You must apply the deduction limits, discussed later, to determine your deductible loss. Tax planning us 1040    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Tax planning us 1040 It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Tax planning us 1040 Adjusted basis. Tax planning us 1040   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Tax planning us 1040 For more information about adjusted basis, see chapter 6. Tax planning us 1040 Decrease in fair market value (FMV). Tax planning us 1040   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Tax planning us 1040 FMV is defined in chapter 10 under Payments Received or Considered Received . Tax planning us 1040 Appraisal. Tax planning us 1040   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Tax planning us 1040 But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Tax planning us 1040   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. Tax planning us 1040 The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Tax planning us 1040 This information is needed to limit any deduction to the actual loss resulting from damage to the property. Tax planning us 1040 Cost of cleaning up or making repairs. Tax planning us 1040   The cost of cleaning up after a casualty is not part of a casualty loss. Tax planning us 1040 Neither is the cost of repairing damaged property after a casualty. Tax planning us 1040 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. Tax planning us 1040 The repairs are actually made. Tax planning us 1040 The repairs are necessary to bring the property back to its condition before the casualty. Tax planning us 1040 The amount spent for repairs is not excessive. Tax planning us 1040 The repairs fix the damage only. Tax planning us 1040 The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Tax planning us 1040 Related expenses. Tax planning us 1040   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. Tax planning us 1040 However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Tax planning us 1040 Separate computations for more than one item of property. Tax planning us 1040   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. Tax planning us 1040 Then combine the losses to determine your total loss. Tax planning us 1040    There is an exception to this rule for personal-use real property. Tax planning us 1040 See Exception for personal-use real property, later. Tax planning us 1040 Example. Tax planning us 1040 A fire on your farm damaged a tractor and the barn in which it was stored. Tax planning us 1040 The tractor had an adjusted basis of $3,300. Tax planning us 1040 Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Tax planning us 1040 The barn had an adjusted basis of $28,000. Tax planning us 1040 Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Tax planning us 1040 You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Tax planning us 1040 Figure your deductible casualty loss separately for the two items of property. Tax planning us 1040     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. Tax planning us 1040   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. Tax planning us 1040 Figure the loss using the smaller of the following. Tax planning us 1040 The decrease in FMV of the entire property. Tax planning us 1040 The adjusted basis of the entire property. Tax planning us 1040 Example. Tax planning us 1040 You bought a farm in 1990 for $160,000. Tax planning us 1040 The adjusted basis of the residential part is now $128,000. Tax planning us 1040 In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Tax planning us 1040 The adjusted basis of the residential part includes the $7,500. Tax planning us 1040 The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Tax planning us 1040 The trees were not covered by insurance. Tax planning us 1040 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. Tax planning us 1040   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Tax planning us 1040 You do not have a casualty or theft loss to the extent you are reimbursed. Tax planning us 1040   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Tax planning us 1040 You must reduce your loss even if you do not receive payment until a later tax year. Tax planning us 1040    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. Tax planning us 1040 You may have to include a portion of these payments in your income. Tax planning us 1040 See Insurance payments for living expenses in Publication 547 for details. Tax planning us 1040 Disaster relief. Tax planning us 1040   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. Tax planning us 1040 Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Tax planning us 1040   Generally, disaster relief grants received under the Robert T. Tax planning us 1040 Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Tax planning us 1040 See Federal disaster relief grants , later, under Disaster Area Losses . Tax planning us 1040   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Tax planning us 1040 See Qualified disaster relief payments , later, under Disaster Area Losses . Tax planning us 1040 Reimbursement received after deducting loss. Tax planning us 1040   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. Tax planning us 1040 Actual reimbursement less than expected. Tax planning us 1040   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. Tax planning us 1040 Actual reimbursement more than expected. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 Do not refigure your tax for the year you claimed the deduction. Tax planning us 1040 See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 Actual reimbursement same as expected. Tax planning us 1040   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. Tax planning us 1040 Lump-sum reimbursement. Tax planning us 1040   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. Tax planning us 1040 Figure the gain or loss separately for each asset that has a separate basis. Tax planning us 1040 Adjustments to basis. Tax planning us 1040   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. Tax planning us 1040 The result is your adjusted basis in the property. Tax planning us 1040 Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Tax planning us 1040 See Adjusted Basis in chapter 6 for more information. Tax planning us 1040 Example. Tax planning us 1040 You built a new silo for $25,000. Tax planning us 1040 This is the basis in your silo because that is the total cost you incurred to build it. Tax planning us 1040 During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Tax planning us 1040 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. Tax planning us 1040 Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Tax planning us 1040 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). Tax planning us 1040 There are two limits on the deduction for casualty or theft loss of personal-use property. Tax planning us 1040 You figure these limits on Form 4684. Tax planning us 1040 $100 rule. Tax planning us 1040   You must reduce each casualty or theft loss on personal-use property by $100. Tax planning us 1040 This rule applies after you have subtracted any reimbursement. Tax planning us 1040 10% rule. Tax planning us 1040   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Tax planning us 1040 Apply this rule after you reduce each loss by $100. Tax planning us 1040 Adjusted gross income is on line 38 of Form 1040. Tax planning us 1040 Example. Tax planning us 1040 In June, you discovered that your house had been burglarized. Tax planning us 1040 Your loss after insurance reimbursement was $2,000. Tax planning us 1040 Your adjusted gross income for the year you discovered the burglary is $57,000. Tax planning us 1040 Figure your theft loss deduction as follows: 1. Tax planning us 1040 Loss after insurance $2,000 2. Tax planning us 1040 Subtract $100 100 3. Tax planning us 1040 Loss after $100 rule $1,900 4. Tax planning us 1040 Subtract 10% (. Tax planning us 1040 10) × $57,000 AGI $5,700 5. Tax planning us 1040 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). Tax planning us 1040    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. Tax planning us 1040 See 10% Rule in Publication 547. Tax planning us 1040 When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Tax planning us 1040 You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Tax planning us 1040 However, losses in federally declared disaster areas are subject to different rules. Tax planning us 1040 See Disaster Area Losses , later, for an exception. Tax planning us 1040 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. Tax planning us 1040 Leased property. Tax planning us 1040   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. Tax planning us 1040 This is true even if the loss occurred or the liability was paid in a different year. Tax planning us 1040 You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Tax planning us 1040 Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Tax planning us 1040 Example. Tax planning us 1040 Robert leased a tractor from First Implement, Inc. Tax planning us 1040 , for use in his farm business. Tax planning us 1040 The tractor was destroyed by a tornado in June 2012. Tax planning us 1040 The loss was not insured. Tax planning us 1040 First Implement billed Robert for the fair market value of the tractor on the date of the loss. Tax planning us 1040 Robert disagreed with the bill and refused to pay it. Tax planning us 1040 First Implement later filed suit in court against Robert. Tax planning us 1040 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. Tax planning us 1040 Robert paid $20,000 in June 2013. Tax planning us 1040 He can claim the $20,000 as a loss on his 2013 tax return. Tax planning us 1040 Net operating loss (NOL). Tax planning us 1040   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Tax planning us 1040 An NOL can be carried back or carried forward and deducted from income in other years. Tax planning us 1040 See Publication 536 for more information on NOLs. Tax planning us 1040 Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Tax planning us 1040 You must have records to support the amount you claim for the loss. Tax planning us 1040 Casualty loss proof. Tax planning us 1040   For a casualty loss, your records should show all the following information. Tax planning us 1040 The type of casualty (car accident, fire, storm, etc. Tax planning us 1040 ) and when it occurred. Tax planning us 1040 That the loss was a direct result of the casualty. Tax planning us 1040 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. Tax planning us 1040 Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Tax planning us 1040 Theft loss proof. Tax planning us 1040   For a theft loss, your records should show all the following information. Tax planning us 1040 When you discovered your property was missing. Tax planning us 1040 That your property was stolen. Tax planning us 1040 That you were the owner of the property. Tax planning us 1040 Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Tax planning us 1040 Figuring a Gain A casualty or theft may result in a taxable gain. Tax planning us 1040 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. Tax planning us 1040 You generally report your gain as income in the year you receive the reimbursement. Tax planning us 1040 However, depending on the type of property you receive, you may not have to report your gain. Tax planning us 1040 See Postponing Gain , later. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 Amount you receive. Tax planning us 1040   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Tax planning us 1040 It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Tax planning us 1040 Example. Tax planning us 1040 A tornado severely damaged your barn. Tax planning us 1040 The adjusted basis of the barn was $25,000. Tax planning us 1040 Your insurance company reimbursed you $40,000 for the damaged barn. Tax planning us 1040 However, you had legal expenses of $2,000 to collect that insurance. Tax planning us 1040 Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Tax planning us 1040 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. Tax planning us 1040 Some of these are discussed in the following paragraphs. Tax planning us 1040 Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Tax planning us 1040 You report the gain or deduct the loss on your tax return for the year you realize it. Tax planning us 1040 However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Tax planning us 1040 See Postponing Gain , later. Tax planning us 1040 Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Tax planning us 1040 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. Tax planning us 1040 The owner receives a condemnation award (money or property) in exchange for the property taken. Tax planning us 1040 A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Tax planning us 1040 Threat of condemnation. Tax planning us 1040   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. Tax planning us 1040 Main home condemned. Tax planning us 1040   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. Tax planning us 1040 For information on this exclusion, see Publication 523. Tax planning us 1040 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. Tax planning us 1040 See Postponing Gain , later. Tax planning us 1040 (You cannot deduct a loss from the condemnation of your main home. Tax planning us 1040 ) More information. Tax planning us 1040   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Tax planning us 1040 Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Tax planning us 1040 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. Tax planning us 1040 Livestock Losses Diseased livestock. Tax planning us 1040   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. Tax planning us 1040 If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Tax planning us 1040 Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Tax planning us 1040 If you replace the livestock, you may be able to postpone reporting the gain. Tax planning us 1040 See Postponing Gain below. Tax planning us 1040 Reporting dispositions of diseased livestock. Tax planning us 1040   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. Tax planning us 1040 You must also include other information on this statement. Tax planning us 1040 See How To Postpone Gain , later, under Postponing Gain . Tax planning us 1040 Weather-related sales of livestock. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Tax planning us 1040 If you replace the livestock, you may be able to postpone reporting the gain. Tax planning us 1040 See Postponing Gain below. Tax planning us 1040 Example. Tax planning us 1040 It is your usual business practice to sell five of your dairy animals during the year. Tax planning us 1040 This year you sold 20 dairy animals because of drought. Tax planning us 1040 The sale of 15 animals is treated as an involuntary conversion. Tax planning us 1040    If you do not replace the livestock, you may be able to report the gain in the following year's income. Tax planning us 1040 This rule also applies to other livestock (including poultry). Tax planning us 1040 See Sales Caused by Weather-Related Conditions in chapter 3. Tax planning us 1040 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. Tax planning us 1040 Treat the loss as a loss from an involuntary conversion. Tax planning us 1040 The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Tax planning us 1040 You deduct the loss on the return for the year the seedlings died. Tax planning us 1040 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. Tax planning us 1040 Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Tax planning us 1040 You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Tax planning us 1040 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. Tax planning us 1040 If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Tax planning us 1040 To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Tax planning us 1040 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. Tax planning us 1040 Example 1. Tax planning us 1040 In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Tax planning us 1040 In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Tax planning us 1040 In May of this year, the property was worth $100,000. Tax planning us 1040 In June the barn and silo were destroyed by a tornado. Tax planning us 1040 At the time of the tornado, you had an adjusted basis of $0 in the property. Tax planning us 1040 You received $85,000 from the insurance company. Tax planning us 1040 You had a gain of $85,000 ($85,000 – $0). Tax planning us 1040 You spent $80,000 to rebuild the barn and silo. Tax planning us 1040 Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Tax planning us 1040 Example 2. Tax planning us 1040 In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Tax planning us 1040 You made no further improvements or additions to it. Tax planning us 1040 When a storm destroyed the cabin this January, the cabin was worth $250,000. Tax planning us 1040 You received $146,000 from the insurance company in March. Tax planning us 1040 You had a gain of $128,000 ($146,000 − $18,000). Tax planning us 1040 You spent $144,000 to rebuild the cabin. Tax planning us 1040 Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Tax planning us 1040 Buying replacement property from a related person. Tax planning us 1040   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). Tax planning us 1040 This rule applies to the following taxpayers. Tax planning us 1040 C corporations. Tax planning us 1040 Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Tax planning us 1040 If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Tax planning us 1040 Exception. Tax planning us 1040   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. Tax planning us 1040 Related persons. Tax planning us 1040   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. Tax planning us 1040 For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Tax planning us 1040 Death of a taxpayer. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 Replacement Property You must buy replacement property for the specific purpose of replacing your property. Tax planning us 1040 Your replacement property must be similar or related in service or use to the property it replaces. Tax planning us 1040 You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Tax planning us 1040 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. Tax planning us 1040 Property you acquire by gift or inheritance does not qualify as replacement property. Tax planning us 1040 Owner-user. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 A grinding mill that replaces a tractor does not qualify. Tax planning us 1040 Neither does a breeding or draft animal that replaces a dairy cow. Tax planning us 1040 Soil or other environmental contamination. Tax planning us 1040   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. Tax planning us 1040 Weather-related conditions. Tax planning us 1040   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. Tax planning us 1040 Example. Tax planning us 1040 Each year you normally sell 25 cows from your beef herd. Tax planning us 1040 However, this year you had to sell 50 cows. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 Standing crop destroyed by casualty. Tax planning us 1040   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. Tax planning us 1040 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). Tax planning us 1040 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. Tax planning us 1040 Timber loss. Tax planning us 1040   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. Tax planning us 1040 If you bought the standing timber within the replacement period, you can postpone reporting the gain. Tax planning us 1040 Business or income-producing property located in a federally declared disaster area. Tax planning us 1040   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. Tax planning us 1040 For more information, see Disaster Area Losses in Publication 547. Tax planning us 1040 Substituting replacement property. Tax planning us 1040   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. Tax planning us 1040 This is true even if you acquire the other property within the replacement period. Tax planning us 1040 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. Tax planning us 1040 Basis of replacement property. Tax planning us 1040   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Tax planning us 1040 In this way, tax on the gain is postponed until you dispose of the replacement property. Tax planning us 1040 Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Tax planning us 1040 This is the replacement period. Tax planning us 1040 The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Tax planning us 1040 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. Tax planning us 1040 Example. Tax planning us 1040 You are a calendar year taxpayer. Tax planning us 1040 While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Tax planning us 1040 You discovered the theft when you returned to your farm on November 11, 2012. Tax planning us 1040 Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Tax planning us 1040 You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Tax planning us 1040 Main home in disaster area. Tax planning us 1040   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. Tax planning us 1040 See Disaster Area Losses , later. Tax planning us 1040 Property in the Midwestern disaster areas. Tax planning us 1040   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. Tax planning us 1040 This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Tax planning us 1040 Property in the Kansas disaster area. Tax planning us 1040   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. Tax planning us 1040 This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Tax planning us 1040 Property in the Hurricane Katrina disaster area. Tax planning us 1040   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. Tax planning us 1040 This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Tax planning us 1040 Weather-related sales of livestock in an area eligible for federal assistance. Tax planning us 1040   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. Tax planning us 1040 The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Tax planning us 1040   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Tax planning us 1040 R. Tax planning us 1040 B. Tax planning us 1040 529, available at  www. Tax planning us 1040 irs. Tax planning us 1040 gov/irb/2006-39_IRB/ar11. Tax planning us 1040 html. Tax planning us 1040 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. Tax planning us 1040 gov. Tax planning us 1040 Condemnation. Tax planning us 1040   The replacement period for a condemnation begins on the earlier of the following dates. Tax planning us 1040 The date on which you disposed of the condemned property. Tax planning us 1040 The date on which the threat of condemnation began. Tax planning us 1040 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. Tax planning us 1040 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. Tax planning us 1040 Business or investment real property. Tax planning us 1040   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. Tax planning us 1040 Extension. Tax planning us 1040   You can apply for an extension of the replacement period. Tax planning us 1040 Send your written application to the Internal Revenue Service Center where you file your tax return. Tax planning us 1040 See your tax return instructions for the address. Tax planning us 1040 Include all the details about your need for an extension. Tax planning us 1040 Make your application before the end of the replacement period. Tax planning us 1040 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. Tax planning us 1040 You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Tax planning us 1040 How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Tax planning us 1040 You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Tax planning us 1040 Required statement. Tax planning us 1040   You should attach a statement to your return for the year you have the gain. Tax planning us 1040 This statement should include all the following information. Tax planning us 1040 The date and details of the casualty, theft, or other involuntary conversion. Tax planning us 1040 The insurance or other reimbursement you received. Tax planning us 1040 How you figured the gain. Tax planning us 1040 Replacement property acquired before return filed. Tax planning us 1040   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. Tax planning us 1040 The replacement property. Tax planning us 1040 The postponed gain. Tax planning us 1040 The basis adjustment that reflects the postponed gain. Tax planning us 1040 Any gain you are reporting as income. Tax planning us 1040 Replacement property acquired after return filed. Tax planning us 1040   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. Tax planning us 1040   You should then attach another statement to your return for the year in which you buy the replacement property. Tax planning us 1040 This statement should contain detailed information on the replacement property. Tax planning us 1040 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. Tax planning us 1040 Include in the statement detailed information on the replacement property bought in that year. Tax planning us 1040 Reporting weather-related sales of livestock. Tax planning us 1040   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. Tax planning us 1040 Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Tax planning us 1040 The gain realized on the sale or exchange. Tax planning us 1040 The number and kind of livestock sold or exchanged. Tax planning us 1040 The number of livestock of each kind you would have sold or exchanged under your usual business practice. Tax planning us 1040   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Tax planning us 1040 The dates you bought the replacement property. Tax planning us 1040 The cost of the replacement property. Tax planning us 1040 Description of the replacement property (for example, the number and kind of the replacement livestock). Tax planning us 1040 Amended return. Tax planning us 1040   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Tax planning us 1040 You do not acquire replacement property within the replacement period, plus extensions. Tax planning us 1040 On this amended return, you must report the gain and pay any additional tax due. Tax planning us 1040 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. Tax planning us 1040 On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Tax planning us 1040 Disaster Area Losses Special rules apply to federally declared disaster area losses. Tax planning us 1040 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. Tax planning us 1040 Stafford Disaster Relief and Emergency Assistance Act. Tax planning us 1040 It includes a major disaster or emergency declaration under the act. Tax planning us 1040 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. Tax planning us 1040 fema. Tax planning us 1040 gov. Tax planning us 1040 This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Tax planning us 1040 For other special rules, see Disaster Area Losses in Publication 547. Tax planning us 1040 When to deduct the loss. Tax planning us 1040   You generally must deduct a casualty loss in the year it occurred. Tax planning us 1040 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. Tax planning us 1040 If you make this choice, the loss is treated as having occurred in the preceding year. Tax planning us 1040    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. Tax planning us 1040   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Tax planning us 1040 The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Tax planning us 1040 The due date (with extensions) for the return for the preceding tax year. Tax planning us 1040 Federal disaster relief grants. Tax planning us 1040   Do not include post-disaster relief grants received under the Robert T. Tax planning us 1040 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. Tax planning us 1040 Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Tax planning us 1040 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. Tax planning us 1040 Unemployment assistance payments under the Act are taxable unemployment compensation. Tax planning us 1040 Qualified disaster relief payments. Tax planning us 1040   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. Tax planning us 1040 These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Tax planning us 1040 No withholding applies to these payments. Tax planning us 1040   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Tax planning us 1040 Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Tax planning us 1040 Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Tax planning us 1040 (A personal residence can be a rented residence or one you own. Tax planning us 1040 ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Tax planning us 1040   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. Tax planning us 1040    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. Tax planning us 1040 Qualified disaster mitigation payments. Tax planning us 1040   Qualified disaster mitigation payments made under the Robert T. Tax planning us 1040 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. Tax planning us 1040 These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Tax planning us 1040 You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Tax planning us 1040 Sale of property under hazard mitigation program. Tax planning us 1040   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. Tax planning us 1040 You report the gain or deduct the loss on your tax return for the year you realize it. Tax planning us 1040 (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Tax planning us 1040 ) 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. Tax planning us 1040 See Postponing Gain , earlier, for the rules that apply. Tax planning us 1040 Other federal assistance programs. Tax planning us 1040    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Tax planning us 1040 Postponed tax deadlines. Tax planning us 1040   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Tax planning us 1040 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. Tax planning us 1040   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). Tax planning us 1040 Go to http://www. Tax planning us 1040 irs. Tax planning us 1040 gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Tax planning us 1040 Who is eligible. Tax planning us 1040   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Tax planning us 1040 Any individual whose main home is located in a covered disaster area (defined next). Tax planning us 1040 Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Tax planning us 1040 Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Tax planning us 1040 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. Tax planning us 1040 The main home or principal place of business does not have to be located in the covered disaster area. Tax planning us 1040 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. Tax planning us 1040 The spouse on a joint return with a taxpayer who is eligible for postponements. Tax planning us 1040 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. Tax planning us 1040 Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Tax planning us 1040 Any other person determined by the IRS to be affected by a federally declared disaster. Tax planning us 1040 Covered disaster area. Tax planning us 1040   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. Tax planning us 1040 Abatement of interest and penalties. Tax planning us 1040   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Tax planning us 1040 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. Tax planning us 1040 Form 4684. Tax planning us 1040   Use this form to report your gains and losses from casualties and thefts. Tax planning us 1040 Form 4797. Tax planning us 1040   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. Tax planning us 1040 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. Tax planning us 1040 Form 8949. Tax planning us 1040   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Tax planning us 1040 Schedule A (Form 1040). Tax planning us 1040   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. Tax planning us 1040 Schedule D (Form 1040). Tax planning us 1040   Use this form to carry over the following gains. Tax planning us 1040 Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Tax planning us 1040 Net gain shown on Form 4684 from the casualty or theft of personal-use property. Tax planning us 1040    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Tax planning us 1040 Schedule F (Form 1040). Tax planning us 1040   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. Tax planning us 1040 Prev  Up  Next   Home   More Online Publications
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The Tax Planning Us 1040

Tax planning us 1040 Part One -   The Income Tax Return The four chapters in this part provide basic information on the tax system. Tax planning us 1040 They take you through the first steps of filling out a tax return—such as deciding what your filing status is, how many exemptions you can take, and what form to file. Tax planning us 1040 They also discuss recordkeeping requirements, IRS e-file (electronic filing), certain penalties, and the two methods used to pay tax during the year: withholding and estimated tax. Tax planning us 1040 Table of Contents 1. Tax planning us 1040   Filing InformationWhat's New Reminders Introduction Do I Have To File a Return?Individuals—In General Dependents Certain Children Under Age 19 or Full-Time Students Self-Employed Persons Aliens Who Should File Which Form Should I Use?Form 1040EZ Form 1040A Form 1040 Does My Return Have To Be on Paper?IRS e-file When Do I Have To File?Private delivery services. Tax planning us 1040 Extensions of Time To File How Do I Prepare My Return?When Do I Report My Income and Expenses? Social Security Number (SSN) Presidential Election Campaign Fund Computations Attachments Third Party Designee Signatures Paid Preparer Refunds Amount You Owe Gift To Reduce Debt Held by the Public Name and Address Where Do I File? What Happens After I File?What Records Should I Keep? Why Keep Records? Kinds of Records to Keep Basic Records How Long to Keep Records Refund Information Interest on Refunds Change of Address What If I Made a Mistake?Amended Returns and Claims for Refund Penalties Identity Theft 2. Tax planning us 1040   Filing StatusWhat's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. Tax planning us 1040 Divorce and remarriage. Tax planning us 1040 Annulled marriages. Tax planning us 1040 Head of household or qualifying widow(er) with dependent child. Tax planning us 1040 Considered married. Tax planning us 1040 Same-sex marriage. Tax planning us 1040 Spouse died during the year. Tax planning us 1040 Married persons living apart. Tax planning us 1040 Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child 3. Tax planning us 1040   Personal Exemptions and DependentsWhat's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. Tax planning us 1040 Taxpayer identification numbers for aliens. Tax planning us 1040 Taxpayer identification numbers for adoptees. Tax planning us 1040 4. Tax planning us 1040   Tax Withholding and Estimated TaxWhat's New for 2014 Reminders Introduction Useful Items - You may want to see: Tax Withholding for 2014Salaries and Wages Tips Taxable Fringe Benefits Sick Pay Pensions and Annuities Gambling Winnings Unemployment Compensation Federal Payments Backup Withholding Estimated Tax for 2014Who Does Not Have To Pay Estimated Tax Who Must Pay Estimated Tax How To Figure Estimated Tax When To Pay Estimated Tax How To Figure Each Payment How To Pay Estimated Tax Credit for Withholding and Estimated Tax for 2013Withholding Estimated Tax Underpayment Penalty for 2013 Prev  Up  Next   Home   More Online Publications