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Taxact 2011 Returning User

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Taxact 2011 Returning User

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

Taxact 2011 returning user 26. Taxact 2011 returning user   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. Taxact 2011 returning user Parking fees. Taxact 2011 returning user Advertising display on car. Taxact 2011 returning user Car pools. Taxact 2011 returning user Hauling tools or instruments. Taxact 2011 returning user Union members' trips from a union hall. Taxact 2011 returning user Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. Taxact 2011 returning user Statutory employees. Taxact 2011 returning user Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. Taxact 2011 returning user  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Taxact 2011 returning user Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. Taxact 2011 returning user Depreciation limits on cars, trucks, and vans. Taxact 2011 returning user  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Taxact 2011 returning user For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Taxact 2011 returning user For more information, see Depreciation limits in Publication 463. Taxact 2011 returning user Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. Taxact 2011 returning user An ordinary expense is one that is common and accepted in your trade or business. Taxact 2011 returning user A necessary expense is one that is helpful and appropriate for your business. Taxact 2011 returning user An expense does not have to be required to be considered necessary. Taxact 2011 returning user This chapter explains the following. Taxact 2011 returning user What expenses are deductible. Taxact 2011 returning user How to report your expenses on your return. Taxact 2011 returning user What records you need to prove your expenses. Taxact 2011 returning user How to treat any expense reimbursements you may receive. Taxact 2011 returning user Who does not need to use this chapter. Taxact 2011 returning user   If you are an employee, you will not need to read this chapter if all of the following are true. Taxact 2011 returning user You fully accounted to your employer for your work-related expenses. Taxact 2011 returning user You received full reimbursement for your expenses. Taxact 2011 returning user Your employer required you to return any excess reimbursement and you did so. Taxact 2011 returning user There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. Taxact 2011 returning user If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. Taxact 2011 returning user See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. Taxact 2011 returning user    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. Taxact 2011 returning user Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. Taxact 2011 returning user This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. Taxact 2011 returning user It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. Taxact 2011 returning user Travel expenses defined. Taxact 2011 returning user   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. Taxact 2011 returning user   You will find examples of deductible travel expenses in Table 26-1 . Taxact 2011 returning user Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Taxact 2011 returning user This rest requirement is not satisfied by merely napping in your car. Taxact 2011 returning user You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Taxact 2011 returning user Example 1. Taxact 2011 returning user You are a railroad conductor. Taxact 2011 returning user You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Taxact 2011 returning user During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Taxact 2011 returning user You are considered to be away from home. Taxact 2011 returning user Example 2. Taxact 2011 returning user You are a truck driver. Taxact 2011 returning user You leave your terminal and return to it later the same day. Taxact 2011 returning user You get an hour off at your turnaround point to eat. Taxact 2011 returning user Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Taxact 2011 returning user Members of the Armed Forces. Taxact 2011 returning user   If you are a member of the U. Taxact 2011 returning user S. Taxact 2011 returning user Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Taxact 2011 returning user You cannot deduct your expenses for meals and lodging. Taxact 2011 returning user You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Taxact 2011 returning user If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Taxact 2011 returning user    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. Taxact 2011 returning user Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Taxact 2011 returning user Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Taxact 2011 returning user It includes the entire city or general area in which your business or work is located. Taxact 2011 returning user If you have more than one regular place of business, your tax home is your main place of business. Taxact 2011 returning user See Main place of business or work , later. Taxact 2011 returning user If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Taxact 2011 returning user See No main place of business or work , later. Taxact 2011 returning user If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Taxact 2011 returning user As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Taxact 2011 returning user Main place of business or work. Taxact 2011 returning user   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. Taxact 2011 returning user The total time you ordinarily spend in each place. Taxact 2011 returning user The level of your business activity in each place. Taxact 2011 returning user Whether your income from each place is significant or insignificant. Taxact 2011 returning user Example. Taxact 2011 returning user You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Taxact 2011 returning user You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Taxact 2011 returning user Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Taxact 2011 returning user No main place of business or work. Taxact 2011 returning user   You may have a tax home even if you do not have a regular or main place of business or work. Taxact 2011 returning user Your tax home may be the home where you regularly live. Taxact 2011 returning user Factors used to determine tax home. Taxact 2011 returning user   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Taxact 2011 returning user You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Taxact 2011 returning user You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Taxact 2011 returning user You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Taxact 2011 returning user   If you satisfy all three factors, your tax home is the home where you regularly live. Taxact 2011 returning user If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Taxact 2011 returning user If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Taxact 2011 returning user Example. Taxact 2011 returning user You are single and live in Boston in an apartment you rent. Taxact 2011 returning user You have worked for your employer in Boston for a number of years. Taxact 2011 returning user Your employer enrolls you in a 12-month executive training program. Taxact 2011 returning user You do not expect to return to work in Boston after you complete your training. Taxact 2011 returning user During your training, you do not do any work in Boston. Taxact 2011 returning user Instead, you receive classroom and on-the-job training throughout the United States. Taxact 2011 returning user You keep your apartment in Boston and return to it frequently. Taxact 2011 returning user You use your apartment to conduct your personal business. Taxact 2011 returning user You also keep up your community contacts in Boston. Taxact 2011 returning user When you complete your training, you are transferred to Los Angeles. Taxact 2011 returning user You do not satisfy factor (1) because you did not work in Boston. Taxact 2011 returning user You satisfy factor (2) because you had duplicate living expenses. Taxact 2011 returning user You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Taxact 2011 returning user Therefore, you have a tax home in Boston. Taxact 2011 returning user Tax home different from family home. Taxact 2011 returning user   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Taxact 2011 returning user You also cannot deduct the cost of meals and lodging while at your tax home. Taxact 2011 returning user See Example 1 . Taxact 2011 returning user   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Taxact 2011 returning user See Example 2 . Taxact 2011 returning user Example 1. Taxact 2011 returning user You are a truck driver and you and your family live in Tucson. Taxact 2011 returning user You are employed by a trucking firm that has its terminal in Phoenix. Taxact 2011 returning user At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Taxact 2011 returning user You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Taxact 2011 returning user This is because Phoenix is your tax home. Taxact 2011 returning user Example 2. Taxact 2011 returning user Your family home is in Pittsburgh, where you work 12 weeks a year. Taxact 2011 returning user The rest of the year you work for the same employer in Baltimore. Taxact 2011 returning user In Baltimore, you eat in restaurants and sleep in a rooming house. Taxact 2011 returning user Your salary is the same whether you are in Pittsburgh or Baltimore. Taxact 2011 returning user Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Taxact 2011 returning user You cannot deduct any expenses you have for meals and lodging there. Taxact 2011 returning user However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Taxact 2011 returning user You can deduct the cost of your round trip between Baltimore and Pittsburgh. Taxact 2011 returning user You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Taxact 2011 returning user Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Taxact 2011 returning user It may not be practical to return to your tax home from this other location at the end of each work day. Taxact 2011 returning user Temporary assignment vs. Taxact 2011 returning user indefinite assignment. Taxact 2011 returning user   If your assignment or job away from your main place of work is temporary, your tax home does not change. Taxact 2011 returning user You are considered to be away from home for the whole period you are away from your main place of work. Taxact 2011 returning user You can deduct your travel expenses if they otherwise qualify for deduction. Taxact 2011 returning user Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Taxact 2011 returning user   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Taxact 2011 returning user An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Taxact 2011 returning user   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Taxact 2011 returning user You may be able to deduct the cost of relocating to your new tax home as a moving expense. Taxact 2011 returning user See Publication 521 for more information. Taxact 2011 returning user Exception for federal crime investigations or prosecutions. Taxact 2011 returning user   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Taxact 2011 returning user This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. Taxact 2011 returning user   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. Taxact 2011 returning user Determining temporary or indefinite. Taxact 2011 returning user   You must determine whether your assignment is temporary or indefinite when you start work. Taxact 2011 returning user If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Taxact 2011 returning user An assignment or job that is initially temporary may become indefinite due to changed circumstances. Taxact 2011 returning user A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Taxact 2011 returning user Going home on days off. Taxact 2011 returning user   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Taxact 2011 returning user You cannot deduct the cost of your meals and lodging there. Taxact 2011 returning user However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Taxact 2011 returning user You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Taxact 2011 returning user   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Taxact 2011 returning user In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Taxact 2011 returning user Probationary work period. Taxact 2011 returning user   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Taxact 2011 returning user You cannot deduct any of your expenses for meals and lodging during the probationary period. Taxact 2011 returning user What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Taxact 2011 returning user You can deduct ordinary and necessary expenses you have when you travel away from home on business. Taxact 2011 returning user The type of expense you can deduct depends on the facts and your circumstances. Taxact 2011 returning user Table 26-1 summarizes travel expenses you may be able to deduct. Taxact 2011 returning user You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Taxact 2011 returning user When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Taxact 2011 returning user You can use a log, diary, notebook, or any other written record to keep track of your expenses. Taxact 2011 returning user The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. Taxact 2011 returning user Separating costs. Taxact 2011 returning user   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Taxact 2011 returning user You must have a reasonable basis for making this allocation. Taxact 2011 returning user For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Taxact 2011 returning user Travel expenses for another individual. Taxact 2011 returning user   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Taxact 2011 returning user Employee. Taxact 2011 returning user   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Taxact 2011 returning user Business associate. Taxact 2011 returning user   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. Taxact 2011 returning user A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. Taxact 2011 returning user A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Taxact 2011 returning user Bona fide business purpose. Taxact 2011 returning user   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Taxact 2011 returning user Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Taxact 2011 returning user Example. Taxact 2011 returning user Jerry drives to Chicago on business and takes his wife, Linda, with him. Taxact 2011 returning user Linda is not Jerry's employee. Taxact 2011 returning user Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Taxact 2011 returning user The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Taxact 2011 returning user Her expenses are not deductible. Taxact 2011 returning user Jerry pays $199 a day for a double room. Taxact 2011 returning user A single room costs $149 a day. Taxact 2011 returning user He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Taxact 2011 returning user If he uses public transportation, he can deduct only his fare. Taxact 2011 returning user Table 26-1. Taxact 2011 returning user Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. Taxact 2011 returning user IF you have expenses for. Taxact 2011 returning user . Taxact 2011 returning user . Taxact 2011 returning user THEN you can deduct the cost of. Taxact 2011 returning user . Taxact 2011 returning user . Taxact 2011 returning user transportation travel by airplane, train, bus, or car between your home and your business destination. Taxact 2011 returning user If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Taxact 2011 returning user If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. Taxact 2011 returning user taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Taxact 2011 returning user baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Taxact 2011 returning user car operating and maintaining your car when traveling away from home on business. Taxact 2011 returning user You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. Taxact 2011 returning user If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Taxact 2011 returning user lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Taxact 2011 returning user Meals include amounts spent for food, beverages, taxes, and related tips. Taxact 2011 returning user See Meals and Incidental Expenses for additional rules and limits. Taxact 2011 returning user cleaning dry cleaning and laundry. Taxact 2011 returning user telephone business calls while on your business trip. Taxact 2011 returning user This includes business communication by fax machine or other communication devices. Taxact 2011 returning user tips tips you pay for any expenses in this chart. Taxact 2011 returning user other other similar ordinary and necessary expenses related to your business travel. Taxact 2011 returning user These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Taxact 2011 returning user Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. Taxact 2011 returning user It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Taxact 2011 returning user The meal is business-related entertainment. Taxact 2011 returning user Business-related entertainment is discussed under Entertainment Expenses , later. Taxact 2011 returning user The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. Taxact 2011 returning user Lavish or extravagant. Taxact 2011 returning user   You cannot deduct expenses for meals that are lavish or extravagant. Taxact 2011 returning user An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Taxact 2011 returning user Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Taxact 2011 returning user 50% limit on meals. Taxact 2011 returning user   You can figure your meal expenses using either of the following methods. Taxact 2011 returning user Actual cost. Taxact 2011 returning user The standard meal allowance. Taxact 2011 returning user Both of these methods are explained below. Taxact 2011 returning user But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Taxact 2011 returning user   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Taxact 2011 returning user If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Taxact 2011 returning user The 50% limit is explained later under Entertainment Expenses . Taxact 2011 returning user Accountable and nonaccountable plans are discussed later under Reimbursements . Taxact 2011 returning user Actual cost. Taxact 2011 returning user   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Taxact 2011 returning user If you use this method, you must keep records of your actual cost. Taxact 2011 returning user Standard meal allowance. Taxact 2011 returning user   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Taxact 2011 returning user It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Taxact 2011 returning user The set amount varies depending on where and when you travel. Taxact 2011 returning user In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Taxact 2011 returning user If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Taxact 2011 returning user See Recordkeeping , later. Taxact 2011 returning user Incidental expenses. Taxact 2011 returning user   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Taxact 2011 returning user Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Taxact 2011 returning user Incidental expenses only method. Taxact 2011 returning user   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Taxact 2011 returning user The amount of the deduction is $5 a day. Taxact 2011 returning user You can use this method only if you did not pay or incur any meal expenses. Taxact 2011 returning user You cannot use this method on any day that you use the standard meal allowance. Taxact 2011 returning user    Federal employees should refer to the Federal Travel Regulations at  www. Taxact 2011 returning user gsa. Taxact 2011 returning user gov. Taxact 2011 returning user Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Taxact 2011 returning user 50% limit may apply. Taxact 2011 returning user   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Taxact 2011 returning user If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Taxact 2011 returning user The 50% limit is explained later under Entertainment Expenses . Taxact 2011 returning user Accountable and nonaccountable plans are discussed later under Reimbursements . Taxact 2011 returning user There is no optional standard lodging amount similar to the standard meal allowance. Taxact 2011 returning user Your allowable lodging expense deduction is your actual cost. Taxact 2011 returning user Who can use the standard meal allowance. Taxact 2011 returning user   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Taxact 2011 returning user   Use of the standard meal allowance for other travel. Taxact 2011 returning user    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Taxact 2011 returning user You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Taxact 2011 returning user You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Taxact 2011 returning user Amount of standard meal allowance. Taxact 2011 returning user   The standard meal allowance is the federal M&IE rate. Taxact 2011 returning user For travel in 2013, the daily rate for most small localities in the United States is $46. Taxact 2011 returning user   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Taxact 2011 returning user You can find this information (organized by state) on the Internet at www. Taxact 2011 returning user gsa. Taxact 2011 returning user gov. Taxact 2011 returning user Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. Taxact 2011 returning user However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. Taxact 2011 returning user You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. Taxact 2011 returning user   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Taxact 2011 returning user If you work in the transportation industry, however, see Special rate for transportation workers , later. Taxact 2011 returning user Standard meal allowance for areas outside the continental United States. Taxact 2011 returning user    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Taxact 2011 returning user The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Taxact 2011 returning user S. Taxact 2011 returning user Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Taxact 2011 returning user The Department of State establishes per diem rates for all other foreign areas. Taxact 2011 returning user    You can access per diem rates for non-foreign areas outside the continental United States at: www. Taxact 2011 returning user defensetravel. Taxact 2011 returning user dod. Taxact 2011 returning user mil/site/perdiemCalc. Taxact 2011 returning user cfm. Taxact 2011 returning user You can access all other foreign per diem rates at www. Taxact 2011 returning user state. Taxact 2011 returning user gov/travel/. Taxact 2011 returning user Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. Taxact 2011 returning user Special rate for transportation workers. Taxact 2011 returning user   You can use a special standard meal allowance if you work in the transportation industry. Taxact 2011 returning user You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Taxact 2011 returning user If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). Taxact 2011 returning user   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Taxact 2011 returning user If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Taxact 2011 returning user Travel for days you depart and return. Taxact 2011 returning user   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Taxact 2011 returning user You can do so by one of two methods. Taxact 2011 returning user Method 1: You can claim 3/4 of the standard meal allowance. Taxact 2011 returning user Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Taxact 2011 returning user Example. Taxact 2011 returning user Jen is employed in New Orleans as a convention planner. Taxact 2011 returning user In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Taxact 2011 returning user She left her home in New Orleans at 10 a. Taxact 2011 returning user m. Taxact 2011 returning user on Wednesday and arrived in Washington, DC, at 5:30 p. Taxact 2011 returning user m. Taxact 2011 returning user After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Taxact 2011 returning user m. Taxact 2011 returning user Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Taxact 2011 returning user Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Taxact 2011 returning user Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Taxact 2011 returning user For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Taxact 2011 returning user Travel in the United States The following discussion applies to travel in the United States. Taxact 2011 returning user For this purpose, the United States includes only the 50 states and the District of Columbia. Taxact 2011 returning user The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Taxact 2011 returning user See Part of Trip Outside the United States , later. Taxact 2011 returning user Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. Taxact 2011 returning user If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. Taxact 2011 returning user These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Taxact 2011 returning user Example. Taxact 2011 returning user You work in Atlanta and take a business trip to New Orleans in May. Taxact 2011 returning user On your way home, you stop in Mobile to visit your parents. Taxact 2011 returning user You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Taxact 2011 returning user If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. Taxact 2011 returning user You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. Taxact 2011 returning user The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Taxact 2011 returning user Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Taxact 2011 returning user However, you can deduct any expenses you have while at your destination that are directly related to your business. Taxact 2011 returning user A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Taxact 2011 returning user The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Taxact 2011 returning user Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. Taxact 2011 returning user For the part of your trip that is inside the United States, use the rules for travel in the United States. Taxact 2011 returning user Travel outside the United States does not include travel from one point in the United States to another point in the United States. Taxact 2011 returning user The following discussion can help you determine whether your trip was entirely within the United States. Taxact 2011 returning user Public transportation. Taxact 2011 returning user   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Taxact 2011 returning user Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Taxact 2011 returning user Example. Taxact 2011 returning user You fly from New York to Puerto Rico with a scheduled stop in Miami. Taxact 2011 returning user You return to New York nonstop. Taxact 2011 returning user The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Taxact 2011 returning user Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Taxact 2011 returning user Private car. Taxact 2011 returning user   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. Taxact 2011 returning user Example. Taxact 2011 returning user You travel by car from Denver to Mexico City and return. Taxact 2011 returning user Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Taxact 2011 returning user The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Taxact 2011 returning user Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Taxact 2011 returning user For this purpose, the United States includes only the 50 states and the District of Columbia. Taxact 2011 returning user How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Taxact 2011 returning user See chapter 1 of Publication 463 for information on luxury water travel. Taxact 2011 returning user Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Taxact 2011 returning user Travel entirely for business. Taxact 2011 returning user   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Taxact 2011 returning user Travel considered entirely for business. Taxact 2011 returning user   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Taxact 2011 returning user Exception 1 - No substantial control. Taxact 2011 returning user   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Taxact 2011 returning user The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Taxact 2011 returning user   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. Taxact 2011 returning user    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . Taxact 2011 returning user   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Taxact 2011 returning user    A self-employed person generally has substantial control over arranging business trips. Taxact 2011 returning user Exception 2 - Outside United States no more than a week. Taxact 2011 returning user   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Taxact 2011 returning user One week means 7 consecutive days. Taxact 2011 returning user In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Taxact 2011 returning user Exception 3 - Less than 25% of time on personal activities. Taxact 2011 returning user   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Taxact 2011 returning user For this purpose, count both the day your trip began and the day it ended. Taxact 2011 returning user Exception 4 - Vacation not a major consideration. Taxact 2011 returning user   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Taxact 2011 returning user Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. Taxact 2011 returning user You can only deduct the business portion of your cost of getting to and from your destination. Taxact 2011 returning user You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. Taxact 2011 returning user These travel allocation rules are discussed in chapter 1 of Publication 463. Taxact 2011 returning user You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. Taxact 2011 returning user In those cases, you can deduct the total cost of getting to and from your destination. Taxact 2011 returning user Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Taxact 2011 returning user If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Taxact 2011 returning user Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Taxact 2011 returning user You cannot deduct the travel expenses for your family. Taxact 2011 returning user If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Taxact 2011 returning user Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Taxact 2011 returning user You can deduct your travel expenses only if your attendance is connected to your own trade or business. Taxact 2011 returning user Convention agenda. Taxact 2011 returning user   The convention agenda or program generally shows the purpose of the convention. Taxact 2011 returning user You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Taxact 2011 returning user The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Taxact 2011 returning user Conventions held outside the North American area. Taxact 2011 returning user    See chapter 1 of Publication 463 for information on conventions held outside the North American area. Taxact 2011 returning user Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Taxact 2011 returning user You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. Taxact 2011 returning user Directly-related test. Taxact 2011 returning user Associated test. Taxact 2011 returning user Both of these tests are explained in chapter 2 of Publication 463. Taxact 2011 returning user The amount you can deduct for entertainment expenses may be limited. Taxact 2011 returning user Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Taxact 2011 returning user This limit is discussed next. Taxact 2011 returning user 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Taxact 2011 returning user (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Taxact 2011 returning user See Individuals subject to “hours of service” limits , later. Taxact 2011 returning user ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Taxact 2011 returning user Figure 26-A summarizes the general rules explained in this section. Taxact 2011 returning user The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Taxact 2011 returning user Included expenses. Taxact 2011 returning user   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Taxact 2011 returning user However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Taxact 2011 returning user Application of 50% limit. Taxact 2011 returning user   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. Taxact 2011 returning user   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Taxact 2011 returning user It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. Taxact 2011 returning user It also applies to the cost of meals included in deductible educational expenses. Taxact 2011 returning user When to apply the 50% limit. Taxact 2011 returning user   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Taxact 2011 returning user You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. Taxact 2011 returning user Example 1. Taxact 2011 returning user You spend $200 for a business-related meal. Taxact 2011 returning user If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Taxact 2011 returning user Your deduction cannot be more than $45 (. Taxact 2011 returning user 50 × $90). Taxact 2011 returning user Example 2. Taxact 2011 returning user You purchase two tickets to a concert and give them to a client. Taxact 2011 returning user You purchased the tickets through a ticket agent. Taxact 2011 returning user You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Taxact 2011 returning user Your deduction cannot be more than $80 (. Taxact 2011 returning user 50 × $160). Taxact 2011 returning user Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Taxact 2011 returning user Figure 26-A can help you determine if the 50% limit applies to you. Taxact 2011 returning user Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Taxact 2011 returning user Employee's reimbursed expenses. Taxact 2011 returning user   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Taxact 2011 returning user Accountable plans are discussed later under Reimbursements . Taxact 2011 returning user Individuals subject to “hours of service” limits. Taxact 2011 returning user   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Taxact 2011 returning user The percentage is 80%. Taxact 2011 returning user   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Taxact 2011 returning user Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Taxact 2011 returning user Interstate truck operators and bus drivers who are under Department of Transportation regulations. Taxact 2011 returning user Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Taxact 2011 returning user Certain merchant mariners who are under Coast Guard regulations. Taxact 2011 returning user Other exceptions. Taxact 2011 returning user   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. Taxact 2011 returning user These are discussed in Publication 463. Taxact 2011 returning user Figure 26-A. Taxact 2011 returning user Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Taxact 2011 returning user See Exceptions to the 50% Limit . Taxact 2011 returning user Please click here for the text description of the image. Taxact 2011 returning user Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Taxact 2011 returning user Entertainment. Taxact 2011 returning user    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Taxact 2011 returning user Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. Taxact 2011 returning user A meal as a form of entertainment. Taxact 2011 returning user   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Taxact 2011 returning user A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Taxact 2011 returning user To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Taxact 2011 returning user You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Taxact 2011 returning user Separating costs. Taxact 2011 returning user   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Taxact 2011 returning user You must have a reasonable basis for making this allocation. Taxact 2011 returning user For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Taxact 2011 returning user Taking turns paying for meals or entertainment. Taxact 2011 returning user   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Taxact 2011 returning user Lavish or extravagant expenses. Taxact 2011 returning user   You cannot deduct expenses for entertainment that are lavish or extravagant. Taxact 2011 returning user An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Taxact 2011 returning user Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Taxact 2011 returning user Trade association meetings. Taxact 2011 returning user    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Taxact 2011 returning user These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Taxact 2011 returning user Entertainment tickets. Taxact 2011 returning user   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Taxact 2011 returning user For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Taxact 2011 returning user What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Taxact 2011 returning user Club dues and membership fees. Taxact 2011 returning user   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Taxact 2011 returning user This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. Taxact 2011 returning user   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Taxact 2011 returning user You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Taxact 2011 returning user Entertainment facilities. Taxact 2011 returning user   Generally, you cannot deduct any expense for the use of an entertainment facility. Taxact 2011 returning user This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Taxact 2011 returning user   An entertainment facility is any property you own, rent, or use for entertainment. Taxact 2011 returning user Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Taxact 2011 returning user Out-of-pocket expenses. Taxact 2011 returning user   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Taxact 2011 returning user These are not expenses for the use of an entertainment facility. Taxact 2011 returning user However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. Taxact 2011 returning user Additional information. Taxact 2011 returning user   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. Taxact 2011 returning user Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. Taxact 2011 returning user This section explains the limits and rules for deducting the costs of gifts. Taxact 2011 returning user $25 limit. Taxact 2011 returning user   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Taxact 2011 returning user A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. Taxact 2011 returning user   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. Taxact 2011 returning user This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. Taxact 2011 returning user   If you and your spouse both give gifts, both of you are treated as one taxpayer. Taxact 2011 returning user It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. Taxact 2011 returning user If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. Taxact 2011 returning user Incidental costs. Taxact 2011 returning user   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. Taxact 2011 returning user   A cost is incidental only if it does not add substantial value to the gift. Taxact 2011 returning user For example, the cost of customary gift wrapping is an incidental cost. Taxact 2011 returning user However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. Taxact 2011 returning user Exceptions. Taxact 2011 returning user   The following items are not considered gifts for purposes of the $25 limit. Taxact 2011 returning user An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. Taxact 2011 returning user Examples include pens, desk sets, and plastic bags and cases. Taxact 2011 returning user Signs, display racks, or other promotional material to be used on the business premises of the recipient. Taxact 2011 returning user Gift or entertainment. Taxact 2011 returning user   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Taxact 2011 returning user However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. Taxact 2011 returning user    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Taxact 2011 returning user You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. Taxact 2011 returning user    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Taxact 2011 returning user You cannot choose, in this case, to treat the cost of the tickets as a gift expense. Taxact 2011 returning user Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . Taxact 2011 returning user These expenses include the cost of transportation by air, rail, bus, taxi, etc. Taxact 2011 returning user , and the cost of driving and maintaining your car. Taxact 2011 returning user Transportation expenses include the ordinary and necessary costs of all of the following. Taxact 2011 returning user Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. Taxact 2011 returning user (Tax home is defined earlier under Travel Expenses . Taxact 2011 returning user ) Visiting clients or customers. Taxact 2011 returning user Going to a business meeting away from your regular workplace. Taxact 2011 returning user Getting from your home to a temporary workplace when you have one or more regular places of work. Taxact 2011 returning user These temporary workplaces can be either within the area of your tax home or outside that area. Taxact 2011 returning user Transportation expenses do not include expenses you have while traveling away from home overnight. Taxact 2011 returning user Those expenses are travel expenses, discussed earlier. Taxact 2011 returning user However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Taxact 2011 returning user See Car Expenses , later. Taxact 2011 returning user Illustration of transportation expenses. Taxact 2011 returning user    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. Taxact 2011 returning user You may want to refer to it when deciding whether you can deduct your transportation expenses. Taxact 2011 returning user Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Taxact 2011 returning user However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. Taxact 2011 returning user Temporary work location. Taxact 2011 returning user   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Taxact 2011 returning user   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Taxact 2011 returning user   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Taxact 2011 returning user   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Taxact 2011 returning user It will not be treated as temporary after the date you determine it will last more than 1 year. Taxact 2011 returning user   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Taxact 2011 returning user You may have deductible travel expenses as discussed earlier in this chapter. Taxact 2011 returning user No regular place of work. Taxact 2011 returning user   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Taxact 2011 returning user   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Taxact 2011 returning user   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Taxact 2011 returning user These are nondeductible commuting expenses. Taxact 2011 returning user Two places of work. Taxact 2011 returning user   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Taxact 2011 returning user However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Taxact 2011 returning user   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Taxact 2011 returning user You cannot deduct them. Taxact 2011 returning user Armed Forces reservists. Taxact 2011 returning user   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Taxact 2011 returning user You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. Taxact 2011 returning user   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Taxact 2011 returning user In this case, your transportation generally is a nondeductible commuting expense. Taxact 2011 returning user However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Taxact 2011 returning user   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Taxact 2011 returning user   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Taxact 2011 returning user These expenses are discussed earlier under Travel Expenses . Taxact 2011 returning user   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. Taxact 2011 returning user See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. Taxact 2011 returning user Commuting expenses. Taxact 2011 returning user   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Taxact 2011 returning user These costs are personal commuting expenses. Taxact 2011 returning user You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Taxact 2011 returning user You cannot deduct commuting expenses even if you work during the commuting trip. Taxact 2011 returning user Example. Taxact 2011 returning user You sometimes use your cell phone to make business calls while commuting to and from work. Taxact 2011 returning user Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Taxact 2011 returning user These activities do not change the trip from personal to business. Taxact 2011 returning user You cannot deduct your commuting expenses. Taxact 2011 returning user Parking fees. Taxact 2011 returning user   Fees you pay to park your car at your place of business are nondeductible commuting expenses. Taxact 2011 returning user You can, however, deduct business-related parking fees when visiting a customer or client. Taxact 2011 returning user Advertising display on car. Taxact 2011 returning user   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Taxact 2011 returning user If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Taxact 2011 returning user Car pools. Taxact 2011 returning user   You cannot deduct the cost of using your car in a nonprofit car pool. Taxact 2011 returning user Do not include payments you receive from the passengers in your income. Taxact 2011 returning user These payments are considered reimbursements of your expenses. Taxact 2011 returning user However, if you operate a car pool for a profit, you must include payments from passengers in your income. Taxact 2011 returning user You can then deduct your car expenses (using the rules in this chapter). Taxact 2011 returning user Hauling tools or instruments. Taxact 2011 returning user   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Taxact 2011 returning user However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Taxact 2011 returning user Union members' trips from a union hall. Taxact 2011 returning user   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Taxact 2011 returning user Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Taxact 2011 returning user Office in the home. Taxact 2011 returning user   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Taxact 2011 returning user (See chapter 28 for information on determining if your home office qualifies as a principal place of business. Taxact 2011 returning user ) Figure 26-B. Taxact 2011 returning user When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. Taxact 2011 returning user (Do not use this chart if your home is your principal place of business. Taxact 2011 returning user See Office in the home . Taxact 2011 returning user ) Please click here for the text description of the image. Taxact 2011 returning user Figure 26-B. Taxact 2011 returning user Local Transportation Examples of deductible transportation. Taxact 2011 returning user   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Taxact 2011 returning user Example 1. Taxact 2011 returning user You regularly work in an office in the city where you live. Taxact 2011 returning user Your employer sends you to a 1-week training session at a different office in the same city. Taxact 2011 returning user You travel directly from your home to the training location and return each day. Taxact 2011 returning user You can deduct the cost of your daily round-trip transportation between your home and the training location. Taxact 2011 returning user Example 2. Taxact 2011 returning user Your principal place of business is in your home. Taxact 2011 returning user You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Taxact 2011 returning user Example 3. Taxact 2011 returning user You have no regular office, and you do not have an office in your home. Taxact 2011 returning user In this case, the location of your first business contact inside the metropolitan area is considered your office. Taxact 2011 returning user Transportation expenses between your home and this first contact are nondeductible commuting expenses. Taxact 2011 returning user Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Taxact 2011 returning user While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. Taxact 2011 returning user With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. Taxact 2011 returning user Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. Taxact 2011 returning user You generally can use one of the two following methods to figure your deductible expenses. Taxact 2011 returning user Standard mileage rate. Taxact 2011 returning user Actual car expenses. Taxact 2011 returning user If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Taxact 2011 returning user See Leasing a car under Actual Car Expenses, later. Taxact 2011 returning user In this chapter, “car” includes a van, pickup, or panel truck. Taxact 2011 returning user Rural mail carriers. Taxact 2011 returning user   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. Taxact 2011 returning user Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. Taxact 2011 returning user   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Taxact 2011 returning user You must complete Form 2106 and attach it to your Form 1040. Taxact 2011 returning user   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Taxact 2011 returning user It is given as an equipment maintenance allowance (EMA) to employees of the U. Taxact 2011 returning user S. Taxact 2011 returning user Postal Service. Taxact 2011 returning user It is at the rate contained in the 1991 collective bargaining agreement. Taxact 2011 returning user Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Taxact 2011 returning user See your employer for information on your reimbursement. Taxact 2011 returning user If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Taxact 2011 returning user Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Taxact 2011 returning user For 2013, the standard mileage rate for business use is 56½ cents per mile. Taxact 2011 returning user If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. Taxact 2011 returning user You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Taxact 2011 returning user See Reimbursements under How To Report, later. Taxact 2011 returning user Choosing the standard mileage rate. Taxact 2011 returning user   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Taxact 2011 returning user Then in later years, you can choose to use either the standard mileage rate or actual expenses. Taxact 2011 returning user   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Taxact 2011 returning user   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Taxact 2011 returning user You cannot revoke the choice. Taxact 2011 returning user However, in a later year, you can switch from the standard mileage rate to the actual expenses method. Taxact 2011 returning user If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Taxact 2011 returning user Example. Taxact 2011 returning user Larry is an employee who occasionally uses his own car for business purposes. Taxact 2011 returning user He purchased the car in 2011, but he did not claim any unreimburse