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1040x How To

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1040x How To

1040x how to 2. 1040x how to   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. 1040x how to How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. 1040x how to Deferral percentage. 1040x how to Employee compensation. 1040x how to Compensation of self-employed individuals. 1040x how to Choice not to treat deferrals as compensation. 1040x how to Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. 1040x how to Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. 1040x how to S. 1040x how to Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. 1040x how to Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. 1040x how to A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. 1040x how to SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). 1040x how to A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). 1040x how to Eligible employee. 1040x how to   An eligible employee is an individual who meets all the following requirements. 1040x how to Has reached age 21. 1040x how to Has worked for you in at least 3 of the last 5 years. 1040x how to Has received at least $550 in compensation from you in 2013. 1040x how to This amount remains the same in 2014. 1040x how to    You can use less restrictive participation requirements than those listed, but not more restrictive ones. 1040x how to Excludable employees. 1040x how to   The following employees can be excluded from coverage under a SEP. 1040x how to Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. 1040x how to Nonresident alien employees who have received no U. 1040x how to S. 1040x how to source wages, salaries, or other personal services compensation from you. 1040x how to For more information about nonresident aliens, see Publication 519, U. 1040x how to S. 1040x how to Tax Guide for Aliens. 1040x how to Setting Up a SEP There are three basic steps in setting up a SEP. 1040x how to You must execute a formal written agreement to provide benefits to all eligible employees. 1040x how to You must give each eligible employee certain information about the SEP. 1040x how to A SEP-IRA must be set up by or for each eligible employee. 1040x how to Many financial institutions will help you set up a SEP. 1040x how to Formal written agreement. 1040x how to   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. 1040x how to You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. 1040x how to However, see When not to use Form 5305-SEP, below. 1040x how to   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. 1040x how to Keep the original form. 1040x how to Do not file it with the IRS. 1040x how to Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. 1040x how to See the Form 5305-SEP instructions for details. 1040x how to If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. 1040x how to When not to use Form 5305-SEP. 1040x how to   You cannot use Form 5305-SEP if any of the following apply. 1040x how to You currently maintain any other qualified retirement plan other than another SEP. 1040x how to You have any eligible employees for whom IRAs have not been set up. 1040x how to You use the services of leased employees, who are not your common-law employees (as described in chapter 1). 1040x how to You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. 1040x how to An affiliated service group described in section 414(m). 1040x how to A controlled group of corporations described in section 414(b). 1040x how to Trades or businesses under common control described in section 414(c). 1040x how to You do not pay the cost of the SEP contributions. 1040x how to Information you must give to employees. 1040x how to   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. 1040x how to An IRS model SEP is not considered adopted until you give each employee this information. 1040x how to Setting up the employee's SEP-IRA. 1040x how to   A SEP-IRA must be set up by or for each eligible employee. 1040x how to SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. 1040x how to You send SEP contributions to the financial institution where the SEP-IRA is maintained. 1040x how to Deadline for setting up a SEP. 1040x how to   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. 1040x how to Credit for startup costs. 1040x how to   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. 1040x how to For more information, see Credit for startup costs under Reminders, earlier. 1040x how to How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. 1040x how to If you are self-employed, you can contribute to your own SEP-IRA. 1040x how to Contributions must be in the form of money (cash, check, or money order). 1040x how to You cannot contribute property. 1040x how to However, participants may be able to transfer or roll over certain property from one retirement plan to another. 1040x how to See Publication 590 for more information about rollovers. 1040x how to You do not have to make contributions every year. 1040x how to But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). 1040x how to When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. 1040x how to Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. 1040x how to A SEP-IRA cannot be a Roth IRA. 1040x how to Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. 1040x how to Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. 1040x how to If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. 1040x how to Participants age 70½ or over must take required minimum distributions. 1040x how to Time limit for making contributions. 1040x how to   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. 1040x how to Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. 1040x how to Compensation generally does not include your contributions to the SEP. 1040x how to The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. 1040x how to Example. 1040x how to Your employee, Mary Plant, earned $21,000 for 2013. 1040x how to The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). 1040x how to Contributions for yourself. 1040x how to   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. 1040x how to However, special rules apply when figuring your maximum deductible contribution. 1040x how to See Deduction Limit for Self-Employed Individuals , later. 1040x how to Annual compensation limit. 1040x how to   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. 1040x how to However, $51,000 is the maximum contribution for an eligible employee. 1040x how to These limits are $260,000 and $52,000, respectively, in 2014. 1040x how to Example. 1040x how to Your employee, Susan Green, earned $210,000 for 2013. 1040x how to Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. 1040x how to More than one plan. 1040x how to   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. 1040x how to When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. 1040x how to Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. 1040x how to Tax treatment of excess contributions. 1040x how to   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. 1040x how to 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). 1040x how to $51,000. 1040x how to Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. 1040x how to For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. 1040x how to Reporting on Form W-2. 1040x how to   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). 1040x how to Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. 1040x how to If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. 1040x how to Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. 1040x how to Your contributions (including any excess contributions carryover). 1040x how to 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. 1040x how to In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. 1040x how to Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. 1040x how to When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. 1040x how to The deduction for the deductible part of your self-employment tax. 1040x how to The deduction for contributions to your own SEP-IRA. 1040x how to The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. 1040x how to For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. 1040x how to To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. 1040x how to Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 1040x how to Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. 1040x how to However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. 1040x how to If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. 1040x how to Excise tax. 1040x how to   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. 1040x how to For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. 1040x how to When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. 1040x how to If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. 1040x how to If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. 1040x how to Example. 1040x how to You are a fiscal year taxpayer whose tax year ends June 30. 1040x how to You maintain a SEP on a calendar year basis. 1040x how to You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. 1040x how to Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 1040x how to For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. 1040x how to S. 1040x how to Return of Partnership Income; and corporations deduct them on Form 1120, U. 1040x how to S. 1040x how to Corporation Income Tax Return, or Form 1120S, U. 1040x how to S. 1040x how to Income Tax Return for an S Corporation. 1040x how to Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 1040x how to (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 1040x how to , you receive from the partnership. 1040x how to ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. 1040x how to Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. 1040x how to (See the Caution, next. 1040x how to ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. 1040x how to This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. 1040x how to You are not allowed to set up a SARSEP after 1996. 1040x how to However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. 1040x how to If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. 1040x how to Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. 1040x how to At least 50% of your employees eligible to participate choose to make elective deferrals. 1040x how to You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. 1040x how to The elective deferrals of your highly compensated employees meet the SARSEP ADP test. 1040x how to SARSEP ADP test. 1040x how to   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. 1040x how to A highly compensated employee is defined in chapter 1. 1040x how to Deferral percentage. 1040x how to   The deferral percentage for an employee for a year is figured as follows. 1040x how to   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. 1040x how to Employee compensation. 1040x how to   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. 1040x how to Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. 1040x how to See Compensation in chapter 1. 1040x how to Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. 1040x how to Compensation of self-employed individuals. 1040x how to   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. 1040x how to   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. 1040x how to Choice not to treat deferrals as compensation. 1040x how to   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. 1040x how to Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. 1040x how to 25% of the participant's compensation (limited to $255,000 of the participant's compensation). 1040x how to $17,500. 1040x how to The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. 1040x how to Cash or deferred arrangement (section 401(k) plan). 1040x how to Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). 1040x how to SIMPLE IRA plan. 1040x how to In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. 1040x how to Catch-up contributions. 1040x how to   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 1040x how to The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. 1040x how to Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). 1040x how to However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 1040x how to The catch-up contribution limit. 1040x how to The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 1040x how to   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). 1040x how to Overall limit on SEP contributions. 1040x how to   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). 1040x how to The same rule applies to contributions you make to your own SEP-IRA. 1040x how to See Contribution Limits , earlier. 1040x how to Figuring the elective deferral. 1040x how to   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. 1040x how to Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. 1040x how to However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 1040x how to Excess deferrals. 1040x how to   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. 1040x how to For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. 1040x how to The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. 1040x how to See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. 1040x how to Excess SEP contributions. 1040x how to   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. 1040x how to You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. 1040x how to If you do not notify them within this time period, you must pay a 10% tax on the excess. 1040x how to For an explanation of the notification requirements, see Rev. 1040x how to Proc. 1040x how to 91-44, 1991-2 C. 1040x how to B. 1040x how to 733. 1040x how to If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. 1040x how to Reporting on Form W-2. 1040x how to   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 1040x how to You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 1040x how to You must also include them in box 12. 1040x how to Mark the “Retirement plan” checkbox in box 13. 1040x how to For more information, see the Form W-2 instructions. 1040x how to Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. 1040x how to Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. 1040x how to Distributions are subject to IRA rules. 1040x how to Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. 1040x how to For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. 1040x how to Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. 1040x how to Making excess contributions. 1040x how to Making early withdrawals. 1040x how to Not making required withdrawals. 1040x how to For information about these taxes, see chapter 1 in Publication 590. 1040x how to Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. 1040x how to Prohibited transaction. 1040x how to   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. 1040x how to In that case, the SEP-IRA will no longer qualify as an IRA. 1040x how to For a list of prohibited transactions, see Prohibited Transactions in chapter 4. 1040x how to Effects on employee. 1040x how to   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. 1040x how to The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. 1040x how to Also, the employee may have to pay the additional tax for making early withdrawals. 1040x how to Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. 1040x how to See Setting Up a SEP , earlier. 1040x how to Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. 1040x how to You must also give them notice of any excess contributions. 1040x how to For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). 1040x how to Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. 1040x how to For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. 1040x how to Prev  Up  Next   Home   More Online Publications
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Understanding Your CP53C Notice

We tried to direct deposit your refund, but the financial institution couldn’t process it. When refund payments are questionable, we review related returns to ensure the return is valid. We are researching your account, but it will take 8 to 10 weeks to complete our review and verify this refund.


What you need to do

  • You don’t need to do anything at this time.

You may want to

  • Call us at the toll-free number on the notice if you don’t receive your refund check or a follow-up letter within 10 weeks
  • Monitor your financial accounts

However, if you call us before 10 weeks have passed, we won’t have any information about the status of your refund.


Answers to Common Questions

Q. Why was my direct deposit refund returned to the IRS?

A. A financial institution will reject a refund for a variety of reasons. Most often, the personal information on the direct deposit doesn’t match its records: 

  • Name
  • SSN
  • Routing number

Q. Why could the refund review take up to 10 weeks?

A. We must research your account to determine if you are entitled to the refund. We try to balance customer service and tax compliance when we review tax returns. Refund timeframes are also affected by:

  • Bankruptcy
  • An open audit
  • A balance due on a related account (such as a different tax year)

Q. Will calling the IRS give me additional information or speed my refund?

A. No, calling us won’t speed up your refund. You don’t need to call us unless we send you a letter asking ask you to contact us. Our telephone assistors won’t be able to provide any additional information.


Tips for next year

If you request a direct deposit refund, be sure the account you specify is in your name (or your spouse’s if you have a joint refund).


If you changed your name as a result of a recent marriage or divorce, be sure you’ll want to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration.


Never direct your refund to an account that belongs to a relative, friend, or tax return preparer.

Page Last Reviewed or Updated: 22-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
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The 1040x How To

1040x how to 25. 1040x how to   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. 1040x how to Progressive deterioration. 1040x how to Damage from corrosive drywall. 1040x how to Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. 1040x how to  Section C of Form 4684 is new for 2013. 1040x how to You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. 1040x how to Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. 1040x how to You do not need to complete Appendix A. 1040x how to For details, see Losses from Ponzi-type investment schemes , in this chapter. 1040x how to Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. 1040x how to The chapter also explains the following  topics. 1040x how to How to figure the amount of your loss. 1040x how to How to treat insurance and other reimbursements you receive. 1040x how to The deduction limits. 1040x how to When and how to report a casualty or theft. 1040x how to Forms to file. 1040x how to    When you have a casualty or theft, you have to file Form 4684. 1040x how to You will also have to file one or more of the following forms. 1040x how to Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. 1040x how to   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. 1040x how to Workbook for casualties and thefts. 1040x how to    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. 1040x how to It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. 1040x how to Business or investment-related losses. 1040x how to   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. 1040x how to Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. 1040x how to A sudden event is one that is swift, not gradual or progressive. 1040x how to An unexpected event is one that is ordinarily unanticipated and unintended. 1040x how to 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. 1040x how to Deductible losses. 1040x how to   Deductible casualty losses can result from a number of different causes, including the following. 1040x how to Car accidents (but see Nondeductible losses , next, for exceptions). 1040x how to Earthquakes. 1040x how to Fires (but see Nondeductible losses , next, for exceptions). 1040x how to Floods. 1040x how to Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547. 1040x how to Mine cave-ins. 1040x how to Shipwrecks. 1040x how to Sonic booms. 1040x how to Storms, including hurricanes and tornadoes. 1040x how to Terrorist attacks. 1040x how to Vandalism. 1040x how to Volcanic eruptions. 1040x how to Nondeductible losses. 1040x how to   A casualty loss is not deductible if the damage or destruction is caused by the following. 1040x how to Accidentally breaking articles such as glassware or china under normal conditions. 1040x how to A family pet (explained below). 1040x how to A fire if you willfully set it or pay someone else to set it. 1040x how to A car accident if your willful negligence or willful act caused it. 1040x how to The same is true if the willful act or willful negligence of someone acting for you caused the accident. 1040x how to Progressive deterioration (explained later). 1040x how to Family pet. 1040x how to   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. 1040x how to Example. 1040x how to Your antique oriental rug was damaged by your new puppy before it was housebroken. 1040x how to Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. 1040x how to Progressive deterioration. 1040x how to    Loss of property due to progressive deterioration is not deductible as a casualty loss. 1040x how to This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. 1040x how to The following are examples of damage due to progressive deterioration. 1040x how to The steady weakening of a building due to normal wind and weather conditions. 1040x how to The deterioration and damage to a water heater that bursts. 1040x how to However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. 1040x how to Most losses of property caused by droughts. 1040x how to To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. 1040x how to Termite or moth damage. 1040x how to The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. 1040x how to However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. 1040x how to Damage from corrosive drywall. 1040x how to   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. 1040x how to For details, see Publication 547. 1040x how to Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. 1040x how to The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. 1040x how to You do not need to show a conviction for theft. 1040x how to Theft includes the taking of money or property by the following means. 1040x how to Blackmail. 1040x how to Burglary. 1040x how to Embezzlement. 1040x how to Extortion. 1040x how to Kidnapping for ransom. 1040x how to Larceny. 1040x how to Robbery. 1040x how to The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. 1040x how to Decline in market value of stock. 1040x how to   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. 1040x how to 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. 1040x how to You report a capital loss on Schedule D (Form 1040). 1040x how to For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. 1040x how to Mislaid or lost property. 1040x how to   The simple disappearance of money or property is not a theft. 1040x how to 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. 1040x how to Sudden, unexpected, and unusual events are defined earlier. 1040x how to Example. 1040x how to A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. 1040x how to The diamond falls from the ring and is never found. 1040x how to The loss of the diamond is a casualty. 1040x how to Losses from Ponzi-type investment schemes. 1040x how to   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. 1040x how to R. 1040x how to B. 1040x how to 735 (available at www. 1040x how to irs. 1040x how to gov/irb/2009-14_IRB/ar07. 1040x how to html). 1040x how to Revenue Procedure 2009-20, 2009-14 I. 1040x how to R. 1040x how to B. 1040x how to 749 (available at www. 1040x how to irs. 1040x how to gov/irb/2009-14_IRB/ar11. 1040x how to html). 1040x how to Revenue Procedure 2011-58, 2011-50 I. 1040x how to R. 1040x how to B. 1040x how to 849 (available at www. 1040x how to irs. 1040x how to gov/irb/2011-50_IRB/ar11. 1040x how to html). 1040x how to 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. 1040x how to Skip lines 19 to 27. 1040x how to Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. 1040x how to You do not need to complete Appendix A. 1040x how to For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. 1040x how to   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. 1040x how to Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. 1040x how to If you incurred this type of loss, you can choose one of the following ways to deduct the loss. 1040x how to As a casualty loss. 1040x how to As an ordinary loss. 1040x how to As a nonbusiness bad debt. 1040x how to Casualty loss or ordinary loss. 1040x how to   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. 1040x how to The choice is generally 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. 1040x how to 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. 1040x how to 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. 1040x how to Once you make this choice, you cannot change it without permission from the Internal Revenue Service. 1040x how to   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. 1040x how to The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. 1040x how to Your loss is subject to the 2%-of-adjusted-gross-income limit. 1040x how to You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. 1040x how to Nonbusiness bad debt. 1040x how to   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. 1040x how to How to report. 1040x how to   The kind of deduction you choose for your loss on deposits determines how you report your loss. 1040x how to If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). 1040x how to Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. 1040x how to Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). 1040x how to More information. 1040x how to   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. 1040x how to Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. 1040x how to You also must be able to support the amount you take as a deduction. 1040x how to Casualty loss proof. 1040x how to   For a casualty loss, your records should show all the following. 1040x how to The type of casualty (car accident, fire, storm, etc. 1040x how to ) and when it occurred. 1040x how to That the loss was a direct result of the casualty. 1040x how to 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. 1040x how to Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. 1040x how to Theft loss proof. 1040x how to   For a theft loss, your records should show all the following. 1040x how to When you discovered that your property was missing. 1040x how to That your property was stolen. 1040x how to That you were the owner of the property. 1040x how to Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. 1040x how to It is important that you have records that will prove your deduction. 1040x how to If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. 1040x how to Figuring a Loss Figure the amount of your loss using the following steps. 1040x how to Determine your adjusted basis in the property before the casualty or theft. 1040x how to Determine the decrease in fair market value of the property as a result of the casualty or theft. 1040x how to From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. 1040x how to 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. 1040x how to Gain from reimbursement. 1040x how to   If your reimbursement is more than your adjusted basis in the property, you have a gain. 1040x how to This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. 1040x how to If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. 1040x how to See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. 1040x how to Leased property. 1040x how to   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. 1040x how to 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. 1040x how to 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. 1040x how to FMV of stolen property. 1040x how to   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. 1040x how to Example. 1040x how to Several years ago, you purchased silver dollars at face value for $150. 1040x how to This is your adjusted basis in the property. 1040x how to Your silver dollars were stolen this year. 1040x how to The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. 1040x how to Your theft loss is $150. 1040x how to Recovered stolen property. 1040x how to   Recovered stolen property is your property that was stolen and later returned to you. 1040x how to 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. 1040x how to Use this amount to refigure your total loss for the year in which the loss was deducted. 1040x how to   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. 1040x how to But report the difference only up to the amount of the loss that reduced your tax. 1040x how to For more information on the amount to report, see Recoveries in chapter 12. 1040x how to 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. 1040x how to However, other measures can also be used to establish certain decreases. 1040x how to Appraisal. 1040x how to   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. 1040x how to The appraiser must recognize the effects of any general market decline that may occur along with the casualty. 1040x how to This information is needed to limit any deduction to the actual loss resulting from damage to the property. 1040x how to   Several factors are important in evaluating the accuracy of an appraisal, including the following. 1040x how to The appraiser's familiarity with your property before and after the casualty or theft. 1040x how to The appraiser's knowledge of sales of comparable property in the area. 1040x how to The appraiser's knowledge of conditions in the area of the casualty. 1040x how to The appraiser's method of appraisal. 1040x how to    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. 1040x how to For more information on disasters, see Disaster Area Losses, in Pub. 1040x how to 547. 1040x how to Cost of cleaning up or making repairs. 1040x how to   The cost of repairing damaged property is not part of a casualty loss. 1040x how to Neither is the cost of cleaning up after a casualty. 1040x how to But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. 1040x how to The repairs are actually made. 1040x how to The repairs are necessary to bring the property back to its condition before the casualty. 1040x how to The amount spent for repairs is not excessive. 1040x how to The repairs take care of the damage only. 1040x how to The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. 1040x how to Landscaping. 1040x how to   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. 1040x how to You may be able to measure your loss by what you spend on the following. 1040x how to Removing destroyed or damaged trees and shrubs minus any salvage you receive. 1040x how to Pruning and other measures taken to preserve damaged trees and shrubs. 1040x how to Replanting necessary to restore the property to its approximate value before the casualty. 1040x how to Car value. 1040x how to    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. 1040x how to You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. 1040x how to 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. 1040x how to If your car is not listed in the books, determine its value from other sources. 1040x how to A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. 1040x how to 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. 1040x how to Cost of protection. 1040x how to   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. 1040x how to The amount you spend on insurance or to board up your house against a storm is not part of your loss. 1040x how to   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. 1040x how to An example would be the cost of a dike to prevent flooding. 1040x how to Exception. 1040x how to   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. 1040x how to See Disaster Area Losses in Publication 547. 1040x how to Incidental expenses. 1040x how to   Any incidental expenses you have 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. 1040x how to Replacement cost. 1040x how to   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. 1040x how to Sentimental value. 1040x how to   Do not consider sentimental value when determining your loss. 1040x how to 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. 1040x how to Decline in market value of property in or near casualty area. 1040x how to   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. 1040x how to You have a loss only for actual casualty damage to your property. 1040x how to However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. 1040x how to Costs of photographs and appraisals. 1040x how to    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. 1040x how to Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. 1040x how to    Appraisals are used to figure the decrease in FMV because of a casualty or theft. 1040x how to See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. 1040x how to   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. 1040x how to You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). 1040x how to For information about miscellaneous deductions, see chapter 28. 1040x how to Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. 1040x how to For more information, see chapter 13. 1040x how to Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. 1040x how to You do not have a casualty or theft loss to the extent you are reimbursed. 1040x how to If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. 1040x how to You must reduce your loss even if you do not receive payment until a later tax year. 1040x how to See Reimbursement Received After Deducting Loss , later. 1040x how to Failure to file a claim for reimbursement. 1040x how to   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. 1040x how to Otherwise, you cannot deduct this loss as a casualty or theft loss. 1040x how to However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). 1040x how to Example. 1040x how to You have a car insurance policy with a $1,000 deductible. 1040x how to Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). 1040x how to This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. 1040x how to Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. 1040x how to Other types of reimbursements are discussed next. 1040x how to Also see the Instructions for Form 4684. 1040x how to Employer's emergency disaster fund. 1040x how to   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. 1040x how to Take into consideration only the amount you used to replace your destroyed or damaged property. 1040x how to Example. 1040x how to Your home was extensively damaged by a tornado. 1040x how to Your loss after reimbursement from your insurance company was $10,000. 1040x how to Your employer set up a disaster relief fund for its employees. 1040x how to Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. 1040x how to You received $4,000 from the fund and spent the entire amount on repairs to your home. 1040x how to In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. 1040x how to Your casualty loss before applying the deduction limits discussed later is $6,000. 1040x how to Cash gifts. 1040x how to   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. 1040x how to This applies even if you use the money to pay for repairs to property damaged in the disaster. 1040x how to Example. 1040x how to Your home was damaged by a hurricane. 1040x how to Relatives and neighbors made cash gifts to you that were excludable from your income. 1040x how to You used part of the cash gifts to pay for repairs to your home. 1040x how to There were no limits or restrictions on how you could use the cash gifts. 1040x how to Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. 1040x how to Insurance payments for living expenses. 1040x how to   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. 1040x how to You lose the use of your main home because of a casualty. 1040x how to Government authorities do not allow you access to your main home because of a casualty or threat of one. 1040x how to Inclusion in income. 1040x how to   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. 1040x how to Report this amount on Form 1040, line 21. 1040x how to However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. 1040x how to See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. 1040x how to   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. 1040x how to Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. 1040x how to Generally, these expenses include the amounts you pay for the following. 1040x how to Rent for suitable housing. 1040x how to Transportation. 1040x how to Food. 1040x how to Utilities. 1040x how to Miscellaneous services. 1040x how to 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. 1040x how to Example. 1040x how to As a result of a fire, you vacated your apartment for a month and moved to a motel. 1040x how to You normally pay $525 a month for rent. 1040x how to None was charged for the month the apartment was vacated. 1040x how to Your motel rent for this month was $1,200. 1040x how to You normally pay $200 a month for food. 1040x how to Your food expenses for the month you lived in the motel were $400. 1040x how to You received $1,100 from your insurance company to cover your living expenses. 1040x how to You determine the payment you must include in income as follows. 1040x how to 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. 1040x how to   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. 1040x how to Example. 1040x how to Your main home was destroyed by a tornado in August 2011. 1040x how to You regained use of your home in November 2012. 1040x how to The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. 1040x how to You include this amount in income on your 2012 Form 1040. 1040x how to 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. 1040x how to Disaster relief. 1040x how to   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. 1040x how to Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. 1040x how to For more information, see Disaster Area Losses in Publication 547. 1040x how to Disaster unemployment assistance payments are unemployment benefits that are taxable. 1040x how to Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. 1040x how to Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. 1040x how to See Disaster Area Losses in Publication 547. 1040x how to Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. 1040x how to This section explains the adjustment you may have to make. 1040x how to Actual reimbursement less than expected. 1040x how to   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. 1040x how to Example. 1040x how to Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. 1040x how to The accident was due to the negligence of the other driver. 1040x how to At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. 1040x how to You did not have a deductible loss in 2012. 1040x how to In January 2013, the court awarded you a judgment of $2,000. 1040x how to However, in July it became apparent that you will be unable to collect any amount from the other driver. 1040x how to You can deduct the loss in 2013 subject to the limits discussed later. 1040x how to Actual reimbursement more than expected. 1040x how to   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. 1040x how to 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. 1040x how to You do not refigure your tax for the year you claimed the deduction. 1040x how to For more information, see Recoveries in chapter 12. 1040x how to 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. 1040x how to 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. 1040x how to Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. 1040x how to See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. 1040x how to Actual reimbursement same as expected. 1040x how to   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. 1040x how to Example. 1040x how to In December 2013, you had a collision while driving your personal car. 1040x how to Repairs to the car cost $950. 1040x how to You had $100 deductible collision insurance. 1040x how to Your insurance company agreed to reimburse you for the rest of the damage. 1040x how to Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. 1040x how to Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. 1040x how to When you receive the $850 from the insurance company in 2014, do not report it as income. 1040x how to Single Casualty on Multiple Properties Personal property. 1040x how to   Personal property is any property that is not real property. 1040x how to 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. 1040x how to Then combine these separate losses to figure the total loss from that casualty or theft. 1040x how to Example. 1040x how to A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. 1040x how to You did not have fire insurance to cover your loss. 1040x how to (This was the only casualty or theft you had during the year. 1040x how to ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. 1040x how to The rug cost $3,000 and had an FMV of $2,500 just before the fire. 1040x how to You bought the table at an auction for $100 before discovering it was an antique. 1040x how to It had been appraised at $900 before the fire. 1040x how to You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. 1040x how to   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. 1040x how to Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. 1040x how to Example. 1040x how to You bought your home a few years ago. 1040x how to You paid $160,000 ($20,000 for the land and $140,000 for the house). 1040x how to You also spent $2,000 for landscaping. 1040x how to This year a fire destroyed your home. 1040x how to The fire also damaged the shrubbery and trees in your yard. 1040x how to The fire was your only casualty or theft loss this year. 1040x how to Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. 1040x how to (The loss to your household furnishings is not shown in this example. 1040x how to It would be figured separately on each item, as explained earlier under Personal property . 1040x how to ) Shortly after the fire, the insurance company paid you $155,000 for the loss. 1040x how to You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. 1040x how to If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. 1040x how to You must reduce each casualty or theft loss by $100 ($100 rule). 1040x how to You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). 1040x how to You make these reductions on Form 4684. 1040x how to These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. 1040x how to For more detailed explanations and examples, see Publication 547. 1040x how to Table 25-1. 1040x how to How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. 1040x how to Apply this rule after you have figured the amount of your loss. 1040x how to You must reduce your total casualty or theft loss by 10% of your adjusted gross income. 1040x how to Apply this rule after you reduce each loss by $100 (the $100 rule). 1040x how to Single Event Apply this rule only once, even if many pieces of property are affected. 1040x how to Apply this rule only once, even if many pieces of property are affected. 1040x how to More Than One Event Apply to the loss from each event. 1040x how to Apply to the total of all your losses from all events. 1040x how to More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. 1040x how to Apply separately to each person. 1040x how to Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. 1040x how to Apply as if you were one person. 1040x how to Filing Separately Apply separately to each spouse. 1040x how to Apply separately to each spouse. 1040x how to More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. 1040x how to Apply separately to each owner of jointly owned property. 1040x how to Property used partly for business and partly for personal purposes. 1040x how to   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 part and for the business or income-producing part. 1040x how to You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. 1040x how to $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. 1040x how to This reduction applies to each total casualty or theft loss. 1040x how to It does not matter how many pieces of property are involved in an event. 1040x how to Only a single $100 reduction applies. 1040x how to Example. 1040x how to A hailstorm damages your home and your car. 1040x how to Determine the amount of loss, as discussed earlier, for each of these items. 1040x how to Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. 1040x how to Single event. 1040x how to   Generally, events closely related in origin cause a single casualty. 1040x how to 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. 1040x how to 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. 1040x how to Apply this rule after you reduce each loss by $100. 1040x how to For more information, see the Form 4684 instructions. 1040x how to If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. 1040x how to Example 1. 1040x how to In June, you discovered that your house had been burglarized. 1040x how to Your loss after insurance reimbursement was $2,000. 1040x how to Your adjusted gross income for the year you discovered the theft is $29,500. 1040x how to You first apply the $100 rule and then the 10% rule. 1040x how to Figure your theft loss deduction as follows. 1040x how to 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). 1040x how to Example 2. 1040x how to In March, you had a car accident that totally destroyed your car. 1040x how to You did not have collision insurance on your car, so you did not receive any insurance reimbursement. 1040x how to Your loss on the car was $1,800. 1040x how to In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. 1040x how to Your loss on the basement items after reimbursement was $2,100. 1040x how to Your adjusted gross income for the year that the accident and fire occurred is $25,000. 1040x how to You figure your casualty loss deduction as follows. 1040x how to       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. 1040x how to   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. 1040x how to 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. 1040x how to Casualty or theft gains do not include gains you choose to postpone. 1040x how to See Publication 547 for information on the postponement of gain. 1040x how to Losses more than gains. 1040x how to   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. 1040x how to The rest, if any, is your deductible loss from personal-use property. 1040x how to Gains more than losses. 1040x how to   If your recognized gains are more than your losses, subtract your losses from your gains. 1040x how to The difference is treated as capital gain and must be reported on Schedule D (Form 1040). 1040x how to The 10% rule does not apply to your gains. 1040x how to When To Report Gains and Losses Gains. 1040x how to   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. 1040x how to You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. 1040x how to If you have a loss, see Table 25-2 . 1040x how to Table 25-2. 1040x how to When To Deduct a Loss IF you have a loss. 1040x how to . 1040x how to . 1040x how to THEN deduct it in the year. 1040x how to . 1040x how to . 1040x how to from a casualty, the loss occurred. 1040x how to in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. 1040x how to from a theft, the theft was discovered. 1040x how to on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. 1040x how to • bad debt, deposits are totally worthless. 1040x how to Losses. 1040x how to   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. 1040x how to This is true even if you do not repair or replace the damaged property until a later year. 1040x how to   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. 1040x how to   If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. 1040x how to Loss on deposits. 1040x how to   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. 1040x how to Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. 1040x how to However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. 1040x how to The year the disaster occurred. 1040x how to The year immediately preceding the year the disaster occurred. 1040x how to Gains. 1040x how to    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. 1040x how to For those special rules, see Publication 547. 1040x how to Postponed tax deadlines. 1040x how to   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. 1040x how to The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. 1040x how to   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). 1040x how to Go to www. 1040x how to irs. 1040x how to gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. 1040x how to Who is eligible. 1040x how to   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. 1040x how to Any individual whose main home is located in a covered disaster area (defined next). 1040x how to Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. 1040x how to Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. 1040x how to Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. 1040x how to The main home or principal place of business does not have to be located in the covered disaster area. 1040x how to Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. 1040x how to The spouse on a joint return with a taxpayer who is eligible for postponements. 1040x how to Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. 1040x how to Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. 1040x how to Any other person determined by the IRS to be affected by a federally declared disaster. 1040x how to Covered disaster area. 1040x how to   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. 1040x how to Abatement of interest and penalties. 1040x how to   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. 1040x how to More information. 1040x how to   For more information, see Disaster Area Losses in Publication 547. 1040x how to How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. 1040x how to If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. 1040x how to Combine the gains and losses on one Form 4684. 1040x how to Follow the form instructions as to which lines to fill out. 1040x how to In addition, you must use the appropriate schedule to report a gain or loss. 1040x how to The schedule you use depends on whether you have a gain or loss. 1040x how to If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. 1040x how to   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive, and by any deductible loss. 1040x how to Amounts you spend to restore your property after a casualty increase your adjusted basis. 1040x how to See Adjusted Basis in chapter 13 for more information. 1040x how to Net operating loss (NOL). 1040x how to    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. 1040x how to You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. 1040x how to Or, you can use it to lower your tax in a later year. 1040x how to You do not have to be in business to have an NOL from a casualty or theft loss. 1040x how to For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 1040x how to Prev  Up  Next   Home   More Online Publications