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Extension Form

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Extension Form

Extension form Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. Extension form S. Extension form Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Extension form If you itemize, you cannot take the standard deduction. Extension form This section explains what expenses you can deduct as a homeowner. Extension form It also points out expenses that you cannot deduct. Extension form There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Extension form Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Extension form Your house payment. Extension form   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Extension form Your house payment may include several costs of owning a home. Extension form The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums. Extension form These are discussed in more detail later. Extension form   Some nondeductible expenses that may be included in your house payment include: Fire or homeowner's insurance premiums, and The amount applied to reduce the principal of the mortgage. Extension form Minister's or military housing allowance. Extension form   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. Extension form You do not have to reduce your deductions by your nontaxable allowance. Extension form For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. Extension form Nondeductible payments. Extension form   You cannot deduct any of the following items. Extension form Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Extension form Wages you pay for domestic help. Extension form Depreciation. Extension form The cost of utilities, such as gas, electricity, or water. Extension form Most settlement costs. Extension form See Settlement or closing costs under Cost as Basis, later, for more information. Extension form Forfeited deposits, down payments, or earnest money. Extension form Hardest Hit Fund and Emergency Homeowners' Loan Programs You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Extension form You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Extension form You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Extension form If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Extension form However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Extension form Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Extension form This is called a real estate tax. Extension form You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Extension form The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. Extension form Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Extension form You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. Extension form If you own a cooperative apartment, see Special Rules for Cooperatives , later. Extension form Where to deduct real estate taxes. Extension form   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Extension form Real estate taxes paid at settlement or closing. Extension form   Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. Extension form Your share of these taxes is fully deductible if you itemize your deductions. Extension form Division of real estate taxes. Extension form   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Extension form You (the buyer) are treated as paying the taxes beginning with the date of sale. Extension form This applies regardless of the lien dates under local law. Extension form Generally, this information is included on the settlement statement you get at closing. Extension form   You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. Extension form You each can deduct your own share, if you itemize deductions, for the year the property is sold. Extension form Example. Extension form You bought your home on September 1. Extension form The property tax year (the period to which the tax relates) in your area is the calendar year. Extension form The tax for the year was $730 and was due and paid by the seller on August 15. Extension form You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Extension form You figure your deduction for real estate taxes on your home as follows. Extension form 1. Extension form Enter the total real estate taxes for the real property tax year $730 2. Extension form Enter the number of days in the property tax year that you owned the property 122 3. Extension form Divide line 2 by 365 . Extension form 3342 4. Extension form Multiply line 1 by line 3. Extension form This is your deduction. Extension form Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. Extension form You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller. Extension form Delinquent taxes. Extension form   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Extension form If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Extension form You treat them as part of the cost of your home. Extension form See Real estate taxes , later, under Basis. Extension form Escrow accounts. Extension form   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Extension form You may not be able to deduct the total you pay into the escrow account. Extension form You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Extension form Your real estate tax bill will show this amount. Extension form Refund or rebate of real estate taxes. Extension form   If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. Extension form If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. Extension form For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Extension form Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Extension form Charges for services. Extension form   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Extension form You cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance). Extension form    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. Extension form If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Extension form Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Extension form Assessments for local benefits. Extension form   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Extension form Local benefits include the construction of streets, sidewalks, or water and sewer systems. Extension form You must add these amounts to the basis of your property. Extension form   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Extension form An example is a charge to repair an existing sidewalk and any interest included in that charge. Extension form   If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. Extension form If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Extension form   An assessment for a local benefit may be listed as an item in your real estate tax bill. Extension form If so, use the rules in this section to find how much of it, if any, you can deduct. Extension form Transfer taxes (or stamp taxes). Extension form   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Extension form If you are the buyer and you pay them, include them in the cost basis of the property. Extension form If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Extension form Homeowners association assessments. Extension form   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Extension form Special Rules for Cooperatives If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. Extension form As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Extension form You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. Extension form For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Extension form At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. Extension form At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. Extension form Tenant-stockholders. Extension form   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Extension form The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Extension form The units that the tenant-stockholder has the right to occupy can be rented to others. Extension form Deductible taxes. Extension form   You figure your share of real estate taxes in the following way. Extension form Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Extension form Multiply the corporation's deductible real estate taxes by the number you figured in (1). Extension form This is your share of the real estate taxes. Extension form   Generally, the corporation will tell you your share of its real estate tax. Extension form This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Extension form Refund of real estate taxes. Extension form   If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. Extension form Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Extension form Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Extension form Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. Extension form For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Extension form If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. Extension form Home Mortgage Interest This section of the publication gives you basic information about home mortgage interest, including information on interest paid at settlement, points, and Form 1098, Mortgage Interest Statement. Extension form Most home buyers take out a mortgage (loan) to buy their home. Extension form They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Extension form Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). Extension form However, your deduction may be limited if: Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or You took out a mortgage for reasons other than to buy, build, or improve your home. Extension form If either of these situations applies to you, see Publication 936 for more information. Extension form Also see Publication 936 if you later refinance your mortgage or buy a second home. Extension form Refund of home mortgage interest. Extension form   If you receive a refund of home mortgage interest that you deducted in an earlier year and that reduced your tax, you generally must include the refund in income in the year you receive it. Extension form For more information, see Recoveries in Publication 525. Extension form The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Extension form See Mortgage Interest Statement , later. Extension form Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Extension form The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Extension form Prepaid interest. Extension form   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Extension form Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Extension form An exception (discussed later) applies to points. Extension form Late payment charge on mortgage payment. Extension form   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. Extension form Mortgage prepayment penalty. Extension form   If you pay off your home mortgage early, you may have to pay a penalty. Extension form You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Extension form Ground rent. Extension form   In some states (such as Maryland), you may buy your home subject to a ground rent. Extension form A ground rent is an obligation you assume to pay a fixed amount per year on the property. Extension form Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Extension form Redeemable ground rents. Extension form   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Extension form The ground rent is a redeemable ground rent only if all of the following are true. Extension form Your lease, including renewal periods, is for more than 15 years. Extension form You can freely assign the lease. Extension form You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specified amount. Extension form The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Extension form   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Extension form You cannot deduct them. Extension form Nonredeemable ground rents. Extension form   Payments on a nonredeemable ground rent are not mortgage interest. Extension form You can deduct them as rent only if they are a business expense or if they are for rental property. Extension form Cooperative apartment. Extension form   You can usually treat the interest on a loan you took out to buy stock in a cooperative housing corporation as home mortgage interest if you own a cooperative apartment, and the cooperative housing corporation meets the conditions described earlier under Special Rules for Cooperatives . Extension form In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Extension form Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. Extension form For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Extension form Refund of cooperative's mortgage interest. Extension form   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Extension form The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Extension form   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Extension form Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Extension form You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Extension form This amount should be included in the mortgage interest statement provided by your lender. Extension form See the discussion under Mortgage Interest Statement , later. Extension form Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Extension form Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Extension form Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Extension form A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Extension form See Points paid by the seller , later. Extension form General rule. Extension form   You cannot deduct the full amount of points in the year paid. Extension form They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Extension form Exception. Extension form   You can deduct the full amount of points in the year paid if you meet all the following tests. Extension form Your loan is secured by your main home. Extension form (Generally, your main home is the one you live in most of the time. Extension form ) Paying points is an established business practice in the area where the loan was made. Extension form The points paid were not more than the points generally charged in that area. Extension form You use the cash method of accounting. Extension form This means you report income in the year you receive it and deduct expenses in the year you pay them. Extension form Most individuals use this method. Extension form The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Extension form The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Extension form The funds you provided are not required to have been applied to the points. Extension form They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Extension form You cannot have borrowed these funds. Extension form You use your loan to buy or build your main home. Extension form The points were computed as a percentage of the principal amount of the mortgage. Extension form The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Extension form The points may be shown as paid from either your funds or the seller's. Extension form Note. Extension form If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. Extension form If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions. Extension form Home improvement loan. Extension form   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. Extension form Refinanced loan. Extension form   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Extension form You can deduct the rest of the points over the life of the loan. Extension form Points not fully deductible in year paid. Extension form    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. Extension form Figure A. Extension form   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Extension form    Please click here for the text description of the image. Extension form Figure A. Extension form Are my points fully deductible this year? Amounts charged for services. Extension form   Amounts charged by the lender for specific services connected to the loan are not interest. Extension form Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Extension form You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Extension form For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Extension form Points paid by the seller. Extension form   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Extension form Treatment by seller. Extension form   The seller cannot deduct these fees as interest. Extension form However, they are a selling expense that reduces the seller's amount realized. Extension form See Publication 523 for more information. Extension form Treatment by buyer. Extension form   The buyer treats seller-paid points as if he or she had paid them. Extension form If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Extension form If any of those tests are not met, the buyer must deduct the points over the life of the loan. Extension form   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Extension form For more information about the basis of your home, see Basis , later. Extension form Funds provided are less than points. Extension form   If you meet all the tests listed earlier under Exception except that the funds you provided were less than the points charged to you (test 6), you can deduct the points in the year paid up to the amount of funds you provided. Extension form In addition, you can deduct any points paid by the seller. Extension form Example 1. Extension form When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Extension form You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. Extension form Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Extension form You spread the remaining $250 over the life of the mortgage. Extension form Example 2. Extension form The facts are the same as in Example 1 , except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Extension form In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Extension form You spread the remaining $250 over the life of the mortgage. Extension form You must reduce the basis of your home by the $1,000 paid by the seller. Extension form Excess points. Extension form   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. Extension form You must spread any additional points over the life of the mortgage. Extension form Mortgage ending early. Extension form   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. Extension form A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Extension form Example. Extension form Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Extension form He had deducted $1,400 of these points through 2012. Extension form Dan prepaid his mortgage in full in 2013. Extension form He can deduct the remaining $1,600 of points in 2013. Extension form Exception. Extension form   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Extension form Instead, deduct them over the term of the new loan. Extension form Form 1098. Extension form   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. Extension form See Mortgage Interest Statement , later. Extension form Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). Extension form If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Extension form See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Extension form If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and social security number (SSN) or employer identification number (EIN) on the dotted lines next to line 11. Extension form The seller must give you this number and you must give the seller your SSN. Extension form Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Extension form Failure to meet either of these requirements may result in a $50 penalty for each failure. Extension form Table 1. Extension form Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Extension form IF you are eligible to deduct . Extension form . Extension form . Extension form THEN report the amount  on Schedule A (Form 1040) . Extension form . Extension form . Extension form real estate taxes line 6. Extension form home mortgage interest and points reported on Form 1098 line 10. Extension form home mortgage interest not reported on  Form 1098 line 11. Extension form points not reported on Form 1098 line 12. Extension form qualified mortgage insurance premiums line 13. Extension form Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage to a mortgage holder in the course of that holder's trade or business, you should receive a Form 1098 or similar statement from the mortgage holder. Extension form The statement will show the total interest paid on your mortgage during the year. Extension form If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. Extension form See Points , earlier. Extension form The interest you paid at settlement should be included on the statement. Extension form If it is not, add the interest from the settlement sheet that qualifies as home mortgage interest to the total shown on Form 1098 or similar statement. Extension form Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Extension form Write “See attached” to the right of line 10. Extension form A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Extension form If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Extension form Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Extension form If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Extension form A copy of this form will be sent to the IRS also. Extension form Example. Extension form You bought a new home on May 3. Extension form You paid no points on the purchase. Extension form During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Extension form The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Extension form The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Extension form You can deduct the $5,100 if you itemize your deductions. Extension form Refund of overpaid interest. Extension form   If you receive a refund of mortgage interest you overpaid in a prior year, you generally will receive a Form 1098 showing the refund in box 3. Extension form Generally, you must include the refund in income in the year you receive it. Extension form See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Extension form More than one borrower. Extension form   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Extension form Show how much of the interest each of you paid, and give the name and address of the person who received the form. Extension form Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Extension form Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. Extension form Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Extension form Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Extension form Prepaid mortgage insurance premiums. Extension form   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. Extension form The premiums are treated as paid in the year to which they were allocated. Extension form If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Extension form See Publication 936 for details. Extension form Exception for certain mortgage insurance. Extension form   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Extension form Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. Extension form It also must be secured by that home. Extension form If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. Extension form Home acquisition debt limit. Extension form   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). Extension form Discharges of qualified principal residence indebtedness. Extension form   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Extension form You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Extension form Principal residence. Extension form   Your principal residence is the home where you ordinarily live most of the time. Extension form You can have only one principal residence at any one time. Extension form Qualified principal residence indebtedness. Extension form   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Extension form If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. Extension form   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. Extension form Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Extension form Amount you can exclude. Extension form   You can only exclude debt discharged after 2006 and before 2014. Extension form The most you can exclude is $2 million ($1 million if married filing separately). Extension form You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. Extension form Ordering rule. Extension form   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. Extension form Qualified Home This means your main home or your second home. Extension form A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Extension form Main home. Extension form   You can have only one main home at any one time. Extension form This is the home where you ordinarily live most of the time. Extension form Second home and other special situations. Extension form   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. Extension form Limit on Deduction If your adjusted gross income (AGI) on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are deductible is reduced and may be eliminated. Extension form See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Extension form If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Extension form Form 1098. Extension form   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Extension form See Form 1098, Mortgage Interest Statement in Publication 936. Extension form Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Extension form If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Extension form Who qualifies. Extension form   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Extension form Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Extension form The MCC will show the certificate credit rate you will use to figure your credit. Extension form It also will show the certified indebtedness amount. Extension form Only the interest on that amount qualifies for the credit. Extension form See Figuring the Credit , later. Extension form You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Extension form Contact your state or local housing finance agency for information about the availability of MCCs in your area. Extension form How to claim the credit. Extension form   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Extension form S. Extension form Nonresident Alien Income Tax Return. Extension form Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. Extension form Reducing your home mortgage interest deduction. Extension form   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Extension form You must do this even if part of that amount is to be carried forward to 2014. Extension form Selling your home. Extension form   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. Extension form For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Extension form Figuring the Credit Figure your credit on Form 8396. Extension form Mortgage not more than certified indebtedness. Extension form   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Extension form Mortgage more than certified indebtedness. Extension form   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Extension form To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Extension form Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. Extension form Example. Extension form Emily bought a home this year. Extension form Her mortgage loan is $125,000. Extension form The certified indebtedness amount on her MCC is $100,000. Extension form She paid $7,500 interest this year. Extension form Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Extension form 80)       $125,000       $7,500 x . Extension form 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Extension form In each later year, she will figure her credit using only 80% of the interest she pays for that year. Extension form Limits Two limits may apply to your credit. Extension form A limit based on the credit rate, and A limit based on your tax. Extension form Limit based on credit rate. Extension form   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Extension form Limit based on tax. Extension form   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Extension form See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Extension form Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. Extension form Example. Extension form John and his brother, George, were issued an MCC. Extension form They used it to get a mortgage on their main home. Extension form John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Extension form John paid $5,400 mortgage interest this year and George paid $3,600. Extension form The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Extension form The loan amount (mortgage) on their home is $120,000. Extension form The credit is limited to $2,000 because the credit rate is more than 20%. Extension form John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. Extension form His credit is limited to $1,200 ($2,000 × 60%). Extension form George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. Extension form His credit is limited to $800 ($2,000 × 40%). Extension form Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Extension form Example. Extension form You receive a mortgage credit certificate from State X. Extension form This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Extension form You claim no other credits. Extension form Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Extension form You can carry forward this amount to the next 3 years or until used, whichever comes first. Extension form Credit rate more than 20%. Extension form   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Extension form Example. Extension form In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Extension form The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. Extension form Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. Extension form The amount of credit you can claim on the new loan may change. Extension form Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Extension form Table 2. Extension form Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Extension form . Extension form . Extension form THEN the interest you claim on Form 8396, line 1, is* . Extension form . Extension form . Extension form smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Extension form larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Extension form         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. Extension form  See New MCC cannot increase your credit above. Extension form An issuer may reissue an MCC after you refinance your mortgage. Extension form If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. Extension form Year of refinancing. Extension form   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. Extension form   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Extension form The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. Extension form It must show a separate calculation for the part of the year when the new MCC was in effect. Extension form Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. Extension form New MCC cannot increase your credit. Extension form   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Extension form   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Extension form However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Extension form In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Extension form   There are two methods for figuring the credit you could have claimed. Extension form Under one method, you figure the actual credit that would have been allowed. Extension form This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Extension form   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Extension form Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. Extension form The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. Extension form The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Extension form    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. Extension form    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Extension form Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. Extension form While you own your home, you may add certain items to your basis. Extension form You may subtract certain other items from your basis. Extension form These items are called adjustments to basis and are explained later under Adjusted Basis . Extension form It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. Extension form You also must keep records of the events that affect basis or adjusted basis. Extension form See Keeping Records , below. Extension form Figuring Your Basis How you figure your basis depends on how you acquire your home. Extension form If you buy or build your home, your cost is your basis. Extension form If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. Extension form If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Extension form Each of these topics is discussed later. Extension form Property transferred from a spouse. Extension form   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. Extension form Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Extension form Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. Extension form The cost of your home includes most settlement or closing costs you paid when you bought the home. Extension form If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Extension form See Settlement or closing costs , later. Extension form If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. Extension form Purchase. Extension form   The basis of a home you bought is the amount you paid for it. Extension form This usually includes your down payment and any debt you assumed. Extension form The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Extension form This amount includes any purchase commissions or other costs of acquiring the shares. Extension form Construction. Extension form   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. Extension form This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. Extension form If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Extension form You cannot include in basis the value of your own labor or any other labor for which you did not pay. Extension form Real estate taxes. Extension form   Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home. Extension form See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. Extension form   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. Extension form You cannot deduct them as taxes paid. Extension form   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. Extension form Do not include those taxes in your basis. Extension form If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Extension form Example 1. Extension form You bought your home on September 1. Extension form The property tax year in your area is the calendar year, and the tax is due on August 15. Extension form The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. Extension form You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Extension form You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Extension form You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Extension form Example 2. Extension form You bought your home on May 3, 2013. Extension form The property tax year in your area is the calendar year. Extension form The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Extension form Under state law, the taxes become a lien on May 31. Extension form You agreed to pay all taxes due after the date of sale. Extension form The taxes due in 2013 for 2012 were $1,375. Extension form The taxes due in 2014 for 2013 will be $1,425. Extension form You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. Extension form Instead, you add the $1,375 to the cost (basis) of your home. Extension form You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. Extension form You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Extension form Settlement or closing costs. Extension form   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Extension form These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Extension form If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Extension form   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Extension form You deduct them in the year you buy your home if you itemize your deductions. Extension form You can add certain other settlement or closing costs to the basis of your home. Extension form Items added to basis. Extension form   You can include in your basis the settlement fees and closing costs you paid for buying your home. Extension form A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Extension form   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Extension form Abstract fees (abstract of title fees). Extension form Charges for installing utility services. Extension form Legal fees (including fees for the title search and preparation of the sales contract and deed). Extension form Recording fees. Extension form Surveys. Extension form Transfer or stamp taxes. Extension form Owner's title insurance. Extension form Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. Extension form   If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. Extension form Items not added to basis and not deductible. Extension form   Here are some settlement and closing costs that you cannot deduct or add to your basis. Extension form Fire insurance premiums. Extension form Charges for using utilities or other services related to occupancy of the home before closing. Extension form Rent for occupying the home before closing. Extension form Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. Extension form Points paid by seller. Extension form   If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home. Extension form   If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. Extension form See Points , earlier, for the rules on deducting points. Extension form Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. Extension form Fair market value. Extension form   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. Extension form Donor's adjusted basis is more than FMV. Extension form   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. Extension form Disposition basis. Extension form   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. Extension form Your basis for figuring a gain is the same as the donor's adjusted basis. Extension form Your basis for figuring a loss is the FMV when you received the gift. Extension form If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. Extension form However, if using the FMV results in a gain, then you neither have a gain nor a loss. Extension form Example 1. Extension form Andrew received a house as a gift from Ishmael (the donor). Extension form At the time of the gift, the home had an FMV of $80,000. Extension form Ishmael's adjusted basis was $100,000. Extension form After he received the house, no events occurred to increase or decrease the basis. Extension form If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. Extension form Example 2. Extension form Same facts as Example 1 , except this time Andrew sells the house for $70,000. Extension form He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. Extension form Example 3. Extension form Same facts as Example 1 , except this time Andrew sells the house for $90,000. Extension form Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Extension form Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Extension form So in this situation, Andrew will neither have a gain nor a loss. Extension form Donor's adjusted basis equal to or less than the FMV. Extension form   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. Extension form Part of federal gift tax due to net increase in value. Extension form   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. Extension form The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. Extension form The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Extension form Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Extension form Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. Extension form If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Extension form If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. Extension form Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Extension form If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Extension form Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Extension form These events can increase or decrease your original basis. Extension form The result is called adjusted basis. Extension form See Table 3, on this page, for a list of some of the items that can adjust your basis. Extension form Table 3. Extension form Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Extension form It is not intended to be all-inclusive. Extension form Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. Extension form   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Extension form You must add the cost of any improvements to the basis of your home. Extension form You cannot deduct these costs. Extension form   Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway. Extension form Amount added to basis. Extension form   The amount you add to your basis for improvements is your actual cost. Extension form This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Extension form For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Extension form   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. Extension form These assessments are discussed earlier under Real Estate Taxes . Extension form Improvements no longer part of home. Extension form    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Extension form Example. Extension form You put wall-to-wall carpeting in your home 15 years ago. Extension form Later, you replaced that carpeting with new wall-to-wall carpeting. Extension form The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Extension form Repairs versus improvements. Extension form   A repair keeps your home in an ordinary, efficient operating condition. Extension form It does not add to the value of your home or prolong its life. Extension form Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Extension form You cannot deduct repair costs and generally cannot add them to the basis of your home. Extension form   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Extension form You add them to the basis of your home. Extension form Records to keep. Extension form   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Extension form Also see Keeping Records , below. Extension form Energy conservation subsidy. Extension form   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. Extension form You must reduce the basis of your home by that value. Extension form   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. Extension form Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. Extension form These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. Extension form You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Extension form In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Extension form How to keep records. Extension form   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Extension form How long to keep records. Extension form   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Extension form   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. Extension form (A period of limitations is the period of time after which no legal action can be brought. Extension form ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Extension form For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. Extension form Returns filed before the due date are treated as filed on the due date. Extension form   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Extension form Keep those records as long as they are important in figuring the basis of the original or replacement property. Extension form Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. Extension form Table 4. Extension form Record of Home Improvements Keep this for your records. Extension form Also, keep receipts or other proof of improvements. Extension form Remove from this record any improvements that are no longer part of your main home. Extension form For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. Extension form (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To
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The Extension Form

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