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Ez40Ez40 25. Ez40 Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Ez40 Progressive deterioration. Ez40 Damage from corrosive drywall. Ez40 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. Ez40 Section C of Form 4684 is new for 2013. Ez40 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. Ez40 Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Ez40 You do not need to complete Appendix A. Ez40 For details, see Losses from Ponzi-type investment schemes , in this chapter. Ez40 Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Ez40 The chapter also explains the following topics. Ez40 How to figure the amount of your loss. Ez40 How to treat insurance and other reimbursements you receive. Ez40 The deduction limits. Ez40 When and how to report a casualty or theft. Ez40 Forms to file. Ez40 When you have a casualty or theft, you have to file Form 4684. Ez40 You will also have to file one or more of the following forms. Ez40 Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Ez40 For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Ez40 Workbook for casualties and thefts. Ez40 Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Ez40 It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Ez40 Business or investment-related losses. Ez40 For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Ez40 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. Ez40 A sudden event is one that is swift, not gradual or progressive. Ez40 An unexpected event is one that is ordinarily unanticipated and unintended. Ez40 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. Ez40 Deductible losses. Ez40 Deductible casualty losses can result from a number of different causes, including the following. Ez40 Car accidents (but see Nondeductible losses , next, for exceptions). Ez40 Earthquakes. Ez40 Fires (but see Nondeductible losses , next, for exceptions). Ez40 Floods. Ez40 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. Ez40 Mine cave-ins. Ez40 Shipwrecks. Ez40 Sonic booms. Ez40 Storms, including hurricanes and tornadoes. Ez40 Terrorist attacks. Ez40 Vandalism. Ez40 Volcanic eruptions. Ez40 Nondeductible losses. Ez40 A casualty loss is not deductible if the damage or destruction is caused by the following. Ez40 Accidentally breaking articles such as glassware or china under normal conditions. Ez40 A family pet (explained below). Ez40 A fire if you willfully set it or pay someone else to set it. Ez40 A car accident if your willful negligence or willful act caused it. Ez40 The same is true if the willful act or willful negligence of someone acting for you caused the accident. Ez40 Progressive deterioration (explained later). Ez40 Family pet. Ez40 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. Ez40 Example. Ez40 Your antique oriental rug was damaged by your new puppy before it was housebroken. Ez40 Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Ez40 Progressive deterioration. Ez40 Loss of property due to progressive deterioration is not deductible as a casualty loss. Ez40 This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Ez40 The following are examples of damage due to progressive deterioration. Ez40 The steady weakening of a building due to normal wind and weather conditions. Ez40 The deterioration and damage to a water heater that bursts. Ez40 However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Ez40 Most losses of property caused by droughts. Ez40 To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Ez40 Termite or moth damage. Ez40 The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Ez40 However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Ez40 Damage from corrosive drywall. Ez40 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. Ez40 For details, see Publication 547. Ez40 Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Ez40 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. Ez40 You do not need to show a conviction for theft. Ez40 Theft includes the taking of money or property by the following means. Ez40 Blackmail. Ez40 Burglary. Ez40 Embezzlement. Ez40 Extortion. Ez40 Kidnapping for ransom. Ez40 Larceny. Ez40 Robbery. Ez40 The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Ez40 Decline in market value of stock. Ez40 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. Ez40 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. Ez40 You report a capital loss on Schedule D (Form 1040). Ez40 For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Ez40 Mislaid or lost property. Ez40 The simple disappearance of money or property is not a theft. Ez40 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. Ez40 Sudden, unexpected, and unusual events are defined earlier. Ez40 Example. Ez40 A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Ez40 The diamond falls from the ring and is never found. Ez40 The loss of the diamond is a casualty. Ez40 Losses from Ponzi-type investment schemes. Ez40 If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Ez40 R. Ez40 B. Ez40 735 (available at www. Ez40 irs. Ez40 gov/irb/2009-14_IRB/ar07. Ez40 html). Ez40 Revenue Procedure 2009-20, 2009-14 I. Ez40 R. Ez40 B. Ez40 749 (available at www. Ez40 irs. Ez40 gov/irb/2009-14_IRB/ar11. Ez40 html). Ez40 Revenue Procedure 2011-58, 2011-50 I. Ez40 R. Ez40 B. Ez40 849 (available at www. Ez40 irs. Ez40 gov/irb/2011-50_IRB/ar11. Ez40 html). Ez40 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. Ez40 Skip lines 19 to 27. Ez40 Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Ez40 You do not need to complete Appendix A. Ez40 For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Ez40 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. Ez40 Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Ez40 If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Ez40 As a casualty loss. Ez40 As an ordinary loss. Ez40 As a nonbusiness bad debt. Ez40 Casualty loss or ordinary loss. Ez40 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. Ez40 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. Ez40 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. Ez40 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. Ez40 Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Ez40 If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Ez40 The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Ez40 Your loss is subject to the 2%-of-adjusted-gross-income limit. Ez40 You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Ez40 Nonbusiness bad debt. Ez40 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. Ez40 How to report. Ez40 The kind of deduction you choose for your loss on deposits determines how you report your loss. Ez40 If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Ez40 Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Ez40 Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Ez40 More information. Ez40 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. Ez40 Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Ez40 You also must be able to support the amount you take as a deduction. Ez40 Casualty loss proof. Ez40 For a casualty loss, your records should show all the following. Ez40 The type of casualty (car accident, fire, storm, etc. Ez40 ) and when it occurred. Ez40 That the loss was a direct result of the casualty. Ez40 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. Ez40 Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Ez40 Theft loss proof. Ez40 For a theft loss, your records should show all the following. Ez40 When you discovered that your property was missing. Ez40 That your property was stolen. Ez40 That you were the owner of the property. Ez40 Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Ez40 It is important that you have records that will prove your deduction. Ez40 If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Ez40 Figuring a Loss Figure the amount of your loss using the following steps. Ez40 Determine your adjusted basis in the property before the casualty or theft. Ez40 Determine the decrease in fair market value of the property as a result of the casualty or theft. Ez40 From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Ez40 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. Ez40 Gain from reimbursement. Ez40 If your reimbursement is more than your adjusted basis in the property, you have a gain. Ez40 This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Ez40 If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Ez40 See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Ez40 Leased property. Ez40 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. Ez40 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. Ez40 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. Ez40 FMV of stolen property. Ez40 The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Ez40 Example. Ez40 Several years ago, you purchased silver dollars at face value for $150. Ez40 This is your adjusted basis in the property. Ez40 Your silver dollars were stolen this year. Ez40 The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Ez40 Your theft loss is $150. Ez40 Recovered stolen property. Ez40 Recovered stolen property is your property that was stolen and later returned to you. Ez40 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. Ez40 Use this amount to refigure your total loss for the year in which the loss was deducted. Ez40 If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Ez40 But report the difference only up to the amount of the loss that reduced your tax. Ez40 For more information on the amount to report, see Recoveries in chapter 12. Ez40 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. Ez40 However, other measures can also be used to establish certain decreases. Ez40 Appraisal. Ez40 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. Ez40 The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Ez40 This information is needed to limit any deduction to the actual loss resulting from damage to the property. Ez40 Several factors are important in evaluating the accuracy of an appraisal, including the following. Ez40 The appraiser's familiarity with your property before and after the casualty or theft. Ez40 The appraiser's knowledge of sales of comparable property in the area. Ez40 The appraiser's knowledge of conditions in the area of the casualty. Ez40 The appraiser's method of appraisal. Ez40 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. Ez40 For more information on disasters, see Disaster Area Losses, in Pub. Ez40 547. Ez40 Cost of cleaning up or making repairs. Ez40 The cost of repairing damaged property is not part of a casualty loss. Ez40 Neither is the cost of cleaning up after a casualty. Ez40 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. Ez40 The repairs are actually made. Ez40 The repairs are necessary to bring the property back to its condition before the casualty. Ez40 The amount spent for repairs is not excessive. Ez40 The repairs take care of the damage only. Ez40 The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Ez40 Landscaping. Ez40 The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Ez40 You may be able to measure your loss by what you spend on the following. Ez40 Removing destroyed or damaged trees and shrubs minus any salvage you receive. Ez40 Pruning and other measures taken to preserve damaged trees and shrubs. Ez40 Replanting necessary to restore the property to its approximate value before the casualty. Ez40 Car value. Ez40 Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Ez40 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. Ez40 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. Ez40 If your car is not listed in the books, determine its value from other sources. Ez40 A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Ez40 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. Ez40 Cost of protection. Ez40 The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Ez40 The amount you spend on insurance or to board up your house against a storm is not part of your loss. Ez40 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. Ez40 An example would be the cost of a dike to prevent flooding. Ez40 Exception. Ez40 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. Ez40 See Disaster Area Losses in Publication 547. Ez40 Incidental expenses. Ez40 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. Ez40 Replacement cost. Ez40 The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Ez40 Sentimental value. Ez40 Do not consider sentimental value when determining your loss. Ez40 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. Ez40 Decline in market value of property in or near casualty area. Ez40 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. Ez40 You have a loss only for actual casualty damage to your property. Ez40 However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Ez40 Costs of photographs and appraisals. Ez40 Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Ez40 Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Ez40 Appraisals are used to figure the decrease in FMV because of a casualty or theft. Ez40 See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Ez40 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. Ez40 You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Ez40 For information about miscellaneous deductions, see chapter 28. Ez40 Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Ez40 For more information, see chapter 13. Ez40 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. Ez40 You do not have a casualty or theft loss to the extent you are reimbursed. Ez40 If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Ez40 You must reduce your loss even if you do not receive payment until a later tax year. Ez40 See Reimbursement Received After Deducting Loss , later. Ez40 Failure to file a claim for reimbursement. Ez40 If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Ez40 Otherwise, you cannot deduct this loss as a casualty or theft loss. Ez40 However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Ez40 Example. Ez40 You have a car insurance policy with a $1,000 deductible. Ez40 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). Ez40 This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Ez40 Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Ez40 Other types of reimbursements are discussed next. Ez40 Also see the Instructions for Form 4684. Ez40 Employer's emergency disaster fund. Ez40 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. Ez40 Take into consideration only the amount you used to replace your destroyed or damaged property. Ez40 Example. Ez40 Your home was extensively damaged by a tornado. Ez40 Your loss after reimbursement from your insurance company was $10,000. Ez40 Your employer set up a disaster relief fund for its employees. Ez40 Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Ez40 You received $4,000 from the fund and spent the entire amount on repairs to your home. Ez40 In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Ez40 Your casualty loss before applying the deduction limits discussed later is $6,000. Ez40 Cash gifts. Ez40 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. Ez40 This applies even if you use the money to pay for repairs to property damaged in the disaster. Ez40 Example. Ez40 Your home was damaged by a hurricane. Ez40 Relatives and neighbors made cash gifts to you that were excludable from your income. Ez40 You used part of the cash gifts to pay for repairs to your home. Ez40 There were no limits or restrictions on how you could use the cash gifts. Ez40 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. Ez40 Insurance payments for living expenses. Ez40 You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Ez40 You lose the use of your main home because of a casualty. Ez40 Government authorities do not allow you access to your main home because of a casualty or threat of one. Ez40 Inclusion in income. Ez40 If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Ez40 Report this amount on Form 1040, line 21. Ez40 However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Ez40 See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Ez40 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. Ez40 Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Ez40 Generally, these expenses include the amounts you pay for the following. Ez40 Rent for suitable housing. Ez40 Transportation. Ez40 Food. Ez40 Utilities. Ez40 Miscellaneous services. Ez40 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. Ez40 Example. Ez40 As a result of a fire, you vacated your apartment for a month and moved to a motel. Ez40 You normally pay $525 a month for rent. Ez40 None was charged for the month the apartment was vacated. Ez40 Your motel rent for this month was $1,200. Ez40 You normally pay $200 a month for food. Ez40 Your food expenses for the month you lived in the motel were $400. Ez40 You received $1,100 from your insurance company to cover your living expenses. Ez40 You determine the payment you must include in income as follows. Ez40 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. Ez40 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. Ez40 Example. Ez40 Your main home was destroyed by a tornado in August 2011. Ez40 You regained use of your home in November 2012. Ez40 The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Ez40 You include this amount in income on your 2012 Form 1040. Ez40 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. Ez40 Disaster relief. Ez40 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. Ez40 Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Ez40 For more information, see Disaster Area Losses in Publication 547. Ez40 Disaster unemployment assistance payments are unemployment benefits that are taxable. Ez40 Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Ez40 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. Ez40 See Disaster Area Losses in Publication 547. Ez40 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. Ez40 This section explains the adjustment you may have to make. Ez40 Actual reimbursement less than expected. Ez40 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. Ez40 Example. Ez40 Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Ez40 The accident was due to the negligence of the other driver. Ez40 At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Ez40 You did not have a deductible loss in 2012. Ez40 In January 2013, the court awarded you a judgment of $2,000. Ez40 However, in July it became apparent that you will be unable to collect any amount from the other driver. Ez40 You can deduct the loss in 2013 subject to the limits discussed later. Ez40 Actual reimbursement more than expected. Ez40 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. Ez40 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. Ez40 You do not refigure your tax for the year you claimed the deduction. Ez40 For more information, see Recoveries in chapter 12. Ez40 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. Ez40 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. Ez40 Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Ez40 See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Ez40 Actual reimbursement same as expected. Ez40 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. Ez40 Example. Ez40 In December 2013, you had a collision while driving your personal car. Ez40 Repairs to the car cost $950. Ez40 You had $100 deductible collision insurance. Ez40 Your insurance company agreed to reimburse you for the rest of the damage. Ez40 Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Ez40 Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Ez40 When you receive the $850 from the insurance company in 2014, do not report it as income. Ez40 Single Casualty on Multiple Properties Personal property. Ez40 Personal property is any property that is not real property. Ez40 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. Ez40 Then combine these separate losses to figure the total loss from that casualty or theft. Ez40 Example. Ez40 A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Ez40 You did not have fire insurance to cover your loss. Ez40 (This was the only casualty or theft you had during the year. Ez40 ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Ez40 The rug cost $3,000 and had an FMV of $2,500 just before the fire. Ez40 You bought the table at an auction for $100 before discovering it was an antique. Ez40 It had been appraised at $900 before the fire. Ez40 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. Ez40 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. Ez40 Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Ez40 Example. Ez40 You bought your home a few years ago. Ez40 You paid $160,000 ($20,000 for the land and $140,000 for the house). Ez40 You also spent $2,000 for landscaping. Ez40 This year a fire destroyed your home. Ez40 The fire also damaged the shrubbery and trees in your yard. Ez40 The fire was your only casualty or theft loss this year. Ez40 Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Ez40 (The loss to your household furnishings is not shown in this example. Ez40 It would be figured separately on each item, as explained earlier under Personal property . Ez40 ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Ez40 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. Ez40 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. Ez40 You must reduce each casualty or theft loss by $100 ($100 rule). Ez40 You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Ez40 You make these reductions on Form 4684. Ez40 These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Ez40 For more detailed explanations and examples, see Publication 547. Ez40 Table 25-1. Ez40 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. Ez40 Apply this rule after you have figured the amount of your loss. Ez40 You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Ez40 Apply this rule after you reduce each loss by $100 (the $100 rule). Ez40 Single Event Apply this rule only once, even if many pieces of property are affected. Ez40 Apply this rule only once, even if many pieces of property are affected. Ez40 More Than One Event Apply to the loss from each event. Ez40 Apply to the total of all your losses from all events. Ez40 More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Ez40 Apply separately to each person. Ez40 Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Ez40 Apply as if you were one person. Ez40 Filing Separately Apply separately to each spouse. Ez40 Apply separately to each spouse. Ez40 More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Ez40 Apply separately to each owner of jointly owned property. Ez40 Property used partly for business and partly for personal purposes. Ez40 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. Ez40 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. Ez40 $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Ez40 This reduction applies to each total casualty or theft loss. Ez40 It does not matter how many pieces of property are involved in an event. Ez40 Only a single $100 reduction applies. Ez40 Example. Ez40 A hailstorm damages your home and your car. Ez40 Determine the amount of loss, as discussed earlier, for each of these items. Ez40 Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Ez40 Single event. Ez40 Generally, events closely related in origin cause a single casualty. Ez40 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. Ez40 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. Ez40 Apply this rule after you reduce each loss by $100. Ez40 For more information, see the Form 4684 instructions. Ez40 If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Ez40 Example 1. Ez40 In June, you discovered that your house had been burglarized. Ez40 Your loss after insurance reimbursement was $2,000. Ez40 Your adjusted gross income for the year you discovered the theft is $29,500. Ez40 You first apply the $100 rule and then the 10% rule. Ez40 Figure your theft loss deduction as follows. Ez40 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). Ez40 Example 2. Ez40 In March, you had a car accident that totally destroyed your car. Ez40 You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Ez40 Your loss on the car was $1,800. Ez40 In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Ez40 Your loss on the basement items after reimbursement was $2,100. Ez40 Your adjusted gross income for the year that the accident and fire occurred is $25,000. Ez40 You figure your casualty loss deduction as follows. Ez40 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. Ez40 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. Ez40 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. Ez40 Casualty or theft gains do not include gains you choose to postpone. Ez40 See Publication 547 for information on the postponement of gain. Ez40 Losses more than gains. Ez40 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. Ez40 The rest, if any, is your deductible loss from personal-use property. Ez40 Gains more than losses. Ez40 If your recognized gains are more than your losses, subtract your losses from your gains. Ez40 The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Ez40 The 10% rule does not apply to your gains. Ez40 When To Report Gains and Losses Gains. Ez40 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. Ez40 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. Ez40 If you have a loss, see Table 25-2 . Ez40 Table 25-2. Ez40 When To Deduct a Loss IF you have a loss. Ez40 . Ez40 . Ez40 THEN deduct it in the year. Ez40 . Ez40 . Ez40 from a casualty, the loss occurred. Ez40 in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Ez40 from a theft, the theft was discovered. Ez40 on a deposit treated as a: • casualty or any ordinary loss, a reasonable estimate can be made. Ez40 • bad debt, deposits are totally worthless. Ez40 Losses. Ez40 Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Ez40 This is true even if you do not repair or replace the damaged property until a later year. Ez40 You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Ez40 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. Ez40 Loss on deposits. Ez40 If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Ez40 Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Ez40 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. Ez40 The year the disaster occurred. Ez40 The year immediately preceding the year the disaster occurred. Ez40 Gains. Ez40 Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Ez40 For those special rules, see Publication 547. Ez40 Postponed tax deadlines. Ez40 The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Ez40 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. Ez40 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). Ez40 Go to www. Ez40 irs. Ez40 gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Ez40 Who is eligible. Ez40 If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Ez40 Any individual whose main home is located in a covered disaster area (defined next). Ez40 Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Ez40 Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Ez40 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. Ez40 The main home or principal place of business does not have to be located in the covered disaster area. Ez40 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. Ez40 The spouse on a joint return with a taxpayer who is eligible for postponements. Ez40 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. Ez40 Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Ez40 Any other person determined by the IRS to be affected by a federally declared disaster. Ez40 Covered disaster area. Ez40 This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Ez40 Abatement of interest and penalties. Ez40 The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Ez40 More information. Ez40 For more information, see Disaster Area Losses in Publication 547. Ez40 How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Ez40 If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Ez40 Combine the gains and losses on one Form 4684. Ez40 Follow the form instructions as to which lines to fill out. Ez40 In addition, you must use the appropriate schedule to report a gain or loss. Ez40 The schedule you use depends on whether you have a gain or loss. Ez40 If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Ez40 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. Ez40 Amounts you spend to restore your property after a casualty increase your adjusted basis. Ez40 See Adjusted Basis in chapter 13 for more information. Ez40 Net operating loss (NOL). Ez40 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. Ez40 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. Ez40 Or, you can use it to lower your tax in a later year. Ez40 You do not have to be in business to have an NOL from a casualty or theft loss. Ez40 For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 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