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Form 1040ez 2012 Instructions

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Form 1040ez 2012 Instructions

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

Form 1040ez 2012 instructions 6. Form 1040ez 2012 instructions   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Form 1040ez 2012 instructions Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Form 1040ez 2012 instructions Also use basis to figure depreciation, amortization, depletion, and casualty losses. Form 1040ez 2012 instructions If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Form 1040ez 2012 instructions Only the basis allocated to the business or investment use of the property can be depreciated. Form 1040ez 2012 instructions Your original basis in property is adjusted (increased or decreased) by certain events. Form 1040ez 2012 instructions For example, if you make improvements to the property, increase your basis. Form 1040ez 2012 instructions If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Form 1040ez 2012 instructions Keep accurate records of all items that affect the basis of your assets. Form 1040ez 2012 instructions For information on keeping records, see chapter 1. Form 1040ez 2012 instructions Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Form 1040ez 2012 instructions Cost Basis The basis of property you buy is usually its cost. Form 1040ez 2012 instructions Cost is the amount you pay in cash, debt obligations, other property, or services. Form 1040ez 2012 instructions Your cost includes amounts you pay for sales tax, freight, installation, and testing. Form 1040ez 2012 instructions The basis of real estate and business assets will include other items, discussed later. Form 1040ez 2012 instructions Basis generally does not include interest payments. Form 1040ez 2012 instructions However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Form 1040ez 2012 instructions You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Form 1040ez 2012 instructions Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Form 1040ez 2012 instructions Loans with low or no interest. Form 1040ez 2012 instructions   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. Form 1040ez 2012 instructions You generally have unstated interest if your interest rate is less than the applicable federal rate. Form 1040ez 2012 instructions See the discussion of unstated interest in Publication 537, Installment Sales. Form 1040ez 2012 instructions Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Form 1040ez 2012 instructions If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Form 1040ez 2012 instructions Some of these expenses are discussed next. Form 1040ez 2012 instructions Lump sum purchase. Form 1040ez 2012 instructions   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Form 1040ez 2012 instructions Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Form 1040ez 2012 instructions Figure the basis of each asset by multiplying the lump sum by a fraction. Form 1040ez 2012 instructions The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Form 1040ez 2012 instructions Fair market value (FMV). Form 1040ez 2012 instructions   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Form 1040ez 2012 instructions Sales of similar property on or about the same date may help in figuring the FMV of the property. Form 1040ez 2012 instructions If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Form 1040ez 2012 instructions Real estate taxes. Form 1040ez 2012 instructions   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Form 1040ez 2012 instructions   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Form 1040ez 2012 instructions Whether or not you reimburse the seller, do not include that amount in the basis of your property. Form 1040ez 2012 instructions Settlement costs. Form 1040ez 2012 instructions   Your basis includes the settlement fees and closing costs for buying the property. Form 1040ez 2012 instructions See Publication 551 for a detailed list of items you can and cannot include in basis. Form 1040ez 2012 instructions   Do not include fees and costs for getting a loan on the property. Form 1040ez 2012 instructions Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Form 1040ez 2012 instructions Points. Form 1040ez 2012 instructions   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Form 1040ez 2012 instructions You may be able to deduct the points currently or over the term of the loan. Form 1040ez 2012 instructions For more information about deducting points, see Points in chapter 4 of Publication 535. Form 1040ez 2012 instructions Assumption of a mortgage. Form 1040ez 2012 instructions   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Form 1040ez 2012 instructions Constructing assets. Form 1040ez 2012 instructions   If you build property or have assets built for you, your expenses for this construction are part of your basis. Form 1040ez 2012 instructions Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Form 1040ez 2012 instructions   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Form 1040ez 2012 instructions You must capitalize them (include them in the asset's basis). Form 1040ez 2012 instructions Employee wages paid for the construction work, reduced by any employment credits allowed. Form 1040ez 2012 instructions Depreciation on equipment you own while it is used in the construction. Form 1040ez 2012 instructions Operating and maintenance costs for equipment used in the construction. Form 1040ez 2012 instructions The cost of business supplies and materials used in the construction. Form 1040ez 2012 instructions    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Form 1040ez 2012 instructions Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Form 1040ez 2012 instructions To determine the basis of these assets or separate items, there must be an allocation of basis. Form 1040ez 2012 instructions Group of assets acquired. Form 1040ez 2012 instructions   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Form 1040ez 2012 instructions Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Form 1040ez 2012 instructions You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Form 1040ez 2012 instructions If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Form 1040ez 2012 instructions Farming business acquired. Form 1040ez 2012 instructions   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Form 1040ez 2012 instructions Generally, reduce the purchase price by any cash received. Form 1040ez 2012 instructions Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Form 1040ez 2012 instructions See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Form 1040ez 2012 instructions Transplanted embryo. Form 1040ez 2012 instructions   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Form 1040ez 2012 instructions Allocate the rest of the purchase price to the basis of the calf. Form 1040ez 2012 instructions Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Form 1040ez 2012 instructions Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Form 1040ez 2012 instructions You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Form 1040ez 2012 instructions Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Form 1040ez 2012 instructions However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Form 1040ez 2012 instructions You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Form 1040ez 2012 instructions You are not subject to the uniform capitalization rules if the property is produced for personal use. Form 1040ez 2012 instructions In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Form 1040ez 2012 instructions Plants. Form 1040ez 2012 instructions   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Form 1040ez 2012 instructions Animals. Form 1040ez 2012 instructions   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Form 1040ez 2012 instructions The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Form 1040ez 2012 instructions Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Form 1040ez 2012 instructions For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Form 1040ez 2012 instructions For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Form 1040ez 2012 instructions Exceptions. Form 1040ez 2012 instructions   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Form 1040ez 2012 instructions   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Form 1040ez 2012 instructions See Accrual Method Required under Accounting Methods in chapter 2. Form 1040ez 2012 instructions   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Form 1040ez 2012 instructions If you make this election, special rules apply. Form 1040ez 2012 instructions This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Form 1040ez 2012 instructions This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Form 1040ez 2012 instructions    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Form 1040ez 2012 instructions See chapter 7, for additional information on depreciation. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions You grow trees that have a preproductive period of more than 2 years. Form 1040ez 2012 instructions The trees produce an annual crop. Form 1040ez 2012 instructions You are an individual and the uniform capitalization rules apply to your farming business. Form 1040ez 2012 instructions You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Form 1040ez 2012 instructions You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Form 1040ez 2012 instructions Preproductive period of more than 2 years. Form 1040ez 2012 instructions   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Form 1040ez 2012 instructions Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Form 1040ez 2012 instructions Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Form 1040ez 2012 instructions More information. Form 1040ez 2012 instructions   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Form 1040ez 2012 instructions 263A-4. Form 1040ez 2012 instructions Table 6-1. Form 1040ez 2012 instructions Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Form 1040ez 2012 instructions Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. Form 1040ez 2012 instructions The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Form 1040ez 2012 instructions Increases to Basis Increase the basis of any property by all items properly added to a capital account. Form 1040ez 2012 instructions These include the cost of any improvements having a useful life of more than 1 year. Form 1040ez 2012 instructions The following costs increase the basis of property. Form 1040ez 2012 instructions The cost of extending utility service lines to property. Form 1040ez 2012 instructions Legal fees, such as the cost of defending and perfecting title. Form 1040ez 2012 instructions Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Form 1040ez 2012 instructions Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Form 1040ez 2012 instructions Do not deduct these expenses as taxes. Form 1040ez 2012 instructions However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Form 1040ez 2012 instructions If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Form 1040ez 2012 instructions See chapter 7. Form 1040ez 2012 instructions Deducting vs. Form 1040ez 2012 instructions capitalizing costs. Form 1040ez 2012 instructions   Do not add to your basis costs you can deduct as current expenses. Form 1040ez 2012 instructions For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Form 1040ez 2012 instructions However, you can elect either to deduct or to capitalize certain other costs. Form 1040ez 2012 instructions See chapter 7 in Publication 535. Form 1040ez 2012 instructions Decreases to Basis The following are some items that reduce the basis of property. Form 1040ez 2012 instructions Section 179 deduction. Form 1040ez 2012 instructions Deductions previously allowed or allowable for amortization, depreciation, and depletion. Form 1040ez 2012 instructions Alternative motor vehicle credit. Form 1040ez 2012 instructions See Form 8910. Form 1040ez 2012 instructions Alternative fuel vehicle refueling property credit. Form 1040ez 2012 instructions See Form 8911. Form 1040ez 2012 instructions Residential energy efficient property credits. Form 1040ez 2012 instructions See Form 5695. Form 1040ez 2012 instructions Investment credit (part or all) taken. Form 1040ez 2012 instructions Casualty and theft losses and insurance reimbursements. Form 1040ez 2012 instructions Payments you receive for granting an easement. Form 1040ez 2012 instructions Exclusion from income of subsidies for energy conservation measures. Form 1040ez 2012 instructions Certain canceled debt excluded from income. Form 1040ez 2012 instructions Rebates from a manufacturer or seller. Form 1040ez 2012 instructions Patronage dividends received from a cooperative association as a result of a purchase of property. Form 1040ez 2012 instructions See Patronage Dividends in chapter 3. Form 1040ez 2012 instructions Gas-guzzler tax. Form 1040ez 2012 instructions See Form 6197. Form 1040ez 2012 instructions Some of these items are discussed next. Form 1040ez 2012 instructions For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Form 1040ez 2012 instructions Depreciation and section 179 deduction. Form 1040ez 2012 instructions   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Form 1040ez 2012 instructions For more information on these deductions, see chapter 7. Form 1040ez 2012 instructions Section 179 deduction. Form 1040ez 2012 instructions   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Form 1040ez 2012 instructions Depreciation. Form 1040ez 2012 instructions   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. Form 1040ez 2012 instructions If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Form 1040ez 2012 instructions If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Form 1040ez 2012 instructions   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Form 1040ez 2012 instructions   See chapter 7 for information on figuring the depreciation you should have claimed. Form 1040ez 2012 instructions   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Form 1040ez 2012 instructions Casualty and theft losses. Form 1040ez 2012 instructions   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Form 1040ez 2012 instructions Also, decrease it by any deductible loss not covered by insurance. Form 1040ez 2012 instructions See chapter 11 for information about figuring your casualty or theft loss. Form 1040ez 2012 instructions   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Form 1040ez 2012 instructions To make this determination, compare the repaired property to the property before the casualty. Form 1040ez 2012 instructions Easements. Form 1040ez 2012 instructions   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Form 1040ez 2012 instructions It reduces the basis of the affected part of the property. Form 1040ez 2012 instructions If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Form 1040ez 2012 instructions See Easements and rights-of-way in chapter 3. Form 1040ez 2012 instructions Exclusion from income of subsidies for energy conservation measures. Form 1040ez 2012 instructions   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Form 1040ez 2012 instructions Reduce the basis of the property by the excluded amount. Form 1040ez 2012 instructions Canceled debt excluded from income. Form 1040ez 2012 instructions   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Form 1040ez 2012 instructions A debt includes any indebtedness for which you are liable or which attaches to property you hold. Form 1040ez 2012 instructions   You can exclude your canceled debt from income if the debt is any of the following. Form 1040ez 2012 instructions Debt canceled in a bankruptcy case or when you are insolvent. Form 1040ez 2012 instructions Qualified farm debt. Form 1040ez 2012 instructions Qualified real property business debt (provided you are not a C corporation). Form 1040ez 2012 instructions Qualified principal residence indebtedness. Form 1040ez 2012 instructions Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Form 1040ez 2012 instructions If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Form 1040ez 2012 instructions If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Form 1040ez 2012 instructions   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Form 1040ez 2012 instructions For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Form 1040ez 2012 instructions For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Form 1040ez 2012 instructions For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Form 1040ez 2012 instructions Basis Other Than Cost There are times when you cannot use cost as basis. Form 1040ez 2012 instructions In these situations, the fair market value or the adjusted basis of property may be used. Form 1040ez 2012 instructions Examples are discussed next. Form 1040ez 2012 instructions Property changed from personal to business or rental use. Form 1040ez 2012 instructions   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Form 1040ez 2012 instructions An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Form 1040ez 2012 instructions   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Form 1040ez 2012 instructions   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Form 1040ez 2012 instructions The basis for figuring a gain is your adjusted basis in the property when you sell the property. Form 1040ez 2012 instructions Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Form 1040ez 2012 instructions Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Form 1040ez 2012 instructions Property received for services. Form 1040ez 2012 instructions   If you receive property for services, include the property's FMV in income. Form 1040ez 2012 instructions The amount you include in income becomes your basis. Form 1040ez 2012 instructions If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions George Smith is an accountant and also operates a farming business. Form 1040ez 2012 instructions George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Form 1040ez 2012 instructions The accounting work and the cow are each worth $1,500. Form 1040ez 2012 instructions George must include $1,500 in income for his accounting services. Form 1040ez 2012 instructions George's basis in the cow is $1,500. Form 1040ez 2012 instructions Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Form 1040ez 2012 instructions A taxable gain or deductible loss also is known as a recognized gain or loss. Form 1040ez 2012 instructions A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Form 1040ez 2012 instructions If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Form 1040ez 2012 instructions You must report a taxable gain of $4,000 for the land. Form 1040ez 2012 instructions The tractor has a basis of $6,000. Form 1040ez 2012 instructions Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Form 1040ez 2012 instructions Similar or related property. Form 1040ez 2012 instructions   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Form 1040ez 2012 instructions However, make the following adjustments. Form 1040ez 2012 instructions Decrease the basis by the following amounts. Form 1040ez 2012 instructions Any loss you recognize on the involuntary conversion. Form 1040ez 2012 instructions Any money you receive that you do not spend on similar property. Form 1040ez 2012 instructions Increase the basis by the following amounts. Form 1040ez 2012 instructions Any gain you recognize on the involuntary conversion. Form 1040ez 2012 instructions Any cost of acquiring the replacement property. Form 1040ez 2012 instructions Money or property not similar or related. Form 1040ez 2012 instructions   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Form 1040ez 2012 instructions Allocating the basis. Form 1040ez 2012 instructions   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Form 1040ez 2012 instructions Basis for depreciation. Form 1040ez 2012 instructions   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Form 1040ez 2012 instructions For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Form 1040ez 2012 instructions For more information about involuntary conversions, see chapter 11. Form 1040ez 2012 instructions Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Form 1040ez 2012 instructions A nontaxable gain or loss also is known as an unrecognized gain or loss. Form 1040ez 2012 instructions If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Form 1040ez 2012 instructions Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Form 1040ez 2012 instructions For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Form 1040ez 2012 instructions There must also be an exchange of like-kind property. Form 1040ez 2012 instructions For more information, see Like-Kind Exchanges in  chapter 8. Form 1040ez 2012 instructions The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Form 1040ez 2012 instructions Example 1. Form 1040ez 2012 instructions You traded a truck you used in your farming business for a new smaller truck to use in farming. Form 1040ez 2012 instructions The adjusted basis of the old truck was $10,000. Form 1040ez 2012 instructions The FMV of the new truck is $30,000. Form 1040ez 2012 instructions Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Form 1040ez 2012 instructions Example 2. Form 1040ez 2012 instructions You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Form 1040ez 2012 instructions You use both the field cultivator and the planter in your farming business. Form 1040ez 2012 instructions The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Form 1040ez 2012 instructions   Exchange expenses generally are the closing costs that you pay. Form 1040ez 2012 instructions They include such items as brokerage commissions, attorney fees, and deed preparation fees. Form 1040ez 2012 instructions Add them to the basis of the like-kind property you receive. Form 1040ez 2012 instructions Property plus cash. Form 1040ez 2012 instructions   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Form 1040ez 2012 instructions Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Form 1040ez 2012 instructions Special rules for related persons. Form 1040ez 2012 instructions   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Form 1040ez 2012 instructions Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Form 1040ez 2012 instructions Each person reports it on the tax return filed for the year in which the later disposition occurred. Form 1040ez 2012 instructions If this rule applies, the basis of the property received in the original exchange will be its FMV. Form 1040ez 2012 instructions For more information, see chapter 8. Form 1040ez 2012 instructions Exchange of business property. Form 1040ez 2012 instructions   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Form 1040ez 2012 instructions For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Form 1040ez 2012 instructions Basis for depreciation. Form 1040ez 2012 instructions   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Form 1040ez 2012 instructions For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Form 1040ez 2012 instructions Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Form 1040ez 2012 instructions The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Form 1040ez 2012 instructions Decrease the basis by the following amounts. Form 1040ez 2012 instructions Any money you receive. Form 1040ez 2012 instructions Any loss you recognize on the exchange. Form 1040ez 2012 instructions Increase the basis by the following amounts. Form 1040ez 2012 instructions Any additional costs you incur. Form 1040ez 2012 instructions Any gain you recognize on the exchange. Form 1040ez 2012 instructions If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Form 1040ez 2012 instructions Example 1. Form 1040ez 2012 instructions You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Form 1040ez 2012 instructions You realize a gain of $40,000. Form 1040ez 2012 instructions This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Form 1040ez 2012 instructions Include your gain in income (recognize gain) only to the extent of the cash received. Form 1040ez 2012 instructions Your basis in the land you received is figured as follows. Form 1040ez 2012 instructions Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Form 1040ez 2012 instructions You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Form 1040ez 2012 instructions You realize a gain of $7,250. Form 1040ez 2012 instructions This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Form 1040ez 2012 instructions You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Form 1040ez 2012 instructions Your basis in the truck you received is figured as follows. Form 1040ez 2012 instructions Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Form 1040ez 2012 instructions   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Form 1040ez 2012 instructions The rest is the basis of the like-kind property. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Form 1040ez 2012 instructions You also received $1,000 cash and a truck that had an FMV of $3,000. Form 1040ez 2012 instructions The truck is unlike property. Form 1040ez 2012 instructions You realized a gain of $1,500. Form 1040ez 2012 instructions This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Form 1040ez 2012 instructions You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Form 1040ez 2012 instructions Your basis in the properties you received is figured as follows. Form 1040ez 2012 instructions Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). Form 1040ez 2012 instructions This is the truck's FMV. Form 1040ez 2012 instructions The rest ($12,500) is the basis of the tractor. Form 1040ez 2012 instructions Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions You used a tractor on your farm for 3 years. Form 1040ez 2012 instructions Its adjusted basis is $22,000 and its FMV is $40,000. Form 1040ez 2012 instructions You are interested in a new tractor, which sells for $60,000. Form 1040ez 2012 instructions Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Form 1040ez 2012 instructions Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Form 1040ez 2012 instructions However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Form 1040ez 2012 instructions Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Form 1040ez 2012 instructions Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Form 1040ez 2012 instructions Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. Form 1040ez 2012 instructions You also must know its FMV at the time it was given to you and any gift tax paid on it. Form 1040ez 2012 instructions FMV equal to or greater than donor's adjusted basis. Form 1040ez 2012 instructions   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. Form 1040ez 2012 instructions Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Form 1040ez 2012 instructions   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Form 1040ez 2012 instructions See Adjusted Basis , earlier. Form 1040ez 2012 instructions   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Form 1040ez 2012 instructions Figure the increase by multiplying the gift tax paid by the following fraction. Form 1040ez 2012 instructions Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Form 1040ez 2012 instructions The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions In 2013, you received a gift of property from your mother that had an FMV of $50,000. Form 1040ez 2012 instructions Her adjusted basis was $20,000. Form 1040ez 2012 instructions The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Form 1040ez 2012 instructions She paid a gift tax of $7,320. Form 1040ez 2012 instructions Your basis, $26,076, is figured as follows. Form 1040ez 2012 instructions Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Form 1040ez 2012 instructions 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Form 1040ez 2012 instructions If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Form 1040ez 2012 instructions However, your basis cannot exceed the FMV of the gift when it was given to you. Form 1040ez 2012 instructions FMV less than donor's adjusted basis. Form 1040ez 2012 instructions   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Form 1040ez 2012 instructions Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Form 1040ez 2012 instructions Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Form 1040ez 2012 instructions (See Adjusted Basis , earlier. Form 1040ez 2012 instructions )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. Form 1040ez 2012 instructions Example. Form 1040ez 2012 instructions You received farmland as a gift from your parents when they retired from farming. Form 1040ez 2012 instructions At the time of the gift, the land had an FMV of $80,000. Form 1040ez 2012 instructions Your parents' adjusted basis was $100,000. Form 1040ez 2012 instructions After you received the land, no events occurred that would increase or decrease your basis. Form 1040ez 2012 instructions If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Form 1040ez 2012 instructions If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Form 1040ez 2012 instructions If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Form 1040ez 2012 instructions For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Form 1040ez 2012 instructions If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Form 1040ez 2012 instructions Business property. Form 1040ez 2012 instructions   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Form 1040ez 2012 instructions Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Form 1040ez 2012 instructions The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Form 1040ez 2012 instructions However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Form 1040ez 2012 instructions The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Form 1040ez 2012 instructions For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Form 1040ez 2012 instructions Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Form 1040ez 2012 instructions If a federal estate return is filed, you can use its appraised value. Form 1040ez 2012 instructions The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Form 1040ez 2012 instructions For information on the alternate valuation, see the Instructions for Form 706. Form 1040ez 2012 instructions The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Form 1040ez 2012 instructions If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Form 1040ez 2012 instructions Special-use valuation method. Form 1040ez 2012 instructions   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Form 1040ez 2012 instructions If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Form 1040ez 2012 instructions If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Form 1040ez 2012 instructions The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Form 1040ez 2012 instructions   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Form 1040ez 2012 instructions Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. Form 1040ez 2012 instructions Figure all FMVs without regard to the special-use valuation. Form 1040ez 2012 instructions   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Form 1040ez 2012 instructions This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Form 1040ez 2012 instructions The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Form 1040ez 2012 instructions   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Form 1040ez 2012 instructions To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. Form 1040ez 2012 instructions If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Form 1040ez 2012 instructions The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Form 1040ez 2012 instructions   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Form 1040ez 2012 instructions   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Form 1040ez 2012 instructions Property inherited from a decedent who died in 2010. Form 1040ez 2012 instructions   If you inherited property from a decedent who died in 2010, different rules may apply. Form 1040ez 2012 instructions See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Form 1040ez 2012 instructions Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Form 1040ez 2012 instructions Partner's basis. Form 1040ez 2012 instructions   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Form 1040ez 2012 instructions However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Form 1040ez 2012 instructions For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Form 1040ez 2012 instructions Shareholder's basis. Form 1040ez 2012 instructions   The basis of property distributed by a corporation to a shareholder is its fair market value. Form 1040ez 2012 instructions For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. 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