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Irs easy form 8. Irs easy form   Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesDetermining Gain or Loss Like-Kind Exchanges Transfer to Spouse Ordinary or Capital Gain or LossCapital Assets Noncapital Assets Hedging (Commodity Futures) Livestock Converted Wetland and Highly Erodible Cropland Timber Sale of a Farm Foreclosure or Repossession Abandonment Introduction This chapter explains how to figure, and report on your tax return, your gain or loss on the disposition of your property or debt and whether such gain or loss is ordinary or capital. Irs easy form Ordinary gain is taxed at the same rates as wages and interest income while capital gain is generally taxed at lower rates. Irs easy form Dispositions discussed in this chapter include sales, exchanges, foreclosures, repossessions, canceled debts, hedging transactions, and elections to treat cutting of timber as a sale or exchange. Irs easy form Topics - This chapter discusses: Sales and exchanges Ordinary or capital gain or loss Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 523 Selling Your Home 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8949 Sales and Other Dispositions of Capital Assets See chapter 16 for information about getting publications and forms. Irs easy form Sales and Exchanges If you sell, exchange, or otherwise dispose of your property, you usually have a gain or a loss. Irs easy form This section explains certain rules for determining whether any gain you have is taxable, and whether any loss you have is deductible. Irs easy form A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Irs easy form An exchange is a transfer of property for other property or services. Irs easy form Determining Gain or Loss You usually realize a gain or loss when you sell or exchange property. Irs easy form If the amount you realize from a sale or exchange of property is more than its adjusted basis, you will have a gain. Irs easy form If the adjusted basis of the property is more than the amount you realize, you will have a loss. Irs easy form Basis and adjusted basis. Irs easy form   The basis of property you buy is usually its cost. Irs easy form The adjusted basis of property is basis plus certain additions and minus certain deductions. Irs easy form See chapter 6 for more information about basis and adjusted basis. Irs easy form Amount realized. Irs easy form   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (FMV) (defined in chapter 6) of all property or services you receive. Irs easy form The amount you realize also includes any of your liabilities assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Irs easy form   If the liabilities relate to an exchange of multiple properties, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs easy form Amount recognized. Irs easy form   Your gain or loss realized from a sale or exchange of certain property is usually a recognized gain or loss for tax purposes. Irs easy form A recognized gain is a gain you must include in gross income and report on your income tax return. Irs easy form A recognized loss is a loss you deduct from gross income. Irs easy form However, your gain or loss realized from the exchange of certain property may not be recognized for tax purposes. Irs easy form See Like-Kind Exchanges next. Irs easy form Also, a loss from the disposition of property held for personal use is not deductible. Irs easy form Like-Kind Exchanges Certain exchanges of property are not taxable. Irs easy form This means any gain from the exchange is not recognized, and any loss cannot be deducted. Irs easy form Your gain or loss will not be recognized until you sell or otherwise dispose of the property you receive. Irs easy form The exchange of property for the same kind of property is the most common type of nontaxable exchange. Irs easy form To qualify for treatment as a like-kind exchange, the property traded and the property received must be both of the following. Irs easy form Qualifying property. Irs easy form Like-kind property. Irs easy form These two requirements are discussed later. Irs easy form Multiple-party transactions. Irs easy form   The like-kind exchange rules also apply to property exchanges that involve three and four-party transactions. Irs easy form Any part of these multiple-party transactions can qualify as a like-kind exchange if it meets all the requirements described in this section. Irs easy form Receipt of title from third party. Irs easy form   If you receive property in a like-kind exchange and the other party who transfers the property to you does not give you the title, but a third party does, you can still treat this transaction as a like-kind exchange if it meets all the requirements. Irs easy form Basis of property received. Irs easy form   If you receive property in a like-kind exchange, the basis of the property will be the same as the basis of the property you gave up. Irs easy form See chapter 6 for more information. Irs easy form Money paid. Irs easy form   If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. Irs easy form The basis of the property received is the basis of the property given up, increased by the money paid. Irs easy form Example. Irs easy form You traded an old tractor with an adjusted basis of $15,000 for a new one. Irs easy form The new tractor costs $300,000. Irs easy form You were allowed $80,000 for the old tractor and paid $220,000 cash. Irs easy form You have no recognized gain or loss on the transaction regardless of the adjusted basis of your old tractor and the basis of the new tractor is $235,000, the adjusted basis of the old tractor plus the cash paid ($15,000 + $220,000). Irs easy form If you had sold the old tractor to a third party for $80,000 and bought a new one, you would have a recognized gain or loss on the sale of your old tractor equal to the difference between the amount realized and the adjusted basis of the old tractor. Irs easy form In this case, the taxable gain would be $65,000 ($80,000 − $15,000) and the basis of the new tractor would be $300,000. Irs easy form Reporting the exchange. Irs easy form   Report the exchange of like-kind property, even though no gain or loss is recognized, on Form 8824, Like-Kind Exchanges. Irs easy form The Instructions for Form 8824 explain how to report the details of the exchange. Irs easy form   If you have any recognized gain because you received money or unlike property, report it on Schedule D (Form 1040) or Form 4797, whichever applies. Irs easy form You may also have to report the recognized gain as ordinary income because of depreciation recapture on Form 4797. Irs easy form See chapter 9 for more information. Irs easy form Qualifying property. Irs easy form   In a like-kind exchange, both the property you give up and the property you receive must be held by you for investment or for productive use in your trade or business. Irs easy form Machinery, buildings, land, trucks, breeding livestock, rental houses, and certain mutual ditch, reservoir, or irrigation company stock are examples of property that may qualify. Irs easy form Nonqualifying property. Irs easy form   The rules for like-kind exchanges do not apply to exchanges of the following property. Irs easy form Property you use for personal purposes, such as your home and family car. Irs easy form Stock in trade or other property held primarily for sale, such as crops and produce. Irs easy form Stocks, bonds, or notes. Irs easy form However, see Qualifying property above. Irs easy form Other securities or evidences of indebtedness, such as accounts receivable. Irs easy form Partnership interests. Irs easy form However, you may have a nontaxable exchange under other rules. Irs easy form See Other Nontaxable Exchanges in chapter 1 of Publication 544. Irs easy form Like-kind property. Irs easy form   To qualify as a nontaxable exchange, the properties exchanged must be of like kind. Irs easy form Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Irs easy form Generally, real property exchanged for real property qualifies as an exchange of like-kind property. Irs easy form For example, an exchange of city property for farm property or improved property for unimproved property is a like-kind exchange. Irs easy form   An exchange of a tractor for a new tractor is an exchange of like-kind property, and so is an exchange of timber land for crop acreage. Irs easy form An exchange of a tractor for acreage, however, is not an exchange of like-kind property. Irs easy form The exchange of livestock of one sex for livestock of the other sex is not a like-kind exchange. Irs easy form For example, the exchange of a bull for a cow is not a like-kind exchange. Irs easy form An exchange of the assets of a business for the assets of a similar business cannot be treated as an exchange of one property for another property. Irs easy form    Note. Irs easy form Whether you engaged in a like-kind exchange depends on an analysis of each asset involved in the exchange. Irs easy form Personal property. Irs easy form   Depreciable tangible personal property can be either like kind or like class to qualify for nontaxable exchange treatment. Irs easy form Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class. Irs easy form Property classified in any General Asset Class may not be classified within a Product Class. Irs easy form Assets that are not in the same class will qualify as like-kind property if they are of the same nature or character. Irs easy form General Asset Classes. Irs easy form   General Asset Classes describe the types of property frequently used in many businesses. Irs easy form They include, but are not limited to, the following property. Irs easy form Office furniture, fixtures, and equipment (asset class 00. Irs easy form 11). Irs easy form Information systems, such as computers and peripheral equipment (asset class 00. Irs easy form 12). Irs easy form Data handling equipment except computers (asset class 00. Irs easy form 13). Irs easy form Automobiles and taxis (asset class 00. Irs easy form 22). Irs easy form Light general purpose trucks (asset class 00. Irs easy form 241). Irs easy form Heavy general purpose trucks (asset class 00. Irs easy form 242). Irs easy form Tractor units for use over-the-road (asset class 00. Irs easy form 26). Irs easy form Trailers and trailer-mounted containers (asset class 00. Irs easy form 27). Irs easy form Industrial steam and electric generation and/or distribution systems (asset class 00. Irs easy form 4). Irs easy form Product Classes. Irs easy form   Product Classes include property listed in a 6-digit product class in sectors 31 through 33 of the North American Industry Classification System (NAICS) of the Executive Office of the President, Office of Management and Budget, United States, (NAICS Manual). Irs easy form The latest version of the manual can be accessed at www. Irs easy form census. Irs easy form gov/eos/www/naics/. Irs easy form Copies of the printed manual may be purchased from the National Technical Information Service (NTIS) at  www. Irs easy form ntis. Irs easy form gov/products/naics. Irs easy form aspx or by calling 1-800-553-NTIS (1-800-553-6847) or (703) 605-6000. Irs easy form A CD-ROM version with search and retrieval software is also available from NTIS. Irs easy form    NAICS class 333111, Farm Machinery and Equipment Manufacturing, includes most machinery and equipment used in a farming business. Irs easy form Partially nontaxable exchange. Irs easy form   If, in addition to like-kind property, you receive money or unlike property in an exchange on which you realize gain, you have a partially nontaxable exchange. Irs easy form You are taxed on the gain you realize, but only to the extent of the money and the FMV of the unlike property you receive. Irs easy form A loss is not deductible. Irs easy form Example 1. Irs easy form You trade farmland that cost $30,000 for $10,000 cash and other land to be used in farming with a FMV of $50,000. Irs easy form You have a realized gain of $30,000 ($50,000 FMV of new land + $10,000 cash − $30,000 basis of old farmland = $30,000 realized gain). Irs easy form However, only $10,000, the cash received, is recognized (included in income). Irs easy form Example 2. Irs easy form Assume the same facts as in Example 1, except that, instead of money, you received a tractor with a FMV of $10,000. Irs easy form Your recognized gain is still limited to $10,000, the value of the tractor (the unlike property). Irs easy form Example 3. Irs easy form Assume in Example 1 that the FMV of the land you received was only $15,000. Irs easy form Your $5,000 loss is not recognized. Irs easy form Unlike property given up. Irs easy form   If, in addition to like-kind property, you give up unlike property, you must recognize gain or loss on the unlike property you give up. Irs easy form The gain or loss is the difference between the FMV of the unlike property and the adjusted basis of the unlike property. Irs easy form Like-kind exchanges between related persons. Irs easy form   Special rules apply to like-kind exchanges between related persons. Irs easy form These rules affect both direct and indirect exchanges. Irs easy form Under these rules, if either person disposes of the property within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Irs easy form The gain or loss on the original exchange must be recognized as of the date of the later disposition. Irs easy form The 2-year holding period begins on the date of the last transfer of property that was part of the like-kind exchange. Irs easy form Related persons. Irs easy form   Under these rules, related persons include, for example, you and a member of your family (spouse, brother, sister, parent, child, etc. Irs easy form ), you and a corporation in which you have more than 50% ownership, you and a partnership in which you directly or indirectly own more than a 50% interest of the capital or profits, and two partnerships in which you directly or indirectly own more than 50% of the capital interests or profits. Irs easy form   For the complete list of related persons, see Related persons in chapter 2 of Publication 544. Irs easy form Example. Irs easy form You used a grey pickup truck in your farming business. Irs easy form Your sister used a red pickup truck in her landscaping business. Irs easy form In December 2012, you exchanged your grey pickup truck, plus $200, for your sister's red pickup truck. Irs easy form At that time, the FMV of the grey pickup truck was $7,000 and its adjusted basis was $6,000. Irs easy form The FMV of the red pickup truck was $7,200 and its adjusted basis was $1,000. Irs easy form You realized a gain of $1,000 (the $7,200 FMV of the red pickup truck, minus the grey pickup truck's $6,000 adjusted basis, minus the $200 you paid). Irs easy form Your sister realized a gain of $6,200 (the $7,000 FMV of the grey pickup truck plus the $200 you paid, minus the $1,000 adjusted basis of the red pickup truck). Irs easy form However, because this was a like-kind exchange, you recognized no gain. Irs easy form Your basis in the red pickup truck was $6,200 (the $6,000 adjusted basis of the grey pickup truck plus the $200 you paid). Irs easy form She recognized gain only to the extent of the money she received, $200. Irs easy form Her basis in the grey pickup truck was $1,000 (the $1,000 adjusted basis of the red pickup truck minus the $200 received, plus the $200 gain recognized). Irs easy form In 2013, you sold the red pickup truck to a third party for $7,000. Irs easy form Because you sold it within 2 years after the exchange, the exchange is disqualified from nonrecognition treatment. Irs easy form On your tax return for 2013, you must report your $1,000 gain on the 2012 exchange. Irs easy form You also report a loss on the sale as $200 (the adjusted basis of the red pickup truck, $7,200 (its $6,200 basis plus the $1,000 gain recognized), minus the $7,000 realized from the sale). Irs easy form In addition, your sister must report on her tax return for 2013 the $6,000 balance of her gain on the 2012 exchange. Irs easy form Her adjusted basis in the grey pickup truck is increased to $7,000 (its $1,000 basis plus the $6,000 gain recognized). Irs easy form Exceptions to the rules for related persons. Irs easy form   The following property dispositions are excluded from these rules. Irs easy form Dispositions due to the death of either related person. Irs easy form Involuntary conversions. Irs easy form Dispositions where it is established to the satisfaction of the IRS that neither the exchange nor the disposition has, as a main purpose, the avoidance of federal income tax. Irs easy form Multiple property exchanges. Irs easy form   Under the like-kind exchange rules, you must generally make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. Irs easy form However, for exchanges of multiple properties, you do not make a property-by-property comparison if you do either of the following. Irs easy form Transfer and receive properties in two or more exchange groups. Irs easy form Transfer or receive more than one property within a single exchange group. Irs easy form   For more information, see Multiple Property Exchanges in chapter 1 of Publication 544. Irs easy form Deferred exchange. Irs easy form   A deferred exchange for like-kind property may qualify for nonrecognition of gain or loss. Irs easy form A deferred exchange is an exchange in which you transfer property you use in business or hold for investment and later receive like-kind property you will use in business or hold for investment. Irs easy form The property you receive is replacement property. Irs easy form The transaction must be an exchange of property for property rather than a transfer of property for money used to buy replacement property. Irs easy form In addition, the replacement property will not be treated as like-kind property unless certain identification and receipt requirements are met. Irs easy form   For more information see Deferred Exchanges in chapter 1 of Publication 544. Irs easy form Transfer to Spouse No gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or a former spouse if incident to divorce. Irs easy form This rule does not apply if the recipient is a nonresident alien. Irs easy form Nor does this rule apply to a transfer in trust to the extent the liabilities assumed and the liabilities on the property are more than the property's adjusted basis. Irs easy form Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is not considered a sale or exchange. Irs easy form The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Irs easy form This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its FMV at the time of transfer or any consideration paid by the recipient. Irs easy form This rule applies for determining loss as well as gain. Irs easy form Any gain recognized on a transfer in trust increases the basis. Irs easy form For more information on transfers of property incident to divorce, see Property Settlements in Publication 504, Divorced or Separated Individuals. Irs easy form Ordinary or Capital Gain or Loss Generally, you will have a capital gain or loss if you sell or exchange a capital asset (defined below). Irs easy form You may also have a capital gain if your section 1231 transactions result in a net gain. Irs easy form See Section 1231 Gains and Losses in  chapter 9. Irs easy form To figure your net capital gain or loss, you must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Irs easy form Your net capital gains may be taxed at a lower tax rate than ordinary income. Irs easy form See Capital Gains Tax Rates , later. Irs easy form Your deduction for a net capital loss may be limited. Irs easy form See Treatment of Capital Losses , later. Irs easy form Capital Assets Almost everything you own and use for personal purposes or investment is a capital asset. Irs easy form The following items are examples of capital assets. Irs easy form A home owned and occupied by you and your family. Irs easy form Household furnishings. Irs easy form A car used for pleasure. Irs easy form If your car is used both for pleasure and for farm business, it is partly a capital asset and partly a noncapital asset, defined later. Irs easy form Stocks and bonds. Irs easy form However, there are special rules for gains on qualified small business stock. Irs easy form For more information on this subject, see Gains on Qualified Small Business Stock and Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Irs easy form Personal-use property. Irs easy form   Gain from a sale or exchange of personal-use property is a capital gain and is taxable. Irs easy form Loss from the sale or exchange of personal-use property is not deductible. Irs easy form You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Irs easy form For information on casualties and thefts, see chapter 11. Irs easy form Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Irs easy form The time you own an asset before disposing of it is the holding period. Irs easy form If you hold a capital asset 1 year or less, the gain or loss resulting from its disposition is short term. Irs easy form Report it in Part I of Schedule D (Form 1040). Irs easy form If you hold a capital asset longer than 1 year, the gain or loss resulting from its disposition is long term. Irs easy form Report it in Part II of Schedule D (Form 1040). Irs easy form Holding period. Irs easy form   To figure if you held property longer than 1 year, start counting on the day after the day you acquired the property. Irs easy form The day you disposed of the property is part of your holding period. Irs easy form Example. Irs easy form If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Irs easy form If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Irs easy form Inherited property. Irs easy form   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Irs easy form This rule does not apply to livestock used in a farm business. Irs easy form See Holding period under Livestock , later. Irs easy form Nonbusiness bad debt. Irs easy form   A nonbusiness bad debt is a short-term capital loss, deductible in the year the debt becomes worthless. Irs easy form See chapter 4 of Publication 550. Irs easy form Nontaxable exchange. Irs easy form   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Irs easy form That is, it begins on the same day as your holding period for the old property. Irs easy form Gift. Irs easy form   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Irs easy form Real property. Irs easy form   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, on the day after you took possession of it and assumed the burdens and privileges of ownership. Irs easy form   However, taking possession of real property under an option agreement is not enough to start the holding period. Irs easy form The holding period cannot start until there is an actual contract of sale. Irs easy form The holding period of the seller cannot end before that time. Irs easy form Figuring Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Irs easy form Net short-term capital gain or loss. Irs easy form   Combine your short-term capital gains and losses. Irs easy form Do this by adding all of your short-term capital gains. Irs easy form Then add all of your short-term capital losses. Irs easy form Subtract the lesser total from the greater. Irs easy form The difference is your net short-term capital gain or loss. Irs easy form Net long-term capital gain or loss. Irs easy form   Follow the same steps to combine your long-term capital gains and losses. Irs easy form The result is your net long-term capital gain or loss. Irs easy form Net gain. Irs easy form   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Irs easy form However, part of your gain (but not more than your net capital gain) may be taxed at a lower rate than the rate of tax on your ordinary income. Irs easy form See Capital Gains Tax Rates , later. Irs easy form Net loss. Irs easy form   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Irs easy form But there are limits on how much loss you can deduct and when you can deduct it. Irs easy form See Treatment of Capital Losses next. Irs easy form Treatment of Capital Losses If your capital losses are more than your capital gains, you must claim the difference even if you do not have ordinary income to offset it. Irs easy form For taxpayers other than corporations, the yearly limit on the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Irs easy form If your other income is low, you may not be able to use the full $3,000. Irs easy form The part of the $3,000 you cannot use becomes part of your capital loss carryover (discussed next). Irs easy form Capital loss carryover. Irs easy form   Generally, you have a capital loss carryover if either of the following situations applies to you. Irs easy form Your net loss on Schedule D (Form 1040), is more than the yearly limit. Irs easy form Your taxable income without your deduction for exemptions is less than zero. Irs easy form If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carry over to 2014. Irs easy form    To figure your capital loss carryover from 2013 to 2014, you will need a copy of your 2013 Form 1040 and Schedule D (Form 1040). Irs easy form Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Irs easy form These lower rates are called the maximum capital gains rates. Irs easy form The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Irs easy form See Schedule D (Form 1040) and the Instructions for Schedule D (Form 1040). Irs easy form Also see Publication 550. Irs easy form Noncapital Assets Noncapital assets include property such as inventory and depreciable property used in a trade or business. Irs easy form A list of properties that are not capital assets is provided in the Instructions for Schedule D (Form 1040). Irs easy form Property held for sale in the ordinary course of your farm business. Irs easy form   Property you hold mainly for sale to customers, such as livestock, poultry, livestock products, and crops, is a noncapital asset. Irs easy form Gain or loss from sales or other dispositions of this property is reported on Schedule F (Form 1040) (not on Schedule D (Form 1040) or Form 4797). Irs easy form The treatment of this property is discussed in chapter 3. Irs easy form Land and depreciable properties. Irs easy form   Land and depreciable property you use in farming are not capital assets. Irs easy form Noncapital assets also include livestock held for draft, breeding, dairy, or sporting purposes. Irs easy form However, your gains and losses from sales and exchanges of your farmland and depreciable properties must be considered together with certain other transactions to determine whether the gains and losses are treated as capital or ordinary gains and losses. Irs easy form The sales of these business assets are reported on Form 4797. Irs easy form See chapter 9 for more information. Irs easy form Hedging (Commodity Futures) Hedging transactions are transactions that you enter into in the normal course of business primarily to manage the risk of interest rate or price changes, or currency fluctuations, with respect to borrowings, ordinary property, or ordinary obligations. Irs easy form Ordinary property or obligations are those that cannot produce capital gain or loss if sold or exchanged. Irs easy form A commodity futures contract is a standardized, exchange-traded contract for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price. Irs easy form The holder of an option on a futures contract has the right (but not the obligation) for a specified period of time to enter into a futures contract to buy or sell at a particular price. Irs easy form A forward contract is generally similar to a futures contract except that the terms are not standardized and the contract is not exchange traded. Irs easy form Businesses may enter into commodity futures contracts or forward contracts and may acquire options on commodity futures contracts as either of the following. Irs easy form Hedging transactions. Irs easy form Transactions that are not hedging transactions. Irs easy form Futures transactions with exchange-traded commodity futures contracts that are not hedging transactions, generally, result in capital gain or loss and are subject to the mark-to-market rules discussed in Publication 550. Irs easy form There is a limit on the amount of capital losses you can deduct each year. Irs easy form Hedging transactions are not subject to the mark-to-market rules. Irs easy form If, as a farmer-producer, to protect yourself from the risk of unfavorable price fluctuations, you enter into commodity forward contracts, futures contracts, or options on futures contracts and the contracts cover an amount of the commodity within your range of production, the transactions are generally considered hedging transactions. Irs easy form They can take place at any time you have the commodity under production, have it on hand for sale, or reasonably expect to have it on hand. Irs easy form The gain or loss on the termination of these hedges is generally ordinary gain or loss. Irs easy form Farmers who file their income tax returns on the cash method report any profit or loss on the hedging transaction on Schedule F, line 8. Irs easy form Gains or losses from hedging transactions that hedge supplies of a type regularly used or consumed in the ordinary course of your trade or business may be ordinary gains or losses. Irs easy form Examples include fuel and feed. Irs easy form If you have numerous transactions in the commodity futures market during the year, you must be able to show which transactions are hedging transactions. Irs easy form Clearly identify a hedging transaction on your books and records before the end of the day you entered into the transaction. Irs easy form It may be helpful to have separate brokerage accounts for your hedging and speculation transactions. Irs easy form Retain the identification of each hedging transaction with your books and records. Irs easy form Also, identify the item(s) or aggregate risk that is being hedged in your records. Irs easy form Although the identification of the hedging transaction must be made before the end of the day it was entered into, you have 35 days after entering into the transaction to identify the hedged item(s) or risk. Irs easy form For more information on the tax treatment of futures and options contracts, see Commodity Futures and Section 1256 Contracts Marked to Market in Publication 550. Irs easy form Accounting methods for hedging transactions. Irs easy form   The accounting method you use for a hedging transaction must clearly reflect income. Irs easy form This means that your accounting method must reasonably match the timing of income, deduction, gain, or loss from a hedging transaction with the timing of income, deduction, gain, or loss from the item or items being hedged. Irs easy form There are requirements and limits on the method you can use for certain hedging transactions. Irs easy form See Regulations section 1. Irs easy form 446-4(e) for those requirements and limits. Irs easy form   Hedging transactions must be accounted for under the rules stated above unless the transaction is subject to mark-to-market accounting under section 475 or you use an accounting method other than the following methods. Irs easy form Cash method. Irs easy form Farm-price method. Irs easy form Unit-livestock-price method. Irs easy form   Once you adopt a method, you must apply it consistently and must have IRS approval before changing it. Irs easy form   Your books and records must describe the accounting method used for each type of hedging transaction. Irs easy form They must also contain any additional identification necessary to verify the application of the accounting method you used for the transaction. Irs easy form You must make the additional identification no more than 35 days after entering into the hedging transaction. Irs easy form Example of a hedging transaction. Irs easy form   You file your income tax returns on the cash method. Irs easy form On July 2 you anticipate a yield of 50,000 bushels of corn this year. Irs easy form The December futures price is $5. Irs easy form 75 a bushel, but there are indications that by harvest time the price will drop. Irs easy form To protect yourself against a drop in the price, you enter into the following hedging transaction. Irs easy form You sell ten December futures contracts of 5,000 bushels each for a total of 50,000 bushels of corn at $5. Irs easy form 75 a bushel. Irs easy form   The price did not drop as anticipated but rose to $6 a bushel. Irs easy form In November, you sell your crop at a local elevator for $6 a bushel. Irs easy form You also close out your futures position by buying ten December contracts for $6 a bushel. Irs easy form You paid a broker's commission of $1,400 ($70 per contract) for the complete in and out position in the futures market. Irs easy form   The result is that the price of corn rose 25 cents a bushel and the actual selling price is $6 a bushel. Irs easy form Your loss on the hedge is 25 cents a bushel. Irs easy form In effect, the net selling price of your corn is $5. Irs easy form 75 a bushel. Irs easy form   Report the results of your futures transactions and your sale of corn separately on Schedule F. Irs easy form See the instructions for the 2013 Schedule F (Form 1040). Irs easy form   The loss on your futures transactions is $13,900, figured as follows. Irs easy form July 2 - Sold December corn futures (50,000 bu. Irs easy form @$5. Irs easy form 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Irs easy form @$6 plus $1,400 broker's commission) 301,400 Futures loss ($13,900) This loss is reported as a negative figure on Schedule F, Part I, line 8, as other income. Irs easy form   The proceeds from your corn sale at the local elevator are $300,000 (50,000 bu. Irs easy form × $6). Irs easy form Report it on Schedule F, Part I, line 2, as income from sales of products you raised. Irs easy form   Assume you were right and the price went down 25 cents a bushel. Irs easy form In effect, you would still net $5. Irs easy form 75 a bushel, figured as follows. Irs easy form Sold cash corn, per bushel $5. Irs easy form 50 Gain on hedge, per bushel . Irs easy form 25 Net price, per bushel $5. Irs easy form 75       The gain on your futures transactions would have been $11,100, figured as follows. Irs easy form July 2 - Sold December corn futures (50,000 bu. Irs easy form @$5. Irs easy form 75) $287,500 November 6 - Bought December corn futures (50,000 bu. Irs easy form @$5. Irs easy form 50 plus $1,400 broker's commission) 276,400 Futures gain $11,100 The $11,100 is reported on Schedule F, Part I, line 8, as other income. Irs easy form   The proceeds from the sale of your corn at the local elevator, $275,000, are reported on Schedule F, Part I, line 2, as income from sales of products you raised. Irs easy form Livestock This part discusses the sale or exchange of livestock used in your farm business. Irs easy form Gain or loss from the sale or exchange of this livestock may qualify as a section 1231 gain or loss. Irs easy form However, any part of the gain that is ordinary income from the recapture of depreciation is not included as section 1231 gain. Irs easy form See chapter 9 for more information on section 1231 gains and losses and the recapture of depreciation under section 1245. Irs easy form The rules discussed here do not apply to the sale of livestock held primarily for sale to customers. Irs easy form The sale of this livestock is reported on Schedule F. Irs easy form See chapter 3. Irs easy form Also, special rules apply to sales or exchanges caused by weather-related conditions. Irs easy form See chapter 3. Irs easy form Holding period. Irs easy form   The sale or exchange of livestock used in your farm business (defined below) qualifies as a section 1231 transaction if you held the livestock for 12 months or more (24 months or more for horses and cattle). Irs easy form Livestock. Irs easy form   For section 1231 transactions, livestock includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. Irs easy form Also, for section 1231 transactions, livestock does not include chickens, turkeys, pigeons, geese, emus, ostriches, rheas, or other birds, fish, frogs, reptiles, etc. Irs easy form Livestock used in farm business. Irs easy form   If livestock is held primarily for draft, breeding, dairy, or sporting purposes, it is used in your farm business. Irs easy form The purpose for which an animal is held ordinarily is determined by a farmer's actual use of the animal. Irs easy form An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to other persons for use by them for that purpose. Irs easy form However, a draft, breeding, or sporting purpose may be present if an animal is disposed of within a reasonable time after it is prevented from its intended use or made undesirable as a result of an accident, disease, drought, or unfitness of the animal. Irs easy form Example 1. Irs easy form You discover an animal that you intend to use for breeding purposes is sterile. Irs easy form You dispose of it within a reasonable time. Irs easy form This animal was held for breeding purposes. Irs easy form Example 2. Irs easy form You retire and sell your entire herd, including young animals that you would have used for breeding or dairy purposes had you remained in business. Irs easy form These young animals were held for breeding or dairy purposes. Irs easy form Also, if you sell young animals to reduce your breeding or dairy herd because of drought, these animals are treated as having been held for breeding or dairy purposes. Irs easy form See Sales Caused by Weather-Related Conditions in chapter 3. Irs easy form Example 3. Irs easy form You are in the business of raising hogs for slaughter. Irs easy form Customarily, before selling your sows, you obtain a single litter of pigs that you will raise for sale. Irs easy form You sell the brood sows after obtaining the litter. Irs easy form Even though you hold these brood sows for ultimate sale to customers in the ordinary course of your business, they are considered to be held for breeding purposes. Irs easy form Example 4. Irs easy form You are in the business of raising registered cattle for sale to others for use as breeding cattle. Irs easy form The business practice is to breed the cattle before sale to establish their fitness as registered breeding cattle. Irs easy form Your use of the young cattle for breeding purposes is ordinary and necessary for selling them as registered breeding cattle. Irs easy form Such use does not demonstrate that you are holding the cattle for breeding purposes. Irs easy form However, those cattle you held as additions or replacements to your own breeding herd to produce calves are considered to be held for breeding purposes, even though they may not actually have produced calves. Irs easy form The same applies to hog and sheep breeders. Irs easy form Example 5. Irs easy form You breed, raise, and train horses for racing purposes. Irs easy form Every year you cull horses from your racing stable. Irs easy form In 2013, you decided that to prevent your racing stable from getting too large to be effectively operated, you must cull six horses that had been raced at public tracks in 2012. Irs easy form These horses are all considered held for sporting purposes. Irs easy form Figuring gain or loss on the cash method. Irs easy form   Farmers or ranchers who use the cash method of accounting figure their gain or loss on the sale of livestock used in their farming business as follows. Irs easy form Raised livestock. Irs easy form   Gain on the sale of raised livestock is generally the gross sales price reduced by any expenses of the sale. Irs easy form Expenses of sale include sales commissions, freight or hauling from farm to commission company, and other similar expenses. Irs easy form The basis of the animal sold is zero if the costs of raising it were deducted during the years the animal was being raised. Irs easy form However, see Uniform Capitalization Rules in chapter 6. Irs easy form Purchased livestock. Irs easy form   The gross sales price minus your adjusted basis and any expenses of sale is the gain or loss. Irs easy form Example. Irs easy form A farmer sold a breeding cow on January 8, 2013, for $1,250. Irs easy form Expenses of the sale were $125. Irs easy form The cow was bought July 2, 2009, for $1,300. Irs easy form Depreciation (not less than the amount allowable) was $867. Irs easy form Gross sales price $1,250 Cost (basis) $1,300   Minus: Depreciation deduction 867   Unrecovered cost (adjusted basis) $ 433   Expense of sale 125 558 Gain realized $ 692 Converted Wetland and Highly Erodible Cropland Special rules apply to dispositions of land converted to farming use after March 1, 1986. Irs easy form Any gain realized on the disposition of converted wetland or highly erodible cropland is treated as ordinary income. Irs easy form Any loss on the disposition of such property is treated as a long-term capital loss. Irs easy form Converted wetland. Irs easy form   This is generally land that was drained or filled to make the production of agricultural commodities possible. Irs easy form It includes converted wetland held by the person who originally converted it or held by any other person who used the converted wetland at any time after conversion for farming. Irs easy form   A wetland (before conversion) is land that meets all the following conditions. Irs easy form It is mostly soil that, in its undrained condition, is saturated, flooded, or ponded long enough during a growing season to develop an oxygen-deficient state that supports the growth and regeneration of plants growing in water. Irs easy form It is saturated by surface or groundwater at a frequency and duration sufficient to support mostly plants that are adapted for life in saturated soil. Irs easy form It supports, under normal circumstances, mostly plants that grow in saturated soil. Irs easy form Highly erodible cropland. Irs easy form   This is cropland subject to erosion that you used at any time for farming purposes other than grazing animals. Irs easy form Generally, highly erodible cropland is land currently classified by the Department of Agriculture as Class IV, VI, VII, or VIII under its classification system. Irs easy form Highly erodible cropland also includes land that would have an excessive average annual erosion rate in relation to the soil loss tolerance level, as determined by the Department of Agriculture. Irs easy form Successor. Irs easy form   Converted wetland or highly erodible cropland is also land held by any person whose basis in the land is figured by reference to the adjusted basis of a person in whose hands the property was converted wetland or highly erodible cropland. Irs easy form Timber Standing timber you held as investment property is a capital asset. Irs easy form Gain or loss from its sale is capital gain or loss reported on Form 8949 and Schedule D (Form 1040), as applicable. Irs easy form If you held the timber primarily for sale to customers, it is not a capital asset. Irs easy form Gain or loss on its sale is ordinary business income or loss. Irs easy form It is reported on Schedule F, line 1 (purchased timber) or line 2 (raised timber). Irs easy form See the Instructions for Schedule F (Form 1040). Irs easy form Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Irs easy form Amounts realized from these sales, and the expenses incurred in cutting, hauling, etc. Irs easy form , are ordinary farm income and expenses reported on Schedule F. Irs easy form Different rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange or you enter into a cutting contract, discussed below. Irs easy form Timber considered cut. Irs easy form   Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Irs easy form This is true whether the timber is cut under contract or whether you cut it yourself. Irs easy form Christmas trees. Irs easy form   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Irs easy form They qualify for both rules discussed below. Irs easy form Election to treat cutting as a sale or exchange. Irs easy form   Under the general rule, the cutting of timber results in no gain or loss. Irs easy form It is not until a sale or exchange occurs that gain or loss is realized. Irs easy form But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year it is cut. Irs easy form Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Irs easy form Any later sale results in ordinary business income or loss. Irs easy form See the example below. Irs easy form   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or use in your trade or business. Irs easy form Making the election. Irs easy form   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of your gain or loss. Irs easy form You do not have to make the election in the first year you cut the timber. Irs easy form You can make it in any year to which the election would apply. Irs easy form If the timber is partnership property, the election is made on the partnership return. Irs easy form This election cannot be made on an amended return. Irs easy form   Once you have made the election, it remains in effect for all later years unless you revoke it. Irs easy form Election under section 631(a) may be revoked. Irs easy form   If you previously elected for any tax year ending before October 23, 2004, to treat the cutting of timber as a sale or exchange under section 631(a), you may revoke this election without the consent of the IRS for any tax year ending after October 22, 2004. Irs easy form The prior election (and revocation) is disregarded for purposes of making a subsequent election. Irs easy form See Form T (Timber), Forest Activities Schedule, for more information. Irs easy form Gain or loss. Irs easy form   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its FMV on the first day of your tax year in which it is cut. Irs easy form   Your adjusted basis for depletion of cut timber is based on the number of units (board feet, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Irs easy form Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 and Regulations section 1. Irs easy form 611-3. Irs easy form   Depletion of timber is discussed in chapter 7. Irs easy form Example. Irs easy form   In April 2013, you owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Irs easy form It had an adjusted basis for depletion of $40 per MBF. Irs easy form You are a calendar year taxpayer. Irs easy form On January 1, 2013, the timber had a FMV of $350 per MBF. Irs easy form It was cut in April for sale. Irs easy form On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Irs easy form You report the difference between the FMV and your adjusted basis for depletion as a gain. Irs easy form This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as a capital gain or as ordinary gain. Irs easy form You figure your gain as follows. Irs easy form FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000   The FMV becomes your basis in the cut timber, and a later sale of the cut timber, including any by-product or tree tops, will result in ordinary business income or loss. Irs easy form Outright sales of timber. Irs easy form   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined later). Irs easy form However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see Date of disposal below). Irs easy form Cutting contract. Irs easy form   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Irs easy form You are the owner of the timber. Irs easy form You held the timber longer than 1 year before its disposal. Irs easy form You kept an economic interest in the timber. Irs easy form   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Irs easy form   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Irs easy form Include this amount on Form 4797 along with your other section 1231 gains or losses. Irs easy form Date of disposal. Irs easy form   The date of disposal is the date the timber is cut. Irs easy form However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Irs easy form   This election applies only to figure the holding period of the timber. Irs easy form It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Irs easy form   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Irs easy form The statement must identify the advance payments subject to the election and the contract under which they were made. Irs easy form   If you timely filed your return for the year you received payment without making the election, you can still make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Irs easy form Attach the statement to the amended return and write “Filed pursuant to section 301. Irs easy form 9100-2” at the top of the statement. Irs easy form File the amended return at the same address the original return was filed. Irs easy form Owner. Irs easy form   An owner is any person who owns an interest in the timber, including a sublessor and the holder of a contract to cut the timber. Irs easy form You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Irs easy form Tree stumps. Irs easy form   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Irs easy form Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Irs easy form However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Irs easy form Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Irs easy form   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Irs easy form Sale of a Farm The sale of your farm will usually involve the sale of both nonbusiness property (your home) and business property (the land and buildings used in the farm operation and perhaps machinery and livestock). Irs easy form If you have a gain from the sale, you may be allowed to exclude the gain on your home. Irs easy form For more information, see Publication 523, Selling Your Home. Irs easy form The gain on the sale of your business property is taxable. Irs easy form A loss on the sale of your business property to an unrelated person is deducted as an ordinary loss. Irs easy form Your taxable gain or loss on the sale of property used in your farm business is taxed under the rules for section 1231 transactions. Irs easy form See chapter 9. Irs easy form Losses from personal-use property, other than casualty or theft losses, are not deductible. Irs easy form If you receive payments for your farm in installments, your gain is taxed over the period of years the payments are received, unless you elect not to use the installment method of reporting the gain. Irs easy form See chapter 10 for information about installment sales. Irs easy form When you sell your farm, the gain or loss on each asset is figured separately. Irs easy form The tax treatment of gain or loss on the sale of each asset is determined by the classification of the asset. Irs easy form Each of the assets sold must be classified as one of the following. Irs easy form Capital asset held 1 year or less. Irs easy form Capital asset held longer than 1 year. Irs easy form Property (including real estate) used in your business and held 1 year or less (including draft, breeding, dairy, and sporting animals held less than the holding periods discussed earlier under Livestock ). Irs easy form Property (including real estate) used in your business and held longer than 1 year (including only draft, breeding, dairy, and sporting animals held for the holding periods discussed earlier). Irs easy form Property held primarily for sale or which is of the kind that would be included in inventory if on hand at the end of your tax year. Irs easy form Allocation of consideration paid for a farm. Irs easy form   The sale of a farm for a lump sum is considered a sale of each individual asset rather than a single asset. Irs easy form The residual method is required only if the group of assets sold constitutes a trade or business. Irs easy form This method determines gain or loss from the transfer of each asset. Irs easy form It also determines the buyer's basis in the business assets. Irs easy form For more information, see Sale of a Business in chapter 2 of Publication 544. Irs easy form Property used in farm operation. Irs easy form   The rules for excluding the gain on the sale of your home, described later under Sale of your home , do not apply to the property used for your farming business. Irs easy form Recognized gains and losses on business property must be reported on your return for the year of the sale. Irs easy form If the property was held longer than 1 year, it may qualify for section 1231 treatment (see chapter 9). Irs easy form Example. Irs easy form You sell your farm, including your main home, which you have owned since December 2001. Irs easy form You realize gain on the sale as follows. Irs easy form   Farm   Farm   With Home Without   Home Only Home Selling price $382,000 $158,000 $224,000 Cost (or other basis) 240,000 110,000 130,000 Gain $142,000 $48,000 $94,000 You must report the $94,000 gain from the sale of the property used in your farm business. Irs easy form All or a part of that gain may have to be reported as ordinary income from the recapture of depreciation or soil and water conservation expenses. Irs easy form Treat the balance as section 1231 gain. Irs easy form The $48,000 gain from the sale of your home is not taxable as long as you meet the requirements explained later under Sale of your home . Irs easy form Partial sale. Irs easy form   If you sell only part of your farm, you must report any recognized gain or loss on the sale of that part on your tax return for the year of the sale. Irs easy form You cannot wait until you have sold enough of the farm to recover its entire cost before reporting gain or loss. Irs easy form For a detailed discussion on installment sales, see Publication 544. Irs easy form Adjusted basis of the part sold. Irs easy form   This is the properly allocated part of your original cost or other basis of the entire farm plus or minus necessary adjustments for improvements, depreciation, etc. Irs easy form , on the part sold. Irs easy form If your home is on the farm, you must properly adjust the basis to exclude those costs from your farm asset costs, as discussed below under Sale of your home . Irs easy form Example. Irs easy form You bought a 600-acre farm for $700,000. Irs easy form The farm included land and buildings. Irs easy form The purchase contract designated $600,000 of the purchase price to the land. Irs easy form You later sold 60 acres of land on which you had installed a fence. Irs easy form Your adjusted basis for the part of your farm sold is $60,000 (1/10 of $600,000), plus any unrecovered cost (cost not depreciated) of the fence on the 60 acres at the time of sale. Irs easy form Use this amount to determine your gain or loss on the sale of the 60 acres. Irs easy form Assessed values for local property taxes. Irs easy form   If you paid a flat sum for the entire farm and no other facts are available for properly allocating your original cost or other basis between the land and the buildings, you can use the assessed values for local property taxes for the year of purchase to allocate the costs. Irs easy form Example. Irs easy form Assume that in the preceding example there was no breakdown of the $700,000 purchase price between land and buildings. Irs easy form However, in the year of purchase, local taxes on the entire property were based on assessed valuations of $420,000 for land and $140,000 for improvements, or a total of $560,000. Irs easy form The assessed valuation of the land is 3/4 (75%) of the total assessed valuation. Irs easy form Multiply the $700,000 total purchase price by 75% to figure basis of $525,000 for the 600 acres of land. Irs easy form The unadjusted basis of the 60 acres you sold would then be $52,500 (1/10 of $525,000). Irs easy form Sale of your home. Irs easy form   Your home is a capital asset and not property used in the trade or business of farming. Irs easy form If you sell a farm that includes a house you and your family occupy, you must determine the part of the selling price and the part of the cost or other basis allocable to your home. Irs easy form Your home includes the immediate surroundings and outbuildings relating to it that are not used for business purposes. Irs easy form   If you use part of your home for business, you must make an appropriate adjustment to the basis for depreciation allowed or allowable. Irs easy form For more information on basis, see chapter 6. Irs easy form More information. Irs easy form   For more information on selling your home, see Publication 523. Irs easy form Gain from condemnation. Irs easy form   If you have a gain from a condemnation or sale under threat of condemnation, you may use the preceding rules for excluding the gain, rather than the rules discussed under Postponing Gain in chapter 11. Irs easy form However, any gain that cannot be excluded (because it is more than the limit) may be postponed under the rules discussed under Postponing Gain in chapter 11. Irs easy form Foreclosure or Repossession If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Irs easy form The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Irs easy form This is true even if you voluntarily return the property to the lender. Irs easy form You may also realize ordinary income from cancellation of debt if the loan balance is more than the FMV of the property. Irs easy form Buyer's (borrower's) gain or loss. Irs easy form   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Irs easy form The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Irs easy form See Determining Gain or Loss , earlier. Irs easy form Worksheet 8-1. Irs easy form Worksheet for Foreclosures andRepossessions Part 1. Irs easy form Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Irs easy form Complete this part only if you were personally liable for the debt. Irs easy form Otherwise, go to Part 2. Irs easy form   1. Irs easy form Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property   2. Irs easy form Enter the Fair Market Value of the transferred property   3. Irs easy form Ordinary income from cancellation of debt upon foreclosure or repossession. Irs easy form * Subtract line 2 from line 1. Irs easy form If zero or less, enter -0-   Part 2. Irs easy form Figure your gain or loss from foreclosure or repossession. Irs easy form   4. Irs easy form If you completed Part 1, enter the smaller of line 1 or line 2. Irs easy form If you did not complete Part 1, enter the outstanding debt immediately before the transfer of property   5. Irs easy form Enter any proceeds you received from the foreclosure sale   6. Irs easy form Add lines 4 and 5   7. Irs easy form Enter the adjusted basis of the transferred property   8. Irs easy form Gain or loss from foreclosure or repossession. Irs easy form Subtract line 7  from line 6   * The income may not be taxable. Irs easy form See Cancellation of debt . Irs easy form    You can use Worksheet 8-1 to figure your gain or loss from a foreclosure or repossession. Irs easy form Amount realized on a nonrecourse debt. Irs easy form   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full amount of the debt canceled by the transfer. Irs easy form The full canceled debt is included in the amount realized even if the fair market value of the property is less than the canceled debt. Irs easy form Example 1. Irs easy form Ann paid $200,000 for land used in her farming business. Irs easy form She paid $15,000 down and borrowed the remaining $185,000 from a bank. Irs easy form Ann is not personally liable for the loan (nonrecourse debt), but pledges the land as security. Irs easy form The bank foreclosed on the loan 2 years after Ann stopped making payments. Irs easy form When the bank foreclosed, the balance due on the loan was $180,000 and the FMV of the land was $170,000. Irs easy form The amount Ann realized on the foreclosure was $180,000, the debt canceled by the foreclosure. Irs easy form She figures her gain or loss on Form 4797, Part I, by comparing the amount realized ($180,000) with her adjusted basis ($200,000). Irs easy form She has a $20,000 deductible loss. Irs easy form Example 2. Irs easy form Assume the same facts as in Example 1 except the FMV of the land was $210,000. Irs easy form The result is the same. Irs easy form The amount Ann realized on the foreclosure is $180,000, the debt canceled by the foreclosure. Irs easy form Because her adjusted basis is $200,000, she has a deductible loss of $20,000, which she reports on Form 4797, Part I. Irs easy form Amount realized on a recourse debt. Irs easy form   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Irs easy form   You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Irs easy form The amount realized does not include the canceled debt that is your income from cancellation of debt. Irs easy form See Cancellation of debt , later. Irs easy form Example 3. Irs easy form Assume the same facts as in Example 1 above except Ann is personally liable for the loan (recourse debt). Irs easy form In this case, the amount she realizes is $170,000. Irs easy form This is the canceled debt ($180,000) up to the FMV of the land ($170,000). Irs easy form Ann figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($200,000). Irs easy form She has a $30,000 deductible loss, which she figures on Form 4797, Part I. Irs easy form She is also treated as receiving ordinary income from cancellation of debt. Irs easy form That income is $10,000 ($180,000 − $170,000). Irs easy form This is the part of the canceled debt not included in the amount realized. Irs easy form She reports this as other income on Schedule F, line 8. Irs easy form Seller's (lender's) gain or loss on repossession. Irs easy form   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Irs easy form For more information, see Repossession in Publication 537, Installment Sales. Irs easy form Cancellation of debt. Irs easy form   If property that is repossessed or foreclosed upon secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the FMV of the property. Irs easy form This income is separate from any gain or loss realized from the foreclosure or repossession. Irs easy form Report the income from cancellation of a business debt on Schedule F, line 8. Irs easy form Report the income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Irs easy form    You can use Worksheet 8-1 to figure your income from cancellation of debt. Irs easy form   However, income from cancellation of debt is not taxed if any of the following apply. Irs easy form The cancellation is intended as a gift. Irs easy form The debt is qualified farm debt (see chapter 3). Irs easy form The debt is qualified real property business debt (see chapter 5 of Publication 334). Irs easy form You are insolvent or bankrupt (see  chapter 3). Irs easy form The debt is qualified principal residence indebtedness (see chapter 3). Irs easy form   Use Form 982 to report the income exclusion. Irs easy form Abandonment The abandonment of property is a disposition of property. Irs easy form You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership, but without passing it on to anyone else. Irs easy form Business or investment property. Irs easy form   Loss from abandonment of business or investment property is deductible as a loss. Irs easy form Loss from abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Irs easy form If your adjusted basis is more than the amount you realize (if any), then you have a loss. Irs easy form If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Irs easy form This rule also applies to leasehold improvements the lessor made for the lessee. Irs easy form However, if the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed earlier under Foreclosure or Repossession . Irs easy form   If the abandoned property is secured by debt, special rules apply. Irs easy form The tax consequences of abandonment of property that secures a debt depend on whether you are personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Irs easy form For more information, see chapter 3 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Irs easy form The abandonment loss is deducted in the tax year in which the loss is sustained. Irs easy form Report the loss on Form 4797, Part II, line 10. Irs easy form Personal-use property. Irs easy form   You cannot deduct any loss from abandonment of your home or other property held for personal use. Irs easy form Canceled debt. Irs easy form   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Irs easy form This income is separate from any loss realized from abandonment of the property. Irs easy form Report income from cancellation of a debt related to a business or rental activity as business or rental income. Irs easy form Report income from cancellation of a nonbusiness debt as miscellaneous income on Form 1040. Irs easy form   However, income from cancellation of debt is not taxed in certain circumstances. Irs easy form See Cancellation of debt earlier under Foreclosure or Repossession . Irs easy form Forms 1099-A and 1099-C. Irs easy form   A lender who acquires an interest in your property in a foreclosure, repossession, or abandonment should send you Form 1099-A showing the information you need to figure your loss from the foreclosure, repossession, or abandonment. Irs easy form However, if the lender cancels part of your debt and the lender must file Form 1099-C, the lender may include the information about the foreclosure, repossession, or abandonment on that form instead of Form 1099-A. Irs easy form The lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Irs easy form For foreclosures, repossessions, abandonments of property, and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Irs easy form Prev  Up  Next   Home   More Online Publications
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Irs easy form 25. Irs easy form   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Irs easy form Progressive deterioration. Irs easy form Damage from corrosive drywall. Irs easy form Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Irs easy form  Section C of Form 4684 is new for 2013. Irs easy form You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Irs easy form Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Irs easy form You do not need to complete Appendix A. Irs easy form For details, see Losses from Ponzi-type investment schemes , in this chapter. Irs easy form Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Irs easy form The chapter also explains the following  topics. Irs easy form How to figure the amount of your loss. Irs easy form How to treat insurance and other reimbursements you receive. Irs easy form The deduction limits. Irs easy form When and how to report a casualty or theft. Irs easy form Forms to file. Irs easy form    When you have a casualty or theft, you have to file Form 4684. Irs easy form You will also have to file one or more of the following forms. Irs easy form Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Irs easy form   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Irs easy form Workbook for casualties and thefts. Irs easy form    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Irs easy form It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Irs easy form Business or investment-related losses. Irs easy form   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Irs easy form Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Irs easy form A sudden event is one that is swift, not gradual or progressive. Irs easy form An unexpected event is one that is ordinarily unanticipated and unintended. Irs easy form An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Irs easy form Deductible losses. Irs easy form   Deductible casualty losses can result from a number of different causes, including the following. Irs easy form Car accidents (but see Nondeductible losses , next, for exceptions). Irs easy form Earthquakes. Irs easy form Fires (but see Nondeductible losses , next, for exceptions). Irs easy form Floods. Irs easy form Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547. Irs easy form Mine cave-ins. Irs easy form Shipwrecks. Irs easy form Sonic booms. Irs easy form Storms, including hurricanes and tornadoes. Irs easy form Terrorist attacks. Irs easy form Vandalism. Irs easy form Volcanic eruptions. Irs easy form Nondeductible losses. Irs easy form   A casualty loss is not deductible if the damage or destruction is caused by the following. Irs easy form Accidentally breaking articles such as glassware or china under normal conditions. Irs easy form A family pet (explained below). Irs easy form A fire if you willfully set it or pay someone else to set it. Irs easy form A car accident if your willful negligence or willful act caused it. Irs easy form The same is true if the willful act or willful negligence of someone acting for you caused the accident. Irs easy form Progressive deterioration (explained later). Irs easy form Family pet. Irs easy form   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. Irs easy form Example. Irs easy form Your antique oriental rug was damaged by your new puppy before it was housebroken. Irs easy form Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Irs easy form Progressive deterioration. Irs easy form    Loss of property due to progressive deterioration is not deductible as a casualty loss. Irs easy form This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Irs easy form The following are examples of damage due to progressive deterioration. Irs easy form The steady weakening of a building due to normal wind and weather conditions. Irs easy form The deterioration and damage to a water heater that bursts. Irs easy form However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Irs easy form Most losses of property caused by droughts. Irs easy form To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Irs easy form Termite or moth damage. Irs easy form The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Irs easy form However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Irs easy form Damage from corrosive drywall. Irs easy form   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Irs easy form For details, see Publication 547. Irs easy form Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Irs easy form The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Irs easy form You do not need to show a conviction for theft. Irs easy form Theft includes the taking of money or property by the following means. Irs easy form Blackmail. Irs easy form Burglary. Irs easy form Embezzlement. Irs easy form Extortion. Irs easy form Kidnapping for ransom. Irs easy form Larceny. Irs easy form Robbery. Irs easy form The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Irs easy form Decline in market value of stock. Irs easy form   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Irs easy form However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Irs easy form You report a capital loss on Schedule D (Form 1040). Irs easy form For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Irs easy form Mislaid or lost property. Irs easy form   The simple disappearance of money or property is not a theft. Irs easy form However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Irs easy form Sudden, unexpected, and unusual events are defined earlier. Irs easy form Example. Irs easy form A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Irs easy form The diamond falls from the ring and is never found. Irs easy form The loss of the diamond is a casualty. Irs easy form Losses from Ponzi-type investment schemes. Irs easy form   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Irs easy form R. Irs easy form B. Irs easy form 735 (available at www. Irs easy form irs. Irs easy form gov/irb/2009-14_IRB/ar07. Irs easy form html). Irs easy form Revenue Procedure 2009-20, 2009-14 I. Irs easy form R. Irs easy form B. Irs easy form 749 (available at www. Irs easy form irs. Irs easy form gov/irb/2009-14_IRB/ar11. Irs easy form html). Irs easy form Revenue Procedure 2011-58, 2011-50 I. Irs easy form R. Irs easy form B. Irs easy form 849 (available at www. Irs easy form irs. Irs easy form gov/irb/2011-50_IRB/ar11. Irs easy form html). Irs easy form If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Irs easy form Skip lines 19 to 27. Irs easy form Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Irs easy form You do not need to complete Appendix A. Irs easy form For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Irs easy form   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Irs easy form Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Irs easy form If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Irs easy form As a casualty loss. Irs easy form As an ordinary loss. Irs easy form As a nonbusiness bad debt. Irs easy form Casualty loss or ordinary loss. Irs easy form   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. Irs easy form The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Irs easy form If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. Irs easy form However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Irs easy form Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Irs easy form   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Irs easy form The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Irs easy form Your loss is subject to the 2%-of-adjusted-gross-income limit. Irs easy form You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Irs easy form Nonbusiness bad debt. Irs easy form   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. Irs easy form How to report. Irs easy form   The kind of deduction you choose for your loss on deposits determines how you report your loss. Irs easy form If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Irs easy form Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Irs easy form Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Irs easy form More information. Irs easy form   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Irs easy form Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Irs easy form You also must be able to support the amount you take as a deduction. Irs easy form Casualty loss proof. Irs easy form   For a casualty loss, your records should show all the following. Irs easy form The type of casualty (car accident, fire, storm, etc. Irs easy form ) and when it occurred. Irs easy form That the loss was a direct result of the casualty. Irs easy form That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Irs easy form Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Irs easy form Theft loss proof. Irs easy form   For a theft loss, your records should show all the following. Irs easy form When you discovered that your property was missing. Irs easy form That your property was stolen. Irs easy form That you were the owner of the property. Irs easy form Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Irs easy form It is important that you have records that will prove your deduction. Irs easy form If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Irs easy form Figuring a Loss Figure the amount of your loss using the following steps. Irs easy form Determine your adjusted basis in the property before the casualty or theft. Irs easy form Determine the decrease in fair market value of the property as a result of the casualty or theft. Irs easy form From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Irs easy form For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. Irs easy form Gain from reimbursement. Irs easy form   If your reimbursement is more than your adjusted basis in the property, you have a gain. Irs easy form This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Irs easy form If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Irs easy form See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Irs easy form Leased property. Irs easy form   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. Irs easy form Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. Irs easy form The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. Irs easy form FMV of stolen property. Irs easy form   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Irs easy form Example. Irs easy form Several years ago, you purchased silver dollars at face value for $150. Irs easy form This is your adjusted basis in the property. Irs easy form Your silver dollars were stolen this year. Irs easy form The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Irs easy form Your theft loss is $150. Irs easy form Recovered stolen property. Irs easy form   Recovered stolen property is your property that was stolen and later returned to you. Irs easy form If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Irs easy form Use this amount to refigure your total loss for the year in which the loss was deducted. Irs easy form   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Irs easy form But report the difference only up to the amount of the loss that reduced your tax. Irs easy form For more information on the amount to report, see Recoveries in chapter 12. Irs easy form Figuring Decrease in FMV— Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Irs easy form However, other measures can also be used to establish certain decreases. Irs easy form Appraisal. Irs easy form   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Irs easy form The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Irs easy form This information is needed to limit any deduction to the actual loss resulting from damage to the property. Irs easy form   Several factors are important in evaluating the accuracy of an appraisal, including the following. Irs easy form The appraiser's familiarity with your property before and after the casualty or theft. Irs easy form The appraiser's knowledge of sales of comparable property in the area. Irs easy form The appraiser's knowledge of conditions in the area of the casualty. Irs easy form The appraiser's method of appraisal. Irs easy form    You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. Irs easy form For more information on disasters, see Disaster Area Losses, in Pub. Irs easy form 547. Irs easy form Cost of cleaning up or making repairs. Irs easy form   The cost of repairing damaged property is not part of a casualty loss. Irs easy form Neither is the cost of cleaning up after a casualty. Irs easy form But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Irs easy form The repairs are actually made. Irs easy form The repairs are necessary to bring the property back to its condition before the casualty. Irs easy form The amount spent for repairs is not excessive. Irs easy form The repairs take care of the damage only. Irs easy form The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Irs easy form Landscaping. Irs easy form   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Irs easy form You may be able to measure your loss by what you spend on the following. Irs easy form Removing destroyed or damaged trees and shrubs minus any salvage you receive. Irs easy form Pruning and other measures taken to preserve damaged trees and shrubs. Irs easy form Replanting necessary to restore the property to its approximate value before the casualty. Irs easy form Car value. Irs easy form    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Irs easy form You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Irs easy form The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. Irs easy form If your car is not listed in the books, determine its value from other sources. Irs easy form A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Irs easy form Figuring Decrease in FMV— Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. Irs easy form Cost of protection. Irs easy form   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Irs easy form The amount you spend on insurance or to board up your house against a storm is not part of your loss. Irs easy form   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. Irs easy form An example would be the cost of a dike to prevent flooding. Irs easy form Exception. Irs easy form   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments. Irs easy form See Disaster Area Losses in Publication 547. Irs easy form Incidental expenses. Irs easy form   Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Irs easy form Replacement cost. Irs easy form   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Irs easy form Sentimental value. Irs easy form   Do not consider sentimental value when determining your loss. Irs easy form If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. Irs easy form Decline in market value of property in or near casualty area. Irs easy form   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. Irs easy form You have a loss only for actual casualty damage to your property. Irs easy form However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Irs easy form Costs of photographs and appraisals. Irs easy form    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Irs easy form Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Irs easy form    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Irs easy form See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Irs easy form   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. Irs easy form You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Irs easy form For information about miscellaneous deductions, see chapter 28. Irs easy form Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Irs easy form For more information, see chapter 13. Irs easy form Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Irs easy form You do not have a casualty or theft loss to the extent you are reimbursed. Irs easy form If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Irs easy form You must reduce your loss even if you do not receive payment until a later tax year. Irs easy form See Reimbursement Received After Deducting Loss , later. Irs easy form Failure to file a claim for reimbursement. Irs easy form   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Irs easy form Otherwise, you cannot deduct this loss as a casualty or theft loss. Irs easy form However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Irs easy form Example. Irs easy form You have a car insurance policy with a $1,000 deductible. Irs easy form Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Irs easy form This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Irs easy form Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Irs easy form Other types of reimbursements are discussed next. Irs easy form Also see the Instructions for Form 4684. Irs easy form Employer's emergency disaster fund. Irs easy form   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Irs easy form Take into consideration only the amount you used to replace your destroyed or damaged property. Irs easy form Example. Irs easy form Your home was extensively damaged by a tornado. Irs easy form Your loss after reimbursement from your insurance company was $10,000. Irs easy form Your employer set up a disaster relief fund for its employees. Irs easy form Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Irs easy form You received $4,000 from the fund and spent the entire amount on repairs to your home. Irs easy form In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Irs easy form Your casualty loss before applying the deduction limits discussed later is $6,000. Irs easy form Cash gifts. Irs easy form   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. Irs easy form This applies even if you use the money to pay for repairs to property damaged in the disaster. Irs easy form Example. Irs easy form Your home was damaged by a hurricane. Irs easy form Relatives and neighbors made cash gifts to you that were excludable from your income. Irs easy form You used part of the cash gifts to pay for repairs to your home. Irs easy form There were no limits or restrictions on how you could use the cash gifts. Irs easy form Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Irs easy form Insurance payments for living expenses. Irs easy form   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Irs easy form You lose the use of your main home because of a casualty. Irs easy form Government authorities do not allow you access to your main home because of a casualty or threat of one. Irs easy form Inclusion in income. Irs easy form   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Irs easy form Report this amount on Form 1040, line 21. Irs easy form However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Irs easy form See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Irs easy form   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Irs easy form Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Irs easy form Generally, these expenses include the amounts you pay for the following. Irs easy form Rent for suitable housing. Irs easy form Transportation. Irs easy form Food. Irs easy form Utilities. Irs easy form Miscellaneous services. Irs easy form Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. Irs easy form Example. Irs easy form As a result of a fire, you vacated your apartment for a month and moved to a motel. Irs easy form You normally pay $525 a month for rent. Irs easy form None was charged for the month the apartment was vacated. Irs easy form Your motel rent for this month was $1,200. Irs easy form You normally pay $200 a month for food. Irs easy form Your food expenses for the month you lived in the motel were $400. Irs easy form You received $1,100 from your insurance company to cover your living expenses. Irs easy form You determine the payment you must include in income as follows. Irs easy form 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Irs easy form   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. Irs easy form Example. Irs easy form Your main home was destroyed by a tornado in August 2011. Irs easy form You regained use of your home in November 2012. Irs easy form The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Irs easy form You include this amount in income on your 2012 Form 1040. Irs easy form If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. Irs easy form Disaster relief. Irs easy form   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss unless they are replacements for lost or destroyed property. Irs easy form Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Irs easy form For more information, see Disaster Area Losses in Publication 547. Irs easy form Disaster unemployment assistance payments are unemployment benefits that are taxable. Irs easy form Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Irs easy form Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Irs easy form See Disaster Area Losses in Publication 547. Irs easy form Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Irs easy form This section explains the adjustment you may have to make. Irs easy form Actual reimbursement less than expected. Irs easy form   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Irs easy form Example. Irs easy form Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Irs easy form The accident was due to the negligence of the other driver. Irs easy form At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Irs easy form You did not have a deductible loss in 2012. Irs easy form In January 2013, the court awarded you a judgment of $2,000. Irs easy form However, in July it became apparent that you will be unable to collect any amount from the other driver. Irs easy form You can deduct the loss in 2013 subject to the limits discussed later. Irs easy form Actual reimbursement more than expected. Irs easy form   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Irs easy form However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Irs easy form You do not refigure your tax for the year you claimed the deduction. Irs easy form For more information, see Recoveries in chapter 12. Irs easy form If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Irs easy form If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Irs easy form Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Irs easy form See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Irs easy form Actual reimbursement same as expected. Irs easy form   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Irs easy form Example. Irs easy form In December 2013, you had a collision while driving your personal car. Irs easy form Repairs to the car cost $950. Irs easy form You had $100 deductible collision insurance. Irs easy form Your insurance company agreed to reimburse you for the rest of the damage. Irs easy form Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Irs easy form Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Irs easy form When you receive the $850 from the insurance company in 2014, do not report it as income. Irs easy form Single Casualty on Multiple Properties Personal property. Irs easy form   Personal property is any property that is not real property. Irs easy form If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. Irs easy form Then combine these separate losses to figure the total loss from that casualty or theft. Irs easy form Example. Irs easy form A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Irs easy form You did not have fire insurance to cover your loss. Irs easy form (This was the only casualty or theft you had during the year. Irs easy form ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Irs easy form The rug cost $3,000 and had an FMV of $2,500 just before the fire. Irs easy form You bought the table at an auction for $100 before discovering it was an antique. Irs easy form It had been appraised at $900 before the fire. Irs easy form You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Irs easy form   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Irs easy form Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Irs easy form Example. Irs easy form You bought your home a few years ago. Irs easy form You paid $160,000 ($20,000 for the land and $140,000 for the house). Irs easy form You also spent $2,000 for landscaping. Irs easy form This year a fire destroyed your home. Irs easy form The fire also damaged the shrubbery and trees in your yard. Irs easy form The fire was your only casualty or theft loss this year. Irs easy form Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Irs easy form (The loss to your household furnishings is not shown in this example. Irs easy form It would be figured separately on each item, as explained earlier under Personal property . Irs easy form ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Irs easy form You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Irs easy form If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Irs easy form You must reduce each casualty or theft loss by $100 ($100 rule). Irs easy form You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Irs easy form You make these reductions on Form 4684. Irs easy form These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Irs easy form For more detailed explanations and examples, see Publication 547. Irs easy form Table 25-1. Irs easy form How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Irs easy form Apply this rule after you have figured the amount of your loss. Irs easy form You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Irs easy form Apply this rule after you reduce each loss by $100 (the $100 rule). Irs easy form Single Event Apply this rule only once, even if many pieces of property are affected. Irs easy form Apply this rule only once, even if many pieces of property are affected. Irs easy form More Than One Event Apply to the loss from each event. Irs easy form Apply to the total of all your losses from all events. Irs easy form More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Irs easy form Apply separately to each person. Irs easy form Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Irs easy form Apply as if you were one person. Irs easy form Filing Separately Apply separately to each spouse. Irs easy form Apply separately to each spouse. Irs easy form More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Irs easy form Apply separately to each owner of jointly owned property. Irs easy form Property used partly for business and partly for personal purposes. Irs easy form   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. Irs easy form You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Irs easy form $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Irs easy form This reduction applies to each total casualty or theft loss. Irs easy form It does not matter how many pieces of property are involved in an event. Irs easy form Only a single $100 reduction applies. Irs easy form Example. Irs easy form A hailstorm damages your home and your car. Irs easy form Determine the amount of loss, as discussed earlier, for each of these items. Irs easy form Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Irs easy form Single event. Irs easy form   Generally, events closely related in origin cause a single casualty. Irs easy form It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. Irs easy form 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Irs easy form Apply this rule after you reduce each loss by $100. Irs easy form For more information, see the Form 4684 instructions. Irs easy form If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Irs easy form Example 1. Irs easy form In June, you discovered that your house had been burglarized. Irs easy form Your loss after insurance reimbursement was $2,000. Irs easy form Your adjusted gross income for the year you discovered the theft is $29,500. Irs easy form You first apply the $100 rule and then the 10% rule. Irs easy form Figure your theft loss deduction as follows. Irs easy form 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Irs easy form Example 2. Irs easy form In March, you had a car accident that totally destroyed your car. Irs easy form You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Irs easy form Your loss on the car was $1,800. Irs easy form In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Irs easy form Your loss on the basement items after reimbursement was $2,100. Irs easy form Your adjusted gross income for the year that the accident and fire occurred is $25,000. Irs easy form You figure your casualty loss deduction as follows. Irs easy form       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Irs easy form   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Irs easy form Do this after you have reduced each loss by any reimbursements and by $100, but before you have reduced the losses by 10% of your adjusted gross income. Irs easy form Casualty or theft gains do not include gains you choose to postpone. Irs easy form See Publication 547 for information on the postponement of gain. Irs easy form Losses more than gains. Irs easy form   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. Irs easy form The rest, if any, is your deductible loss from personal-use property. Irs easy form Gains more than losses. Irs easy form   If your recognized gains are more than your losses, subtract your losses from your gains. Irs easy form The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Irs easy form The 10% rule does not apply to your gains. Irs easy form When To Report Gains and Losses Gains. Irs easy form   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Irs easy form You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Irs easy form If you have a loss, see Table 25-2 . Irs easy form Table 25-2. Irs easy form When To Deduct a Loss IF you have a loss. Irs easy form . Irs easy form . Irs easy form THEN deduct it in the year. Irs easy form . Irs easy form . Irs easy form from a casualty, the loss occurred. Irs easy form in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Irs easy form from a theft, the theft was discovered. Irs easy form on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Irs easy form • bad debt, deposits are totally worthless. Irs easy form Losses. Irs easy form   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Irs easy form This is true even if you do not repair or replace the damaged property until a later year. Irs easy form   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Irs easy form   If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Irs easy form Loss on deposits. Irs easy form   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Irs easy form Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Irs easy form However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Irs easy form The year the disaster occurred. Irs easy form The year immediately preceding the year the disaster occurred. Irs easy form Gains. Irs easy form    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Irs easy form For those special rules, see Publication 547. Irs easy form Postponed tax deadlines. Irs easy form   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Irs easy form The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Irs easy form   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Irs easy form Go to www. Irs easy form irs. Irs easy form gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Irs easy form Who is eligible. Irs easy form   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Irs easy form Any individual whose main home is located in a covered disaster area (defined next). Irs easy form Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Irs easy form Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Irs easy form Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Irs easy form The main home or principal place of business does not have to be located in the covered disaster area. Irs easy form Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Irs easy form The spouse on a joint return with a taxpayer who is eligible for postponements. Irs easy form Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Irs easy form Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Irs easy form Any other person determined by the IRS to be affected by a federally declared disaster. Irs easy form Covered disaster area. Irs easy form   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Irs easy form Abatement of interest and penalties. Irs easy form   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Irs easy form More information. Irs easy form   For more information, see Disaster Area Losses in Publication 547. Irs easy form How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Irs easy form If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Irs easy form Combine the gains and losses on one Form 4684. Irs easy form Follow the form instructions as to which lines to fill out. Irs easy form In addition, you must use the appropriate schedule to report a gain or loss. Irs easy form The schedule you use depends on whether you have a gain or loss. Irs easy form If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Irs easy form   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive, and by any deductible loss. Irs easy form Amounts you spend to restore your property after a casualty increase your adjusted basis. Irs easy form See Adjusted Basis in chapter 13 for more information. Irs easy form Net operating loss (NOL). Irs easy form    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Irs easy form You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Irs easy form Or, you can use it to lower your tax in a later year. Irs easy form You do not have to be in business to have an NOL from a casualty or theft loss. Irs easy form For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 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