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Military Onesource Turbotax

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Military Onesource Turbotax

Military onesource turbotax 3. Military onesource turbotax   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. Military onesource turbotax Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. Military onesource turbotax In addition, you will contribute matching or nonelective contributions. Military onesource turbotax SIMPLE plans can only be maintained on a calendar-year basis. Military onesource turbotax A SIMPLE plan can be set up in either of the following ways. Military onesource turbotax Using SIMPLE IRAs (SIMPLE IRA plan). Military onesource turbotax As part of a 401(k) plan (SIMPLE 401(k) plan). Military onesource turbotax Many financial institutions will help you set up a SIMPLE plan. Military onesource turbotax SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. Military onesource turbotax Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. Military onesource turbotax For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. Military onesource turbotax Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. Military onesource turbotax You meet the employee limit. Military onesource turbotax You do not maintain another qualified plan unless the other plan is for collective bargaining employees. Military onesource turbotax Employee limit. Military onesource turbotax   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. Military onesource turbotax Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. Military onesource turbotax Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). Military onesource turbotax   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. Military onesource turbotax Grace period for employers who cease to meet the 100-employee limit. Military onesource turbotax   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. Military onesource turbotax   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. Military onesource turbotax Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. Military onesource turbotax Coverage under the plan has not significantly changed during the grace period. Military onesource turbotax The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. Military onesource turbotax    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. Military onesource turbotax Other qualified plan. Military onesource turbotax   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. Military onesource turbotax Exception. Military onesource turbotax   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. Military onesource turbotax Who Can Participate in a SIMPLE IRA Plan? Eligible employee. Military onesource turbotax   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. Military onesource turbotax The term “employee” includes a self-employed individual who received earned income. Military onesource turbotax   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. Military onesource turbotax For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. Military onesource turbotax However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. Military onesource turbotax Excludable employees. Military onesource turbotax   The following employees do not need to be covered under a SIMPLE IRA plan. Military onesource turbotax Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Military onesource turbotax Nonresident alien employees who have received no U. Military onesource turbotax S. Military onesource turbotax source wages, salaries, or other personal services compensation from you. Military onesource turbotax Compensation. Military onesource turbotax   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Military onesource turbotax Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. Military onesource turbotax If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. Military onesource turbotax How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. Military onesource turbotax Each form is a model savings incentive match plan for employees (SIMPLE) plan document. Military onesource turbotax Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. Military onesource turbotax Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. Military onesource turbotax Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. Military onesource turbotax The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. Military onesource turbotax Keep the original form. Military onesource turbotax Do not file it with the IRS. Military onesource turbotax Other uses of the forms. Military onesource turbotax   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. Military onesource turbotax Meeting employer notification requirements for the SIMPLE IRA plan. Military onesource turbotax Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. Military onesource turbotax Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. Military onesource turbotax Deadline for setting up a SIMPLE IRA plan. Military onesource turbotax   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. Military onesource turbotax This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. Military onesource turbotax If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. Military onesource turbotax A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. Military onesource turbotax Setting up a SIMPLE IRA. Military onesource turbotax   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. Military onesource turbotax A SIMPLE IRA must be set up for each eligible employee. Military onesource turbotax Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. Military onesource turbotax   A SIMPLE IRA cannot be a Roth IRA. Military onesource turbotax Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Military onesource turbotax Deadline for setting up a SIMPLE IRA. Military onesource turbotax   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. Military onesource turbotax See Time limits for contributing funds , later, under Contribution Limits. Military onesource turbotax Credit for startup costs. Military onesource turbotax   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. Military onesource turbotax For more information, see Credit for startup costs under Reminders, earlier. Military onesource turbotax Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. Military onesource turbotax The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. Military onesource turbotax Your decision to make either matching contributions or nonelective contributions (discussed later). Military onesource turbotax A summary description provided by the financial institution. Military onesource turbotax Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. Military onesource turbotax Election period. Military onesource turbotax   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). Military onesource turbotax However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. Military onesource turbotax   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. Military onesource turbotax For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. Military onesource turbotax Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. Military onesource turbotax Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. Military onesource turbotax You, as the employer, must make either matching contributions or nonelective contributions, defined later. Military onesource turbotax No other contributions can be made to the SIMPLE IRA plan. Military onesource turbotax These contributions, which you can deduct, must be made timely. Military onesource turbotax See Time limits for contributing funds , later. Military onesource turbotax Salary reduction contributions. Military onesource turbotax   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. Military onesource turbotax These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. Military onesource turbotax You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. Military onesource turbotax   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. Military onesource turbotax Catch-up contributions. Military onesource turbotax   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Military onesource turbotax The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. Military onesource turbotax Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. Military onesource turbotax However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Military onesource turbotax The catch-up contribution limit. Military onesource turbotax The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. Military onesource turbotax Employer matching contributions. Military onesource turbotax   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. Military onesource turbotax This requirement does not apply if you make nonelective contributions as discussed later. Military onesource turbotax Example. Military onesource turbotax In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. Military onesource turbotax Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Military onesource turbotax You make 3% matching contributions. Military onesource turbotax The total contribution you make for John is $2,000, figured as follows. Military onesource turbotax Salary reduction contributions ($25,000 × . Military onesource turbotax 05) $1,250 Employer matching contribution ($25,000 × . Military onesource turbotax 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. Military onesource turbotax Salary reduction contributions ($40,000 × . Military onesource turbotax 10) $4,000 Employer matching contribution ($40,000 × . Military onesource turbotax 03) 1,200 Total contributions $5,200 Lower percentage. Military onesource turbotax   If you choose a matching contribution less than 3%, the percentage must be at least 1%. Military onesource turbotax You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Military onesource turbotax You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. Military onesource turbotax Nonelective contributions. Military onesource turbotax   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. Military onesource turbotax If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. Military onesource turbotax Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). Military onesource turbotax   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Military onesource turbotax Example 1. Military onesource turbotax In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. Military onesource turbotax Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Military onesource turbotax You make a 2% nonelective contribution. Military onesource turbotax Both of you are under age 50. Military onesource turbotax The total contribution you make for Jane is $4,320, figured as follows. Military onesource turbotax Salary reduction contributions ($36,000 × . Military onesource turbotax 10) $3,600 2% nonelective contributions ($36,000 × . Military onesource turbotax 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. Military onesource turbotax Salary reduction contributions ($50,000 × . Military onesource turbotax 10) $5,000 2% nonelective contributions ($50,000 × . Military onesource turbotax 02) 1,000 Total contributions $6,000 Example 2. Military onesource turbotax Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. Military onesource turbotax Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . Military onesource turbotax 02) 1,500 Total contributions $13,500 Time limits for contributing funds. Military onesource turbotax   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. Military onesource turbotax You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. Military onesource turbotax Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. Military onesource turbotax When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. Military onesource turbotax You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. Military onesource turbotax Example 1. Military onesource turbotax Your tax year is the fiscal year ending June 30. Military onesource turbotax Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. Military onesource turbotax Example 2. Military onesource turbotax You are a sole proprietor whose tax year is the calendar year. Military onesource turbotax Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. Military onesource turbotax Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Military onesource turbotax For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. Military onesource turbotax Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Military onesource turbotax (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. Military onesource turbotax ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. Military onesource turbotax SIMPLE IRA plan contributions are not subject to federal income tax withholding. Military onesource turbotax However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. Military onesource turbotax Matching and nonelective contributions are not subject to these taxes. Military onesource turbotax Reporting on Form W-2. Military onesource turbotax   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. Military onesource turbotax You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Military onesource turbotax You must also include them in box 12. Military onesource turbotax Mark the “Retirement plan” checkbox in box 13. Military onesource turbotax For more information, see the Form W-2 instructions. Military onesource turbotax Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. Military onesource turbotax Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. Military onesource turbotax However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. Military onesource turbotax Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Military onesource turbotax Early withdrawals generally are subject to a 10% additional tax. Military onesource turbotax However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. Military onesource turbotax More information. Military onesource turbotax   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. Military onesource turbotax More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. Military onesource turbotax SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. Military onesource turbotax A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. Military onesource turbotax However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. Military onesource turbotax Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. Military onesource turbotax If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. Military onesource turbotax See Catch-up contributions , earlier under Contribution Limits. Military onesource turbotax You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. Military onesource turbotax No other contributions can be made to the trust. Military onesource turbotax No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. Military onesource turbotax The employee's rights to any contributions are nonforfeitable. Military onesource turbotax No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). Military onesource turbotax Compensation is defined earlier in this chapter. Military onesource turbotax Employee notification. Military onesource turbotax   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. Military onesource turbotax See Notification Requirement in this chapter. Military onesource turbotax Credit for startup costs. Military onesource turbotax   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. Military onesource turbotax For more information, see Credit for startup costs under Reminders, earlier. Military onesource turbotax Note on Forms. Military onesource turbotax   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. Military onesource turbotax To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. Military onesource turbotax Prev  Up  Next   Home   More Online Publications
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Understanding your CP12M Notice

We made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Review the notice, and compare our changes to the information on your tax return.
  • If you agree with the changes we made, do nothing; you should receive a refund check in 4-6 weeks, as long as you don't owe other tax or debts we're required to collect.
  • If you don't agree, call 1-800-829-8374 to review your account or contact us by mail. Include any correspondence or documentation.

You may want to...

  • Download copies of the following materials (if they weren't included with your notice):
  • Call 1-800-TAX-FORM (1-800-829-3676) to have forms and publications mailed to you.

Answers to Common Questions

What is the Making Work Pay Credit?
The Making Work Pay Credit is a refundable tax credit that can go up to $400 for individuals and to $800 for married taxpayers.

How can taxpayers get this credit?
Even if your federal income tax withholding was reduced because of the credit, you must complete a Schedule M, Making Work Pay, and claim the credit on your income tax return to benefit from it.

What happens if I don't receive a paycheck from an employer?
You can claim the credit on your 2010 income tax return by filing a Schedule M, Making Work Pay.

What is the Government Retiree Credit?
Taxpayers can take a credit of $250 ($500 if married and both spouses qualify) if you or your spouse received a pension or annuity payment in 2010 for service performed for the U.S. Government or any U.S. state or local government, and the service was not covered by social security. But you cannot take the credit if you and your spouse both received a $250 economic recovery payment.


Tips for next year

  • In 2011, when you file your taxes for tax year 2010, complete Schedule M to see if you are eligible for the Making Work Pay and Government Retiree Credits.
  • Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.
Page Last Reviewed or Updated: 19-Feb-2014

The Military Onesource Turbotax

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