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