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1040nr online 11. 1040nr online   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. 1040nr online Nondeductible losses. 1040nr online Family pet. 1040nr online Progressive deterioration. 1040nr online Decline in market value of stock. 1040nr online Mislaid or lost property. 1040nr online Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. 1040nr online Related persons. 1040nr online Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. 1040nr online Covered disaster area. 1040nr online Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. 1040nr online A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. 1040nr online A theft occurs when property is stolen. 1040nr online A condemnation occurs when private property is legally taken for public use without the owner's consent. 1040nr online A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. 1040nr online You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. 1040nr online An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. 1040nr online If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. 1040nr online For more information, see Postponing Gain , later. 1040nr online Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. 1040nr online Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. 1040nr online If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. 1040nr online Casualty. 1040nr online   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. 1040nr online A sudden event is one that is swift, not gradual or progressive. 1040nr online An unexpected event is one that is ordinarily unanticipated and unintended. 1040nr online 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. 1040nr online Deductible losses. 1040nr online   Deductible casualty losses can result from a number of different causes, including the following. 1040nr online Airplane crashes. 1040nr online Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. 1040nr online Earthquakes. 1040nr online Fires (but see Nondeductible losses next for exceptions). 1040nr online Floods. 1040nr online Freezing. 1040nr online Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses, in Publication 547. 1040nr online Lightning. 1040nr online Storms, including hurricanes and tornadoes. 1040nr online Terrorist attacks. 1040nr online Vandalism. 1040nr online Volcanic eruptions. 1040nr online Nondeductible losses. 1040nr online   A casualty loss is not deductible if the damage or destruction is caused by the following. 1040nr online Accidentally breaking articles such as glassware or china under normal conditions. 1040nr online A family pet (explained below). 1040nr online A fire if you willfully set it, or pay someone else to set it. 1040nr online A car, truck, or farm equipment accident if your willful negligence or willful act caused it. 1040nr online The same is true if the willful act or willful negligence of someone acting for you caused the accident. 1040nr online Progressive deterioration (explained below). 1040nr online Family pet. 1040nr online   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. 1040nr online Example. 1040nr online You keep your horse in your yard. 1040nr online The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. 1040nr online Some of the trees were completely girdled and died. 1040nr online Because the damage was not unexpected or unusual, the loss is not deductible. 1040nr online Progressive deterioration. 1040nr online   Loss of property due to progressive deterioration is not deductible as a casualty loss. 1040nr online This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. 1040nr online Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. 1040nr online However, weather-related conditions or disease may cause another type of involuntary conversion. 1040nr online See Other Involuntary Conversions , later. 1040nr online Theft. 1040nr online   A theft is the taking and removing of money or property with the intent to deprive the owner of it. 1040nr online 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. 1040nr online You do not need to show a conviction for theft. 1040nr online   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. 1040nr online The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. 1040nr online Decline in market value of stock. 1040nr online   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. 1040nr online 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. 1040nr online You report a capital loss on Schedule D (Form 1040). 1040nr online For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. 1040nr online Mislaid or lost property. 1040nr online   The simple disappearance of money or property is not a theft. 1040nr online 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. 1040nr online Example. 1040nr online A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. 1040nr online The diamond falls from the ring and is never found. 1040nr online The loss of the diamond is a casualty. 1040nr online Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. 1040nr online The following is a discussion of some losses you can deduct and some you cannot deduct. 1040nr online Livestock or produce bought for resale. 1040nr online   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. 1040nr online If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. 1040nr online You cannot take a separate deduction. 1040nr online Livestock, plants, produce, and crops raised for sale. 1040nr online   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. 1040nr online You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. 1040nr online   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. 1040nr online You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. 1040nr online The uniform capitalization rules are discussed in chapter 6. 1040nr online   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. 1040nr online You get the deduction by omitting the item from your inventory at the close of your tax year. 1040nr online You cannot take a separate casualty or theft deduction. 1040nr online Income loss. 1040nr online   A loss of future income is not deductible. 1040nr online Example. 1040nr online A severe flood destroyed your crops. 1040nr online Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . 1040nr online You estimate that the crop loss will reduce your farm income by $25,000. 1040nr online This loss of future income is also not deductible. 1040nr online Loss of timber. 1040nr online   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. 1040nr online If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. 1040nr online See Postponing Gain , later. 1040nr online Property used in farming. 1040nr online   Casualty and theft losses of property used in your farm business usually result in deductible losses. 1040nr online If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. 1040nr online See How To Figure a Loss , later. 1040nr online Raised draft, breeding, dairy, or sporting animals. 1040nr online   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. 1040nr online However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. 1040nr online You use inventories to determine your income and you included the animals in your inventory. 1040nr online You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. 1040nr online When you include livestock in inventory, its last inventory value is its basis. 1040nr online When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. 1040nr online You cannot take a separate deduction. 1040nr online How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. 1040nr online Farm property. 1040nr online   Farm property is the property you use in your farming business. 1040nr online If your farm property was completely destroyed or stolen, 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      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. 1040nr online   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. 1040nr online However, the deduction limits, discussed later, do not apply to farm property. 1040nr online Personal-use property. 1040nr online   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. 1040nr online The following items are examples of personal-use property: Your main home. 1040nr online Furniture and electronics used in your main home and not used in a home office or for business purposes. 1040nr online Clothing and jewelry. 1040nr online An automobile used for nonbusiness purposes. 1040nr online You figure the casualty or theft loss on this property by taking the following steps. 1040nr online Determine your adjusted basis in the property before the casualty or theft. 1040nr online Determine the decrease in fair market value of the property as a result of the casualty or theft. 1040nr online From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. 1040nr online You must apply the deduction limits, discussed later, to determine your deductible loss. 1040nr online    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. 1040nr online It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. 1040nr online Adjusted basis. 1040nr online   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. 1040nr online For more information about adjusted basis, see chapter 6. 1040nr online Decrease in fair market value (FMV). 1040nr online   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. 1040nr online FMV is defined in chapter 10 under Payments Received or Considered Received . 1040nr online Appraisal. 1040nr online   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. 1040nr online But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. 1040nr online   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. 1040nr online The appraiser must recognize the effects of any general market decline that may occur along with the casualty. 1040nr online This information is needed to limit any deduction to the actual loss resulting from damage to the property. 1040nr online Cost of cleaning up or making repairs. 1040nr online   The cost of cleaning up after a casualty is not part of a casualty loss. 1040nr online Neither is the cost of repairing damaged property after a casualty. 1040nr online But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. 1040nr online The repairs are actually made. 1040nr online The repairs are necessary to bring the property back to its condition before the casualty. 1040nr online The amount spent for repairs is not excessive. 1040nr online The repairs fix the damage only. 1040nr online The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. 1040nr online Related expenses. 1040nr online   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. 1040nr online However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. 1040nr online Separate computations for more than one item of property. 1040nr online   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. 1040nr online Then combine the losses to determine your total loss. 1040nr online    There is an exception to this rule for personal-use real property. 1040nr online See Exception for personal-use real property, later. 1040nr online Example. 1040nr online A fire on your farm damaged a tractor and the barn in which it was stored. 1040nr online The tractor had an adjusted basis of $3,300. 1040nr online Its FMV was $28,000 just before the fire and $10,000 immediately afterward. 1040nr online The barn had an adjusted basis of $28,000. 1040nr online Its FMV was $55,000 just before the fire and $25,000 immediately afterward. 1040nr online You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. 1040nr online Figure your deductible casualty loss separately for the two items of property. 1040nr online     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. 1040nr online   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. 1040nr online Figure the loss using the smaller of the following. 1040nr online The decrease in FMV of the entire property. 1040nr online The adjusted basis of the entire property. 1040nr online Example. 1040nr online You bought a farm in 1990 for $160,000. 1040nr online The adjusted basis of the residential part is now $128,000. 1040nr online In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. 1040nr online The adjusted basis of the residential part includes the $7,500. 1040nr online The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. 1040nr online The trees were not covered by insurance. 1040nr online 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. 1040nr online   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. 1040nr online You do not have a casualty or theft loss to the extent you are reimbursed. 1040nr online   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. 1040nr online You must reduce your loss even if you do not receive payment until a later tax year. 1040nr online    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. 1040nr online You may have to include a portion of these payments in your income. 1040nr online See Insurance payments for living expenses in Publication 547 for details. 1040nr online Disaster relief. 1040nr online   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. 1040nr online Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. 1040nr online   Generally, disaster relief grants received under the Robert T. 1040nr online Stafford Disaster Relief and Emergency Assistance Act are not included in your income. 1040nr online See Federal disaster relief grants , later, under Disaster Area Losses . 1040nr online   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. 1040nr online See Qualified disaster relief payments , later, under Disaster Area Losses . 1040nr online Reimbursement received after deducting loss. 1040nr online   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. 1040nr online Actual reimbursement less than expected. 1040nr online   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. 1040nr online Actual reimbursement more than expected. 1040nr online   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. 1040nr online However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. 1040nr online Do not refigure your tax for the year you claimed the deduction. 1040nr online See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. 1040nr online 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. 1040nr online See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. 1040nr online Actual reimbursement same as expected. 1040nr online   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. 1040nr online Lump-sum reimbursement. 1040nr online   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. 1040nr online Figure the gain or loss separately for each asset that has a separate basis. 1040nr online Adjustments to basis. 1040nr online   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. 1040nr online The result is your adjusted basis in the property. 1040nr online Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. 1040nr online See Adjusted Basis in chapter 6 for more information. 1040nr online Example. 1040nr online You built a new silo for $25,000. 1040nr online This is the basis in your silo because that is the total cost you incurred to build it. 1040nr online During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. 1040nr online In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. 1040nr online Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). 1040nr online Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). 1040nr online There are two limits on the deduction for casualty or theft loss of personal-use property. 1040nr online You figure these limits on Form 4684. 1040nr online $100 rule. 1040nr online   You must reduce each casualty or theft loss on personal-use property by $100. 1040nr online This rule applies after you have subtracted any reimbursement. 1040nr online 10% rule. 1040nr online   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. 1040nr online Apply this rule after you reduce each loss by $100. 1040nr online Adjusted gross income is on line 38 of Form 1040. 1040nr online Example. 1040nr online In June, you discovered that your house had been burglarized. 1040nr online Your loss after insurance reimbursement was $2,000. 1040nr online Your adjusted gross income for the year you discovered the burglary is $57,000. 1040nr online Figure your theft loss deduction as follows: 1. 1040nr online Loss after insurance $2,000 2. 1040nr online Subtract $100 100 3. 1040nr online Loss after $100 rule $1,900 4. 1040nr online Subtract 10% (. 1040nr online 10) × $57,000 AGI $5,700 5. 1040nr online 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 ($5,700). 1040nr online    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. 1040nr online See 10% Rule in Publication 547. 1040nr online When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. 1040nr online You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. 1040nr online However, losses in federally declared disaster areas are subject to different rules. 1040nr online See Disaster Area Losses , later, for an exception. 1040nr online If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. 1040nr online Leased property. 1040nr online   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. 1040nr online This is true even if the loss occurred or the liability was paid in a different year. 1040nr online You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. 1040nr online Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. 1040nr online Example. 1040nr online Robert leased a tractor from First Implement, Inc. 1040nr online , for use in his farm business. 1040nr online The tractor was destroyed by a tornado in June 2012. 1040nr online The loss was not insured. 1040nr online First Implement billed Robert for the fair market value of the tractor on the date of the loss. 1040nr online Robert disagreed with the bill and refused to pay it. 1040nr online First Implement later filed suit in court against Robert. 1040nr online In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. 1040nr online Robert paid $20,000 in June 2013. 1040nr online He can claim the $20,000 as a loss on his 2013 tax return. 1040nr online Net operating loss (NOL). 1040nr online   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. 1040nr online An NOL can be carried back or carried forward and deducted from income in other years. 1040nr online See Publication 536 for more information on NOLs. 1040nr online Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. 1040nr online You must have records to support the amount you claim for the loss. 1040nr online Casualty loss proof. 1040nr online   For a casualty loss, your records should show all the following information. 1040nr online The type of casualty (car accident, fire, storm, etc. 1040nr online ) and when it occurred. 1040nr online That the loss was a direct result of the casualty. 1040nr online 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. 1040nr online Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. 1040nr online Theft loss proof. 1040nr online   For a theft loss, your records should show all the following information. 1040nr online When you discovered your property was missing. 1040nr online That your property was stolen. 1040nr online That you were the owner of the property. 1040nr online Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. 1040nr online Figuring a Gain A casualty or theft may result in a taxable gain. 1040nr online 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. 1040nr online You generally report your gain as income in the year you receive the reimbursement. 1040nr online However, depending on the type of property you receive, you may not have to report your gain. 1040nr online See Postponing Gain , later. 1040nr online Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. 1040nr online 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. 1040nr online Amount you receive. 1040nr online   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. 1040nr online It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. 1040nr online Example. 1040nr online A tornado severely damaged your barn. 1040nr online The adjusted basis of the barn was $25,000. 1040nr online Your insurance company reimbursed you $40,000 for the damaged barn. 1040nr online However, you had legal expenses of $2,000 to collect that insurance. 1040nr online Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. 1040nr online 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. 1040nr online Some of these are discussed in the following paragraphs. 1040nr online Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. 1040nr online You report the gain or deduct the loss on your tax return for the year you realize it. 1040nr online However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. 1040nr online See Postponing Gain , later. 1040nr online Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. 1040nr online The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. 1040nr online The owner receives a condemnation award (money or property) in exchange for the property taken. 1040nr online A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. 1040nr online Threat of condemnation. 1040nr online   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. 1040nr online Main home condemned. 1040nr online   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. 1040nr online For information on this exclusion, see Publication 523. 1040nr online 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. 1040nr online See Postponing Gain , later. 1040nr online (You cannot deduct a loss from the condemnation of your main home. 1040nr online ) More information. 1040nr online   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. 1040nr online Also see Postponing Gain , later, to find out if you can postpone reporting the gain. 1040nr online Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. 1040nr online Livestock Losses Diseased livestock. 1040nr online   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. 1040nr online If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . 1040nr online Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. 1040nr online If you replace the livestock, you may be able to postpone reporting the gain. 1040nr online See Postponing Gain below. 1040nr online Reporting dispositions of diseased livestock. 1040nr online   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. 1040nr online You must also include other information on this statement. 1040nr online See How To Postpone Gain , later, under Postponing Gain . 1040nr online Weather-related sales of livestock. 1040nr online   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. 1040nr online Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. 1040nr online Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. 1040nr online If you replace the livestock, you may be able to postpone reporting the gain. 1040nr online See Postponing Gain below. 1040nr online Example. 1040nr online It is your usual business practice to sell five of your dairy animals during the year. 1040nr online This year you sold 20 dairy animals because of drought. 1040nr online The sale of 15 animals is treated as an involuntary conversion. 1040nr online    If you do not replace the livestock, you may be able to report the gain in the following year's income. 1040nr online This rule also applies to other livestock (including poultry). 1040nr online See Sales Caused by Weather-Related Conditions in chapter 3. 1040nr online Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. 1040nr online Treat the loss as a loss from an involuntary conversion. 1040nr online The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. 1040nr online You deduct the loss on the return for the year the seedlings died. 1040nr online Postponing 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, stolen, or other involuntarily converted property. 1040nr online Your basis in the new property is generally the same as your adjusted basis in the property it replaces. 1040nr online You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. 1040nr online However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. 1040nr online If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. 1040nr online To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. 1040nr online 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. 1040nr online Example 1. 1040nr online In 1985, you constructed a barn to store farm equipment at a cost of $20,000. 1040nr online In 1987, you added a silo to the barn at a cost of $15,000 to store grain. 1040nr online In May of this year, the property was worth $100,000. 1040nr online In June the barn and silo were destroyed by a tornado. 1040nr online At the time of the tornado, you had an adjusted basis of $0 in the property. 1040nr online You received $85,000 from the insurance company. 1040nr online You had a gain of $85,000 ($85,000 – $0). 1040nr online You spent $80,000 to rebuild the barn and silo. 1040nr online Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. 1040nr online Example 2. 1040nr online In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. 1040nr online You made no further improvements or additions to it. 1040nr online When a storm destroyed the cabin this January, the cabin was worth $250,000. 1040nr online You received $146,000 from the insurance company in March. 1040nr online You had a gain of $128,000 ($146,000 − $18,000). 1040nr online You spent $144,000 to rebuild the cabin. 1040nr online Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. 1040nr online Buying replacement property from a related person. 1040nr online   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). 1040nr online This rule applies to the following taxpayers. 1040nr online C corporations. 1040nr online Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. 1040nr online Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. 1040nr online For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. 1040nr online If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. 1040nr online If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. 1040nr online Exception. 1040nr online   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 involuntarily converted property. 1040nr online Related persons. 1040nr online   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. 1040nr online For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 1040nr online Death of a taxpayer. 1040nr online   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. 1040nr online The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. 1040nr online Replacement Property You must buy replacement property for the specific purpose of replacing your property. 1040nr online Your replacement property must be similar or related in service or use to the property it replaces. 1040nr online You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. 1040nr online If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. 1040nr online Property you acquire by gift or inheritance does not qualify as replacement property. 1040nr online Owner-user. 1040nr online   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. 1040nr online Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. 1040nr online A grinding mill that replaces a tractor does not qualify. 1040nr online Neither does a breeding or draft animal that replaces a dairy cow. 1040nr online Soil or other environmental contamination. 1040nr online   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. 1040nr online Weather-related conditions. 1040nr online   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. 1040nr online Example. 1040nr online Each year you normally sell 25 cows from your beef herd. 1040nr online However, this year you had to sell 50 cows. 1040nr online This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. 1040nr online Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. 1040nr online Standing crop destroyed by casualty. 1040nr online   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. 1040nr online The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). 1040nr online In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. 1040nr online Timber loss. 1040nr online   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. 1040nr online If you bought the standing timber within the replacement period, you can postpone reporting the gain. 1040nr online Business or income-producing property located in a federally declared disaster area. 1040nr online   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. 1040nr online For more information, see Disaster Area Losses in Publication 547. 1040nr online Substituting replacement property. 1040nr online   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. 1040nr online This is true even if you acquire the other property within the replacement period. 1040nr online However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. 1040nr online Basis of replacement property. 1040nr online   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. 1040nr online In this way, tax on the gain is postponed until you dispose of the replacement property. 1040nr online Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. 1040nr online This is the replacement period. 1040nr online The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. 1040nr online The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. 1040nr online Example. 1040nr online You are a calendar year taxpayer. 1040nr online While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. 1040nr online You discovered the theft when you returned to your farm on November 11, 2012. 1040nr online Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. 1040nr online You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. 1040nr online Main home in disaster area. 1040nr online   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. 1040nr online See Disaster Area Losses , later. 1040nr online Property in the Midwestern disaster areas. 1040nr online   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. 1040nr online This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. 1040nr online Property in the Kansas disaster area. 1040nr online   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. 1040nr online This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. 1040nr online Property in the Hurricane Katrina disaster area. 1040nr online   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. 1040nr online This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 1040nr online Weather-related sales of livestock in an area eligible for federal assistance. 1040nr online   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. 1040nr online The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. 1040nr online   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. 1040nr online R. 1040nr online B. 1040nr online 529, available at  www. 1040nr online irs. 1040nr online gov/irb/2006-39_IRB/ar11. 1040nr online html. 1040nr online For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. 1040nr online gov. 1040nr online Condemnation. 1040nr online   The replacement period for a condemnation begins on the earlier of the following dates. 1040nr online The date on which you disposed of the condemned property. 1040nr online The date on which the threat of condemnation began. 1040nr online The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. 1040nr online But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. 1040nr online Business or investment real property. 1040nr online   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. 1040nr online Extension. 1040nr online   You can apply for an extension of the replacement period. 1040nr online Send your written application to the Internal Revenue Service Center where you file your tax return. 1040nr online See your tax return instructions for the address. 1040nr online Include all the details about your need for an extension. 1040nr online Make your application before the end of the replacement period. 1040nr online However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. 1040nr online You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. 1040nr online How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. 1040nr online You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. 1040nr online Required statement. 1040nr online   You should attach a statement to your return for the year you have the gain. 1040nr online This statement should include all the following information. 1040nr online The date and details of the casualty, theft, or other involuntary conversion. 1040nr online The insurance or other reimbursement you received. 1040nr online How you figured the gain. 1040nr online Replacement property acquired before return filed. 1040nr online   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. 1040nr online The replacement property. 1040nr online The postponed gain. 1040nr online The basis adjustment that reflects the postponed gain. 1040nr online Any gain you are reporting as income. 1040nr online Replacement property acquired after return filed. 1040nr online   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. 1040nr online   You should then attach another statement to your return for the year in which you buy the replacement property. 1040nr online This statement should contain detailed information on the replacement property. 1040nr online If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. 1040nr online Include in the statement detailed information on the replacement property bought in that year. 1040nr online Reporting weather-related sales of livestock. 1040nr online   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. 1040nr online Evidence of the weather-related conditions that forced the sale or exchange of the livestock. 1040nr online The gain realized on the sale or exchange. 1040nr online The number and kind of livestock sold or exchanged. 1040nr online The number of livestock of each kind you would have sold or exchanged under your usual business practice. 1040nr online   Show all the following information and the preceding information on the return for the year in which you replace the livestock. 1040nr online The dates you bought the replacement property. 1040nr online The cost of the replacement property. 1040nr online Description of the replacement property (for example, the number and kind of the replacement livestock). 1040nr online Amended return. 1040nr online   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. 1040nr online You do not acquire replacement property within the replacement period, plus extensions. 1040nr online On this amended return, you must report the gain and pay any additional tax due. 1040nr online You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. 1040nr online On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. 1040nr online Disaster Area Losses Special rules apply to federally declared disaster area losses. 1040nr online A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. 1040nr online Stafford Disaster Relief and Emergency Assistance Act. 1040nr online It includes a major disaster or emergency declaration under the act. 1040nr online A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. 1040nr online fema. 1040nr online gov. 1040nr online This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. 1040nr online For other special rules, see Disaster Area Losses in Publication 547. 1040nr online When to deduct the loss. 1040nr online   You generally must deduct a casualty loss in the year it occurred. 1040nr online However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. 1040nr online If you make this choice, the loss is treated as having occurred in the preceding year. 1040nr online    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. 1040nr online   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. 1040nr online The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. 1040nr online The due date (with extensions) for the return for the preceding tax year. 1040nr online Federal disaster relief grants. 1040nr online   Do not include post-disaster relief grants received under the Robert T. 1040nr online Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. 1040nr online Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. 1040nr online If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. 1040nr online Unemployment assistance payments under the Act are taxable unemployment compensation. 1040nr online Qualified disaster relief payments. 1040nr online   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. 1040nr online These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). 1040nr online No withholding applies to these payments. 1040nr online   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. 1040nr online Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. 1040nr online Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. 1040nr online (A personal residence can be a rented residence or one you own. 1040nr online ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. 1040nr online   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. 1040nr online    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. 1040nr online Qualified disaster mitigation payments. 1040nr online   Qualified disaster mitigation payments made under the Robert T. 1040nr online Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. 1040nr online These are payments you, as a property owner, receive to reduce the risk of future damage to your property. 1040nr online You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. 1040nr online Sale of property under hazard mitigation program. 1040nr online   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. 1040nr online You report the gain or deduct the loss on your tax return for the year you realize it. 1040nr online (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. 1040nr online ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. 1040nr online See Postponing Gain , earlier, for the rules that apply. 1040nr online Other federal assistance programs. 1040nr online    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. 1040nr online Postponed tax deadlines. 1040nr online   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. 1040nr online The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. 1040nr online   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). 1040nr online Go to http://www. 1040nr online irs. 1040nr online gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. 1040nr online Who is eligible. 1040nr online   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. 1040nr online Any individual whose main home is located in a covered disaster area (defined next). 1040nr online Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. 1040nr online Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. 1040nr online Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. 1040nr online The main home or principal place of business does not have to be located in the covered disaster area. 1040nr online Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. 1040nr online The spouse on a joint return with a taxpayer who is eligible for postponements. 1040nr online Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. 1040nr online Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. 1040nr online Any other person determined by the IRS to be affected by a federally declared disaster. 1040nr online Covered disaster area. 1040nr online   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. 1040nr online Abatement of interest and penalties. 1040nr online   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. 1040nr online Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. 1040nr online Form 4684. 1040nr online   Use this form to report your gains and losses from casualties and thefts. 1040nr online Form 4797. 1040nr online   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. 1040nr online Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. 1040nr online Form 8949. 1040nr online   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. 1040nr online Schedule A (Form 1040). 1040nr online   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. 1040nr online Schedule D (Form 1040). 1040nr online   Use this form to carry over the following gains. 1040nr online Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. 1040nr online Net gain shown on Form 4684 from the casualty or theft of personal-use property. 1040nr online    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. 1040nr online Schedule F (Form 1040). 1040nr online   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. 1040nr online Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Consumer Protection Division
PO Box 30213
Lansing, MI 48909-7713

Phone Number: 517-373-1140

Toll-free: 1-877-765-8388 (MI)

Michigan Department of Agriculture and Rural Development

Website: Michigan Department of Agriculture and Rural Development

Address: Michigan Department of Agriculture and Rural Development
Consumer Protection Section
Weights & Measures
PO Box 30017
Lansing, MI 48909

Toll-free: 1-800-292-3939

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County Consumer Protection Offices

Macomb County Consumer Protection Unit

Website: Macomb County Consumer Protection Unit

Address: Macomb County Consumer Protection Unit
Consumer Protection Unit
One S. Main St., 3rd Floor
Mt. Clemens, MI 48043

Phone Number: 586-469-5600

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Insurance and Financial Services

Website: Department of Insurance and Financial Services

Address: Department of Insurance and Financial Services
PO Box 30220
Lansing, MI 48909-7720

Phone Number: 517-373-0220

Toll-free: 1-877-999-6442 (MI)

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance and Financial Services

Website: Department of Insurance and Financial Services

Address: Department of Insurance and Financial Services
PO Box 30220
Lansing, MI 48909-7720

Phone Number: 517-373-0220

Toll-free: 1-877-999-6442

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Department of Licensing and Regulatory Affairs

Website: Department of Licensing and Regulatory Affairs

Address: Department of Licensing and Regulatory Affairs
Securities Division
PO Box 30018
Lansing, MI 48909

Phone Number: 517-241-9202

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
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The 1040nr Online

1040nr online 1. 1040nr online   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). 1040nr online  You can set up and make contributions to an IRA if you receive taxable compensation. 1040nr online Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. 1040nr online For more information about IRAs, see Publication 590. 1040nr online Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. 1040nr online The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. 1040nr online Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. 1040nr online Many types of educational assistance are tax free if they meet the requirements discussed here. 1040nr online Special rules apply to U. 1040nr online S. 1040nr online citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. 1040nr online For information about these rules, see Publication 54, Tax Guide for U. 1040nr online S. 1040nr online Citizens and Resident Aliens Abroad. 1040nr online Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. 1040nr online A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. 1040nr online Amount of scholarship or fellowship. 1040nr online   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. 1040nr online This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. 1040nr online The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. 1040nr online Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. 1040nr online Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. 1040nr online A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. 1040nr online (But for exceptions, see Payment for services,later. 1040nr online Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. 1040nr online Candidate for a degree. 1040nr online   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. 1040nr online Eligible educational institution. 1040nr online   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 1040nr online Qualified education expenses. 1040nr online   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 1040nr online These items must be required of all students in your course of instruction. 1040nr online Expenses that do not qualify. 1040nr online   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. 1040nr online Payment for services. 1040nr online   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. 1040nr online This applies even if all candidates for a degree must perform the services to receive the degree. 1040nr online (See exceptions next. 1040nr online ) Exceptions. 1040nr online   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. 1040nr online Example 1. 1040nr online You received a scholarship of $2,500. 1040nr online The scholarship was not received under either of the exceptions mentioned above. 1040nr online As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. 1040nr online Of the $2,500 scholarship, $1,000 represents payment for teaching. 1040nr online The provider of your scholarship gives you a Form W-2 showing $1,000 as income. 1040nr online Your qualified education expenses were at least $1,500. 1040nr online Assuming that all other conditions are met, $1,500 of your scholarship is tax free. 1040nr online The $1,000 you received for teaching is taxable. 1040nr online Example 2. 1040nr online You are a candidate for a degree at a medical school. 1040nr online You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. 1040nr online The terms of your scholarship require you to perform future services. 1040nr online A substantial penalty applies if you do not comply. 1040nr online The entire amount of your grant is taxable as payment for services in the year it is received. 1040nr online Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. 1040nr online Worksheet 1-1. 1040nr online    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. 1040nr online    Worksheet 1-1. 1040nr online Taxable Scholarship and Fellowship Income 1. 1040nr online Enter the total amount of any scholarship or fellowship for 2013. 1040nr online See Amount of scholarship or fellowship, earlier. 1040nr online 1. 1040nr online       If you are a degree candidate at an eligible educational institution, go to line 2. 1040nr online If you are not a degree candidate at an eligible educational institution, stop here. 1040nr online The entire amount is taxable. 1040nr online For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. 1040nr online       2. 1040nr online Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. 1040nr online (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. 1040nr online ) 2. 1040nr online     3. 1040nr online Subtract line 2 from line 1 3. 1040nr online     4. 1040nr online Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. 1040nr online     5. 1040nr online Subtract line 4 from line 3 5. 1040nr online     6. 1040nr online Enter the amount of your qualified education expenses 6. 1040nr online     7. 1040nr online Enter the smaller of line 5 or line 6. 1040nr online This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. 1040nr online     8. 1040nr online Subtract line 7 from line 5 8. 1040nr online     9. 1040nr online Taxable part. 1040nr online Add lines 2, 4, and 8. 1040nr online See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. 1040nr online     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. 1040nr online You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. 1040nr online Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. 1040nr online If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. 1040nr online If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. 1040nr online You must report the taxable amount whether or not you received a Form W-2. 1040nr online If you receive an incorrect Form W-2, ask the payer for a corrected one. 1040nr online For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. 1040nr online How To Report How you report any taxable scholarship or fellowship income depends on which return you file. 1040nr online Form 1040EZ. 1040nr online   If you file Form 1040EZ, include the taxable amount in the total on line 1. 1040nr online If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. 1040nr online Form 1040A. 1040nr online   If you file Form 1040A, include the taxable amount in the total on line 7. 1040nr online If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. 1040nr online Form 1040. 1040nr online   If you file Form 1040, include the taxable amount in the total on line 7. 1040nr online If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. 1040nr online Schedule SE (Form 1040). 1040nr online   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. 1040nr online If your net earnings are $400 or more, you must pay self-employment tax. 1040nr online Use Schedule SE, Self-Employment Tax, to figure this tax. 1040nr online Form 1040NR. 1040nr online   If you file Form 1040NR, report the taxable amount on line 12. 1040nr online Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. 1040nr online S. 1040nr online Source Income Subject to Withholding. 1040nr online See the Instructions for Form 1040NR for more information. 1040nr online Form 1040NR-EZ. 1040nr online   If you file Form 1040NR-EZ, report the taxable amount on line 5. 1040nr online Generally, you must report the amount shown in box 2 of Form(s) 1042-S. 1040nr online See the Instructions for Form 1040NR-EZ for more information. 1040nr online Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. 1040nr online Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. 1040nr online Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. 1040nr online They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. 1040nr online Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. 1040nr online Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. 1040nr online Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. 1040nr online Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. 1040nr online Do not include these payments as income on your federal tax return. 1040nr online If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. 1040nr online This applies only to the part of your VA payments that is required to be used for education expenses. 1040nr online You may want to visit the Veteran's Administration website at www. 1040nr online gibill. 1040nr online va. 1040nr online gov for specific information about the various VA benefits for education. 1040nr online Example. 1040nr online You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. 1040nr online Neither of these benefits is taxable and you do not report them on your tax return. 1040nr online You also want to claim an American opportunity credit on your return. 1040nr online You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). 1040nr online To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. 1040nr online You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. 1040nr online Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. 1040nr online This is called a “tuition reduction. 1040nr online ” You do not have to include a qualified tuition reduction in your income. 1040nr online A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. 1040nr online You do not have to use the tuition reduction at the eligible educational institution from which you received it. 1040nr online In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. 1040nr online The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. 1040nr online You must include in your income any tuition reduction you receive that is payment for your services. 1040nr online Eligible educational institution. 1040nr online   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 1040nr online Officers, owners, and highly compensated employees. 1040nr online   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. 1040nr online This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. 1040nr online The group must be defined under a reasonable classification set up by the employer. 1040nr online The classification must not discriminate in favor of owners, officers, or highly compensated employees. 1040nr online Payment for services. 1040nr online   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. 1040nr online This applies even if all candidates for a degree must perform the services to receive the degree. 1040nr online (See below for exceptions. 1040nr online ) Exceptions. 1040nr online   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. 1040nr online Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. 1040nr online You are an employee of the eligible educational institution. 1040nr online You were an employee of the eligible educational institution, but you retired or left on disability. 1040nr online You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. 1040nr online You are the dependent child or spouse of an individual described in (1) through (3), above. 1040nr online Child of deceased parents. 1040nr online   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. 1040nr online Child of divorced parents. 1040nr online   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. 1040nr online Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. 1040nr online It is provided by an eligible educational institution. 1040nr online You are a graduate student who performs teaching or research activities for the educational institution. 1040nr online You must include in income any other tuition reductions for graduate education that you receive. 1040nr online How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. 1040nr online Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 1040nr online Prev  Up  Next   Home   More Online Publications