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E file tax returns 11. E file tax returns   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. E file tax returns Nondeductible losses. E file tax returns Family pet. E file tax returns Progressive deterioration. E file tax returns Decline in market value of stock. E file tax returns Mislaid or lost property. E file tax returns 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. E file tax returns Related persons. E file tax returns Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. E file tax returns Covered disaster area. E file tax returns Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. E file tax returns A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. E file tax returns A theft occurs when property is stolen. E file tax returns A condemnation occurs when private property is legally taken for public use without the owner's consent. E file tax returns A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. E file tax returns 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. E file tax returns 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. E file tax returns 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. E file tax returns For more information, see Postponing Gain , later. E file tax returns 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. E file tax returns Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. E file tax returns 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. E file tax returns Casualty. E file tax returns   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. E file tax returns A sudden event is one that is swift, not gradual or progressive. E file tax returns An unexpected event is one that is ordinarily unanticipated and unintended. E file tax returns 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. E file tax returns Deductible losses. E file tax returns   Deductible casualty losses can result from a number of different causes, including the following. E file tax returns Airplane crashes. E file tax returns Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. E file tax returns Earthquakes. E file tax returns Fires (but see Nondeductible losses next for exceptions). E file tax returns Floods. E file tax returns Freezing. E file tax returns 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. E file tax returns Lightning. E file tax returns Storms, including hurricanes and tornadoes. E file tax returns Terrorist attacks. E file tax returns Vandalism. E file tax returns Volcanic eruptions. E file tax returns Nondeductible losses. E file tax returns   A casualty loss is not deductible if the damage or destruction is caused by the following. E file tax returns Accidentally breaking articles such as glassware or china under normal conditions. E file tax returns A family pet (explained below). E file tax returns A fire if you willfully set it, or pay someone else to set it. E file tax returns A car, truck, or farm equipment accident if your willful negligence or willful act caused it. E file tax returns The same is true if the willful act or willful negligence of someone acting for you caused the accident. E file tax returns Progressive deterioration (explained below). E file tax returns Family pet. E file tax returns   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. E file tax returns Example. E file tax returns You keep your horse in your yard. E file tax returns The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. E file tax returns Some of the trees were completely girdled and died. E file tax returns Because the damage was not unexpected or unusual, the loss is not deductible. E file tax returns Progressive deterioration. E file tax returns   Loss of property due to progressive deterioration is not deductible as a casualty loss. E file tax returns This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. E file tax returns Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. E file tax returns However, weather-related conditions or disease may cause another type of involuntary conversion. E file tax returns See Other Involuntary Conversions , later. E file tax returns Theft. E file tax returns   A theft is the taking and removing of money or property with the intent to deprive the owner of it. E file tax returns 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. E file tax returns You do not need to show a conviction for theft. E file tax returns   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. E file tax returns The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. E file tax returns Decline in market value of stock. E file tax returns   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. E file tax returns 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. E file tax returns You report a capital loss on Schedule D (Form 1040). E file tax returns For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. E file tax returns Mislaid or lost property. E file tax returns   The simple disappearance of money or property is not a theft. E file tax returns 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. E file tax returns Example. E file tax returns A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. E file tax returns The diamond falls from the ring and is never found. E file tax returns The loss of the diamond is a casualty. E file tax returns Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. E file tax returns The following is a discussion of some losses you can deduct and some you cannot deduct. E file tax returns Livestock or produce bought for resale. E file tax returns   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. E file tax returns 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. E file tax returns You cannot take a separate deduction. E file tax returns Livestock, plants, produce, and crops raised for sale. E file tax returns   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. E file tax returns You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. E file tax returns   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. E file tax returns You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. E file tax returns The uniform capitalization rules are discussed in chapter 6. E file tax returns   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. E file tax returns You get the deduction by omitting the item from your inventory at the close of your tax year. E file tax returns You cannot take a separate casualty or theft deduction. E file tax returns Income loss. E file tax returns   A loss of future income is not deductible. E file tax returns Example. E file tax returns A severe flood destroyed your crops. E file tax returns 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 . E file tax returns You estimate that the crop loss will reduce your farm income by $25,000. E file tax returns This loss of future income is also not deductible. E file tax returns Loss of timber. E file tax returns   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. E file tax returns If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. E file tax returns See Postponing Gain , later. E file tax returns Property used in farming. E file tax returns   Casualty and theft losses of property used in your farm business usually result in deductible losses. E file tax returns 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. E file tax returns See How To Figure a Loss , later. E file tax returns Raised draft, breeding, dairy, or sporting animals. E file tax returns   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. E file tax returns 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. E file tax returns You use inventories to determine your income and you included the animals in your inventory. E file tax returns 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. E file tax returns When you include livestock in inventory, its last inventory value is its basis. E file tax returns 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. E file tax returns You cannot take a separate deduction. E file tax returns 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. E file tax returns Farm property. E file tax returns   Farm property is the property you use in your farming business. E file tax returns 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. E file tax returns   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. E file tax returns However, the deduction limits, discussed later, do not apply to farm property. E file tax returns Personal-use property. E file tax returns   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. E file tax returns The following items are examples of personal-use property: Your main home. E file tax returns Furniture and electronics used in your main home and not used in a home office or for business purposes. E file tax returns Clothing and jewelry. E file tax returns An automobile used for nonbusiness purposes. E file tax returns You figure the casualty or theft loss on this property by taking the following steps. E file tax returns Determine your adjusted basis in the property before the casualty or theft. E file tax returns Determine the decrease in fair market value of the property as a result of the casualty or theft. E file tax returns From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. E file tax returns You must apply the deduction limits, discussed later, to determine your deductible loss. E file tax returns    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. E file tax returns It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. E file tax returns Adjusted basis. E file tax returns   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. E file tax returns For more information about adjusted basis, see chapter 6. E file tax returns Decrease in fair market value (FMV). E file tax returns   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. E file tax returns FMV is defined in chapter 10 under Payments Received or Considered Received . E file tax returns Appraisal. E file tax returns   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. E file tax returns But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. E file tax returns   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. E file tax returns The appraiser must recognize the effects of any general market decline that may occur along with the casualty. E file tax returns This information is needed to limit any deduction to the actual loss resulting from damage to the property. E file tax returns Cost of cleaning up or making repairs. E file tax returns   The cost of cleaning up after a casualty is not part of a casualty loss. E file tax returns Neither is the cost of repairing damaged property after a casualty. E file tax returns 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. E file tax returns The repairs are actually made. E file tax returns The repairs are necessary to bring the property back to its condition before the casualty. E file tax returns The amount spent for repairs is not excessive. E file tax returns The repairs fix the damage only. E file tax returns The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. E file tax returns Related expenses. E file tax returns   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. E file tax returns However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. E file tax returns Separate computations for more than one item of property. E file tax returns   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. E file tax returns Then combine the losses to determine your total loss. E file tax returns    There is an exception to this rule for personal-use real property. E file tax returns See Exception for personal-use real property, later. E file tax returns Example. E file tax returns A fire on your farm damaged a tractor and the barn in which it was stored. E file tax returns The tractor had an adjusted basis of $3,300. E file tax returns Its FMV was $28,000 just before the fire and $10,000 immediately afterward. E file tax returns The barn had an adjusted basis of $28,000. E file tax returns Its FMV was $55,000 just before the fire and $25,000 immediately afterward. E file tax returns You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. E file tax returns Figure your deductible casualty loss separately for the two items of property. E file tax returns     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. E file tax returns   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. E file tax returns Figure the loss using the smaller of the following. E file tax returns The decrease in FMV of the entire property. E file tax returns The adjusted basis of the entire property. E file tax returns Example. E file tax returns You bought a farm in 1990 for $160,000. E file tax returns The adjusted basis of the residential part is now $128,000. E file tax returns In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. E file tax returns The adjusted basis of the residential part includes the $7,500. E file tax returns The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. E file tax returns The trees were not covered by insurance. E file tax returns 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. E file tax returns   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. E file tax returns You do not have a casualty or theft loss to the extent you are reimbursed. E file tax returns   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. E file tax returns You must reduce your loss even if you do not receive payment until a later tax year. E file tax returns    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. E file tax returns You may have to include a portion of these payments in your income. E file tax returns See Insurance payments for living expenses in Publication 547 for details. E file tax returns Disaster relief. E file tax returns   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. E file tax returns Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. E file tax returns   Generally, disaster relief grants received under the Robert T. E file tax returns Stafford Disaster Relief and Emergency Assistance Act are not included in your income. E file tax returns See Federal disaster relief grants , later, under Disaster Area Losses . E file tax returns   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. E file tax returns See Qualified disaster relief payments , later, under Disaster Area Losses . E file tax returns Reimbursement received after deducting loss. E file tax returns   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. E file tax returns Actual reimbursement less than expected. E file tax returns   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. E file tax returns Actual reimbursement more than expected. E file tax returns   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. E file tax returns 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. E file tax returns Do not refigure your tax for the year you claimed the deduction. E file tax returns See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. E file tax returns 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. E file tax returns 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. E file tax returns Actual reimbursement same as expected. E file tax returns   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. E file tax returns Lump-sum reimbursement. E file tax returns   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. E file tax returns Figure the gain or loss separately for each asset that has a separate basis. E file tax returns Adjustments to basis. E file tax returns   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. E file tax returns The result is your adjusted basis in the property. E file tax returns Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. E file tax returns See Adjusted Basis in chapter 6 for more information. E file tax returns Example. E file tax returns You built a new silo for $25,000. E file tax returns This is the basis in your silo because that is the total cost you incurred to build it. E file tax returns During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. E file tax returns 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. E file tax returns Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). E file tax returns 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). E file tax returns There are two limits on the deduction for casualty or theft loss of personal-use property. E file tax returns You figure these limits on Form 4684. E file tax returns $100 rule. E file tax returns   You must reduce each casualty or theft loss on personal-use property by $100. E file tax returns This rule applies after you have subtracted any reimbursement. E file tax returns 10% rule. E file tax returns   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. E file tax returns Apply this rule after you reduce each loss by $100. E file tax returns Adjusted gross income is on line 38 of Form 1040. E file tax returns Example. E file tax returns In June, you discovered that your house had been burglarized. E file tax returns Your loss after insurance reimbursement was $2,000. E file tax returns Your adjusted gross income for the year you discovered the burglary is $57,000. E file tax returns Figure your theft loss deduction as follows: 1. E file tax returns Loss after insurance $2,000 2. E file tax returns Subtract $100 100 3. E file tax returns Loss after $100 rule $1,900 4. E file tax returns Subtract 10% (. E file tax returns 10) × $57,000 AGI $5,700 5. E file tax returns 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). E file tax returns    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. E file tax returns See 10% Rule in Publication 547. E file tax returns When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. E file tax returns You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. E file tax returns However, losses in federally declared disaster areas are subject to different rules. E file tax returns See Disaster Area Losses , later, for an exception. E file tax returns 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. E file tax returns Leased property. E file tax returns   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. E file tax returns This is true even if the loss occurred or the liability was paid in a different year. E file tax returns You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. E file tax returns Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. E file tax returns Example. E file tax returns Robert leased a tractor from First Implement, Inc. E file tax returns , for use in his farm business. E file tax returns The tractor was destroyed by a tornado in June 2012. E file tax returns The loss was not insured. E file tax returns First Implement billed Robert for the fair market value of the tractor on the date of the loss. E file tax returns Robert disagreed with the bill and refused to pay it. E file tax returns First Implement later filed suit in court against Robert. E file tax returns 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. E file tax returns Robert paid $20,000 in June 2013. E file tax returns He can claim the $20,000 as a loss on his 2013 tax return. E file tax returns Net operating loss (NOL). E file tax returns   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. E file tax returns An NOL can be carried back or carried forward and deducted from income in other years. E file tax returns See Publication 536 for more information on NOLs. E file tax returns Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. E file tax returns You must have records to support the amount you claim for the loss. E file tax returns Casualty loss proof. E file tax returns   For a casualty loss, your records should show all the following information. E file tax returns The type of casualty (car accident, fire, storm, etc. E file tax returns ) and when it occurred. E file tax returns That the loss was a direct result of the casualty. E file tax returns 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. E file tax returns Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. E file tax returns Theft loss proof. E file tax returns   For a theft loss, your records should show all the following information. E file tax returns When you discovered your property was missing. E file tax returns That your property was stolen. E file tax returns That you were the owner of the property. E file tax returns Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. E file tax returns Figuring a Gain A casualty or theft may result in a taxable gain. E file tax returns 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. E file tax returns You generally report your gain as income in the year you receive the reimbursement. E file tax returns However, depending on the type of property you receive, you may not have to report your gain. E file tax returns See Postponing Gain , later. E file tax returns 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. E file tax returns 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. E file tax returns Amount you receive. E file tax returns   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. E file tax returns It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. E file tax returns Example. E file tax returns A tornado severely damaged your barn. E file tax returns The adjusted basis of the barn was $25,000. E file tax returns Your insurance company reimbursed you $40,000 for the damaged barn. E file tax returns However, you had legal expenses of $2,000 to collect that insurance. E file tax returns Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. E file tax returns 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. E file tax returns Some of these are discussed in the following paragraphs. E file tax returns Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. E file tax returns You report the gain or deduct the loss on your tax return for the year you realize it. E file tax returns However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. E file tax returns See Postponing Gain , later. E file tax returns Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. E file tax returns 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. E file tax returns The owner receives a condemnation award (money or property) in exchange for the property taken. E file tax returns A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. E file tax returns Threat of condemnation. E file tax returns   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. E file tax returns Main home condemned. E file tax returns   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. E file tax returns For information on this exclusion, see Publication 523. E file tax returns 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. E file tax returns See Postponing Gain , later. E file tax returns (You cannot deduct a loss from the condemnation of your main home. E file tax returns ) More information. E file tax returns   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. E file tax returns Also see Postponing Gain , later, to find out if you can postpone reporting the gain. E file tax returns 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. E file tax returns Livestock Losses Diseased livestock. E file tax returns   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. E file tax returns If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . E file tax returns Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. E file tax returns If you replace the livestock, you may be able to postpone reporting the gain. E file tax returns See Postponing Gain below. E file tax returns Reporting dispositions of diseased livestock. E file tax returns   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. E file tax returns You must also include other information on this statement. E file tax returns See How To Postpone Gain , later, under Postponing Gain . E file tax returns Weather-related sales of livestock. E file tax returns   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. E file tax returns 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. E file tax returns Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. E file tax returns If you replace the livestock, you may be able to postpone reporting the gain. E file tax returns See Postponing Gain below. E file tax returns Example. E file tax returns It is your usual business practice to sell five of your dairy animals during the year. E file tax returns This year you sold 20 dairy animals because of drought. E file tax returns The sale of 15 animals is treated as an involuntary conversion. E file tax returns    If you do not replace the livestock, you may be able to report the gain in the following year's income. E file tax returns This rule also applies to other livestock (including poultry). E file tax returns See Sales Caused by Weather-Related Conditions in chapter 3. E file tax returns 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. E file tax returns Treat the loss as a loss from an involuntary conversion. E file tax returns The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. E file tax returns You deduct the loss on the return for the year the seedlings died. E file tax returns 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. E file tax returns Your basis in the new property is generally the same as your adjusted basis in the property it replaces. E file tax returns You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. E file tax returns 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. E file tax returns If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. E file tax returns To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. E file tax returns 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. E file tax returns Example 1. E file tax returns In 1985, you constructed a barn to store farm equipment at a cost of $20,000. E file tax returns In 1987, you added a silo to the barn at a cost of $15,000 to store grain. E file tax returns In May of this year, the property was worth $100,000. E file tax returns In June the barn and silo were destroyed by a tornado. E file tax returns At the time of the tornado, you had an adjusted basis of $0 in the property. E file tax returns You received $85,000 from the insurance company. E file tax returns You had a gain of $85,000 ($85,000 – $0). E file tax returns You spent $80,000 to rebuild the barn and silo. E file tax returns Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. E file tax returns Example 2. E file tax returns In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. E file tax returns You made no further improvements or additions to it. E file tax returns When a storm destroyed the cabin this January, the cabin was worth $250,000. E file tax returns You received $146,000 from the insurance company in March. E file tax returns You had a gain of $128,000 ($146,000 − $18,000). E file tax returns You spent $144,000 to rebuild the cabin. E file tax returns Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. E file tax returns Buying replacement property from a related person. E file tax returns   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). E file tax returns This rule applies to the following taxpayers. E file tax returns C corporations. E file tax returns Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. E file tax returns 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. E file tax returns 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. E file tax returns If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. E file tax returns If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. E file tax returns Exception. E file tax returns   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. E file tax returns Related persons. E file tax returns   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. E file tax returns For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. E file tax returns Death of a taxpayer. E file tax returns   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. E file tax returns 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. E file tax returns Replacement Property You must buy replacement property for the specific purpose of replacing your property. E file tax returns Your replacement property must be similar or related in service or use to the property it replaces. E file tax returns You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. E file tax returns 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. E file tax returns Property you acquire by gift or inheritance does not qualify as replacement property. E file tax returns Owner-user. E file tax returns   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. E file tax returns 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. E file tax returns A grinding mill that replaces a tractor does not qualify. E file tax returns Neither does a breeding or draft animal that replaces a dairy cow. E file tax returns Soil or other environmental contamination. E file tax returns   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. E file tax returns Weather-related conditions. E file tax returns   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. E file tax returns Example. E file tax returns Each year you normally sell 25 cows from your beef herd. E file tax returns However, this year you had to sell 50 cows. E file tax returns 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. E file tax returns 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. E file tax returns Standing crop destroyed by casualty. E file tax returns   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. E file tax returns 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). E file tax returns 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. E file tax returns Timber loss. E file tax returns   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. E file tax returns If you bought the standing timber within the replacement period, you can postpone reporting the gain. E file tax returns Business or income-producing property located in a federally declared disaster area. E file tax returns   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. E file tax returns For more information, see Disaster Area Losses in Publication 547. E file tax returns Substituting replacement property. E file tax returns   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. E file tax returns This is true even if you acquire the other property within the replacement period. E file tax returns 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. E file tax returns Basis of replacement property. E file tax returns   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. E file tax returns In this way, tax on the gain is postponed until you dispose of the replacement property. E file tax returns Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. E file tax returns This is the replacement period. E file tax returns The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. E file tax returns 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. E file tax returns Example. E file tax returns You are a calendar year taxpayer. E file tax returns While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. E file tax returns You discovered the theft when you returned to your farm on November 11, 2012. E file tax returns Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. E file tax returns You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. E file tax returns Main home in disaster area. E file tax returns   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. E file tax returns See Disaster Area Losses , later. E file tax returns Property in the Midwestern disaster areas. E file tax returns   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. E file tax returns This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. E file tax returns Property in the Kansas disaster area. E file tax returns   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. E file tax returns This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. E file tax returns Property in the Hurricane Katrina disaster area. E file tax returns   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. E file tax returns This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. E file tax returns Weather-related sales of livestock in an area eligible for federal assistance. E file tax returns   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. E file tax returns The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. E file tax returns   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. E file tax returns R. E file tax returns B. E file tax returns 529, available at  www. E file tax returns irs. E file tax returns gov/irb/2006-39_IRB/ar11. E file tax returns html. E file tax returns 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. E file tax returns gov. E file tax returns Condemnation. E file tax returns   The replacement period for a condemnation begins on the earlier of the following dates. E file tax returns The date on which you disposed of the condemned property. E file tax returns The date on which the threat of condemnation began. E file tax returns 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. E file tax returns 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. E file tax returns Business or investment real property. E file tax returns   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. E file tax returns Extension. E file tax returns   You can apply for an extension of the replacement period. E file tax returns Send your written application to the Internal Revenue Service Center where you file your tax return. E file tax returns See your tax return instructions for the address. E file tax returns Include all the details about your need for an extension. E file tax returns Make your application before the end of the replacement period. E file tax returns 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. E file tax returns You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. E file tax returns How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. E file tax returns You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. E file tax returns Required statement. E file tax returns   You should attach a statement to your return for the year you have the gain. E file tax returns This statement should include all the following information. E file tax returns The date and details of the casualty, theft, or other involuntary conversion. E file tax returns The insurance or other reimbursement you received. E file tax returns How you figured the gain. E file tax returns Replacement property acquired before return filed. E file tax returns   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. E file tax returns The replacement property. E file tax returns The postponed gain. E file tax returns The basis adjustment that reflects the postponed gain. E file tax returns Any gain you are reporting as income. E file tax returns Replacement property acquired after return filed. E file tax returns   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. E file tax returns   You should then attach another statement to your return for the year in which you buy the replacement property. E file tax returns This statement should contain detailed information on the replacement property. E file tax returns 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. E file tax returns Include in the statement detailed information on the replacement property bought in that year. E file tax returns Reporting weather-related sales of livestock. E file tax returns   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. E file tax returns Evidence of the weather-related conditions that forced the sale or exchange of the livestock. E file tax returns The gain realized on the sale or exchange. E file tax returns The number and kind of livestock sold or exchanged. E file tax returns The number of livestock of each kind you would have sold or exchanged under your usual business practice. E file tax returns   Show all the following information and the preceding information on the return for the year in which you replace the livestock. E file tax returns The dates you bought the replacement property. E file tax returns The cost of the replacement property. E file tax returns Description of the replacement property (for example, the number and kind of the replacement livestock). E file tax returns Amended return. E file tax returns   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. E file tax returns You do not acquire replacement property within the replacement period, plus extensions. E file tax returns On this amended return, you must report the gain and pay any additional tax due. E file tax returns 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. E file tax returns On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. E file tax returns Disaster Area Losses Special rules apply to federally declared disaster area losses. E file tax returns 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. E file tax returns Stafford Disaster Relief and Emergency Assistance Act. E file tax returns It includes a major disaster or emergency declaration under the act. E file tax returns 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. E file tax returns fema. E file tax returns gov. E file tax returns This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. E file tax returns For other special rules, see Disaster Area Losses in Publication 547. E file tax returns When to deduct the loss. E file tax returns   You generally must deduct a casualty loss in the year it occurred. E file tax returns 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. E file tax returns If you make this choice, the loss is treated as having occurred in the preceding year. E file tax returns    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. E file tax returns   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. E file tax returns The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. E file tax returns The due date (with extensions) for the return for the preceding tax year. E file tax returns Federal disaster relief grants. E file tax returns   Do not include post-disaster relief grants received under the Robert T. E file tax returns 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. E file tax returns Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. E file tax returns 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. E file tax returns Unemployment assistance payments under the Act are taxable unemployment compensation. E file tax returns Qualified disaster relief payments. E file tax returns   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. E file tax returns These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). E file tax returns No withholding applies to these payments. E file tax returns   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. E file tax returns Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. E file tax returns Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. E file tax returns (A personal residence can be a rented residence or one you own. E file tax returns ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. E file tax returns   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. E file tax returns    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. E file tax returns Qualified disaster mitigation payments. E file tax returns   Qualified disaster mitigation payments made under the Robert T. E file tax returns 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. E file tax returns These are payments you, as a property owner, receive to reduce the risk of future damage to your property. E file tax returns You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. E file tax returns Sale of property under hazard mitigation program. E file tax returns   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. E file tax returns You report the gain or deduct the loss on your tax return for the year you realize it. E file tax returns (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. E file tax returns ) 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. E file tax returns See Postponing Gain , earlier, for the rules that apply. E file tax returns Other federal assistance programs. E file tax returns    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. E file tax returns Postponed tax deadlines. E file tax returns   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. E file tax returns 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. E file tax returns   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). E file tax returns Go to http://www. E file tax returns irs. E file tax returns gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. E file tax returns Who is eligible. E file tax returns   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. E file tax returns Any individual whose main home is located in a covered disaster area (defined next). E file tax returns Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. E file tax returns Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. E file tax returns 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. E file tax returns The main home or principal place of business does not have to be located in the covered disaster area. E file tax returns 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. E file tax returns The spouse on a joint return with a taxpayer who is eligible for postponements. E file tax returns 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. E file tax returns Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. E file tax returns Any other person determined by the IRS to be affected by a federally declared disaster. E file tax returns Covered disaster area. E file tax returns   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. E file tax returns Abatement of interest and penalties. E file tax returns   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. E file tax returns 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. E file tax returns Form 4684. E file tax returns   Use this form to report your gains and losses from casualties and thefts. E file tax returns Form 4797. E file tax returns   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. E file tax returns 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. E file tax returns Form 8949. E file tax returns   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. E file tax returns Schedule A (Form 1040). E file tax returns   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. E file tax returns Schedule D (Form 1040). E file tax returns   Use this form to carry over the following gains. E file tax returns Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. E file tax returns Net gain shown on Form 4684 from the casualty or theft of personal-use property. E file tax returns    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. E file tax returns Schedule F (Form 1040). E file tax returns   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. 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E file tax returns 10. E file tax returns   Employees of Foreign Governments and International Organizations Table of Contents Exemption Under Tax Treaty Exemption Under U. E file tax returns S. E file tax returns Tax LawCertification. E file tax returns Employees of foreign governments (including foreign municipalities) have two ways to get exemption of their governmental wages from U. E file tax returns S. E file tax returns income tax: By a provision in a tax treaty or consular convention between the United States and their country, or By meeting the requirements of U. E file tax returns S. E file tax returns tax law. E file tax returns Employees of international organizations can exempt their wages either by a provision, if one exists, in the international agreement creating the international organization, or by meeting the requirements of U. E file tax returns S. E file tax returns tax law. E file tax returns The exemption discussed in this chapter applies only to pay received for services performed for a foreign government or international organization. E file tax returns Other U. E file tax returns S. E file tax returns income received by persons who qualify for this exemption may be fully taxable or given favorable treatment under an applicable tax treaty provision. E file tax returns The proper treatment of this kind of income (interest, dividends, etc. E file tax returns ) is discussed earlier in this publication. E file tax returns Exemption Under Tax Treaty If you are from a country that has a tax treaty with the United States, you should first look at the treaty to see if there is a provision that exempts your income. E file tax returns The income of U. E file tax returns S. E file tax returns citizens and resident aliens working for foreign governments usually is not exempt. E file tax returns However, in a few instances, the income of a U. E file tax returns S. E file tax returns citizen with dual citizenship may qualify. E file tax returns Often the exemption is limited to the income of persons who also are nationals of the foreign country involved. E file tax returns Exemption Under U. E file tax returns S. E file tax returns Tax Law Employees of foreign governments who do not qualify under a tax treaty provision and employees of international organizations may qualify for exemption by meeting the following requirements of U. E file tax returns S. E file tax returns tax law. E file tax returns The exemption under U. E file tax returns S. E file tax returns tax law applies only to current employees and not to former employees. E file tax returns Pensions received by former employees living in the United States do not qualify for the exemption discussed here. E file tax returns Employees of foreign governments. E file tax returns   If you are not a U. E file tax returns S. E file tax returns citizen, or if you are a U. E file tax returns S. E file tax returns citizen but also a citizen of the Philippines, and you work for a foreign government in the United States, your foreign government salary is exempt from U. E file tax returns S. E file tax returns tax if you perform services similar to those performed by U. E file tax returns S. E file tax returns government employees in that foreign country and that foreign government grants an equivalent exemption to U. E file tax returns S. E file tax returns government employees. E file tax returns Certification. E file tax returns   To qualify for the exemption under U. E file tax returns S. E file tax returns tax law, either the Department of State must certify that you perform services similar to those performed by employees of the government of the United States in foreign countries and that your foreign government employer grants an equivalent exemption to U. E file tax returns S. E file tax returns government employees performing similar services in its country or you must establish those facts. E file tax returns However, see Aliens who keep immigrant status , later, for a special rule that may affect your qualifying for this exemption. E file tax returns Employees of international organizations. E file tax returns   If you work for an international organization in the United States and you are not a U. E file tax returns S. E file tax returns citizen (or you are a U. E file tax returns S. E file tax returns citizen but are also a citizen of the Philippines), your salary from that organization is exempt from U. E file tax returns S. E file tax returns tax. E file tax returns However, see Aliens who keep immigrant status , later, for a special rule that may affect your qualifying for this exemption. E file tax returns   An international organization is an organization designated by the President of the United States through Executive Order to qualify for the privileges, exemptions, and immunities provided in the International Organizations Immunities Act. E file tax returns   You should find out if you have been made known to, and have been accepted by, the Secretary of State as an officer or an employee of that organization, or if you have been designated by the Secretary of State, before formal notification and acceptance, as a prospective officer or employee. E file tax returns   If you are claiming exemption, you should know the number of the Executive Order covering the international organization and should have some written evidence of your acceptance or designation by the Secretary of State. E file tax returns   The exemption is denied when, because the Secretary of State determines your presence in the United States is no longer desirable, you leave the United States (or after a reasonable time allowed for leaving the United States). E file tax returns The exemption is also denied when a foreign country does not allow similar exemptions to U. E file tax returns S. E file tax returns citizens. E file tax returns Then the Secretary of State can withdraw the privileges, exemptions, and immunities from the nationals of that foreign country. E file tax returns Aliens who keep immigrant status. E file tax returns   If you file the waiver provided by section 247(b) of the Immigration and Nationality Act (USCIS Form I-508) to keep your immigrant status (green card), you no longer qualify for the exemption from U. E file tax returns S. E file tax returns tax under U. E file tax returns S. E file tax returns tax law from the date of filing the waiver with the Attorney General. E file tax returns   However, you do not lose the exemption if you file the waiver, and meet either of the following conditions. E file tax returns You are exempt from U. E file tax returns S. E file tax returns tax under an income tax treaty, consular agreement, or international agreement between the United States and your foreign government employer. E file tax returns You work for an international organization and the international organization agreement creating the international organization provides that alien employees are exempt from U. E file tax returns S. E file tax returns income tax. E file tax returns Two international organizations that have such a provision are the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank). E file tax returns . E file tax returns   For more information about a specific foreign country or international organization, send an email to embassy@irs. E file tax returns gov. 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