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Filing 1040ez

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Filing 1040ez

Filing 1040ez 4. Filing 1040ez   Reporting Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Information Returns Schedule D and Form 8949Long and Short Term Net Gain or Loss Treatment of Capital Losses Capital Gains Tax Rates Form 4797Mark-to-market election. Filing 1040ez Introduction This chapter explains how to report capital gains and losses and ordinary gains and losses from sales, exchanges, and other dispositions of property. Filing 1040ez Although this discussion refers to Schedule D (Form 1040) and Form 8949, many of the rules discussed here also apply to taxpayers other than individuals. Filing 1040ez However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Filing 1040ez Topics - This chapter discusses: Information returns Schedule D (Form 1040) Form 4797 Form 8949 Useful Items - You may want to see: Publication 550 Investment Income and Expenses 537 Installment Sales Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-S Proceeds From Real Estate Transactions 4684 Casualties and Thefts 4797 Sales of Business Property 6252 Installment Sale Income 6781 Gains and Losses from Section 1256 Contracts and Straddles 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Filing 1040ez Information Returns If you sell or exchange certain assets, you should receive an information return showing the proceeds of the sale. Filing 1040ez This information is also provided to the IRS. Filing 1040ez Form 1099-B. Filing 1040ez   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a substitute statement from the broker. Filing 1040ez Use the Form 1099-B or a substitute statement to complete Form 8949 and/or Schedule D. Filing 1040ez Whether or not you receive 1099-B, you must report all taxable sales of stock, bonds, commodities, etc. Filing 1040ez on Form 8949 and/or Schedule D, as applicable. Filing 1040ez For more information on figuring gains and losses from these transactions, see chapter 4 in Publication 550. Filing 1040ez For information on reporting the gains and losses, see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Filing 1040ez Form 1099-S. Filing 1040ez   An information return must be provided on certain real estate transactions. Filing 1040ez Generally, the person responsible for closing the transaction (the “real estate reporting person”) must report on Form 1099-S sales or exchanges of the following types of property. Filing 1040ez Land (improved or unimproved), including air space. Filing 1040ez An inherently permanent structure, including any residential, commercial, or industrial building. Filing 1040ez A condominium unit and its related fixtures and common elements (including land). Filing 1040ez Stock in a cooperative housing corporation. Filing 1040ez If you sold or exchanged any of the above types of property, the “real estate reporting person” must give you a copy of Form 1099-S or a statement containing the same information as the Form 1099-S. Filing 1040ez The “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property. Filing 1040ez   For more information see chapter 4 in Publication 550. Filing 1040ez Also, see the Instructions for Form 8949. Filing 1040ez Schedule D and Form 8949 Form 8949. Filing 1040ez   Individuals, corporations, and partnerships, use Form 8949 to report the following. Filing 1040ez    Sales or exchanges of capital assets, including stocks, bonds, etc. Filing 1040ez , and real estate (if not reported on another form or schedule such as Form 4684, 4797, 6252, 6781, or 8824). Filing 1040ez Include these transactions even if you did not receive a Form 1099-B or 1099-S. Filing 1040ez Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit. Filing 1040ez Nonbusiness bad debts. Filing 1040ez   Individuals, If you are filing a joint return, complete as many copies of Form 8949 as you need to report all of your and your spouse's transactions. Filing 1040ez You and your spouse may list your transactions on separate forms or you may combine them. Filing 1040ez However, you must include on your Schedule D the totals from all Forms 8949 for both you and your spouse. Filing 1040ez    Corporations and electing large partnerships also use Form 8949 to report their share of gain or loss from a partnership, S Corporation, estate or trust. Filing 1040ez   Business entities meeting certain criteria, may have an exception to some of the normal requirements for completing Form 8949. Filing 1040ez See the Instructions for Form 8949. Filing 1040ez Schedule D. Filing 1040ez    Use Schedule D (Form 1040) to figure the overall gain or loss from transactions reported on Form 8949, and to report certain transactions you do not have to report on Form 8949. Filing 1040ez Before completing Schedule D, you may have to complete other forms as shown below. Filing 1040ez    Complete all applicable lines of Form 8949 before completing lines 1b, 2, 3, 8b, 9, or 10 of your applicable Schedule D. Filing 1040ez Enter on Schedule D the combined totals from all your Forms 8949. Filing 1040ez For a sale, exchange, or involuntary conversion of business property, complete Form 4797 (discussed later). Filing 1040ez For a like-kind exchange, complete Form 8824. Filing 1040ez See Reporting the exchange under Like-Kind Exchanges in chapter 1. Filing 1040ez For an installment sale, complete Form 6252. Filing 1040ez See Publication 537. Filing 1040ez For an involuntary conversion due to casualty or theft, complete Form 4684. Filing 1040ez See Publication 547, Casualties, Disasters, and Thefts. Filing 1040ez For a disposition of an interest in, or property used in, an activity to which the at-risk rules apply, complete Form 6198, At-Risk Limitations. Filing 1040ez See Publication 925, Passive Activity and At-Risk Rules. Filing 1040ez For a disposition of an interest in, or property used in, a passive activity, complete Form 8582, Passive Activity Loss Limitations. Filing 1040ez See Publication 925. Filing 1040ez For gains and losses from section 1256 contracts and straddles, complete Form 6781. Filing 1040ez See Publication 550. Filing 1040ez Personal-use property. Filing 1040ez   Report gain on the sale or exchange of property held for personal use (such as your home) on Form 8949 and Schedule D (Form 1040), as applicable. Filing 1040ez Loss from the sale or exchange of property held for personal use is not deductible. Filing 1040ez But if you had a loss from the sale or exchange of real estate held for personal use for which you received a Form 1099-S, report the transaction on Form 8949 and Schedule D, even though the loss is not deductible. Filing 1040ez See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for information on how to report the transaction. Filing 1040ez Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Filing 1040ez The time you own an asset before disposing of it is the holding period. Filing 1040ez If you received a Form 1099-B, (or substitute statement) box 1c may help you determine whether the gain or loss is short-term or long-term. Filing 1040ez If you hold a capital asset 1 year or less, the gain or loss from its disposition is short term. Filing 1040ez Report it in Part I of Form 8949 and/or Schedule D, as applicable. Filing 1040ez If you hold a capital asset longer than 1 year, the gain or loss from its disposition is long term. Filing 1040ez Report it in Part II of Form 8949 and/or Schedule D, as applicable. Filing 1040ez   Table 4-1. Filing 1040ez Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. Filing 1040ez . Filing 1040ez . Filing 1040ez  THEN you have a. Filing 1040ez . Filing 1040ez . Filing 1040ez 1 year or less, Short-term capital gain or  loss. Filing 1040ez More than 1 year, Long-term capital gain or  loss. Filing 1040ez These distinctions are essential to correctly arrive at your net capital gain or loss. Filing 1040ez Capital losses are allowed in full against capital gains plus up to $3,000 of ordinary income. Filing 1040ez See Capital Gains Tax Rates, later. Filing 1040ez Holding period. Filing 1040ez   To figure if you held property longer than 1 year, start counting on the day following the day you acquired the property. Filing 1040ez The day you disposed of the property is part of your holding period. Filing 1040ez Example. Filing 1040ez If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Filing 1040ez If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Filing 1040ez Patent property. Filing 1040ez   If you dispose of patent property, you generally are considered to have held the property longer than 1 year, no matter how long you actually held it. Filing 1040ez For more information, see Patents in chapter 2. Filing 1040ez Inherited property. Filing 1040ez   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Filing 1040ez Installment sale. Filing 1040ez   The gain from an installment sale of an asset qualifying for long-term capital gain treatment in the year of sale continues to be long term in later tax years. Filing 1040ez If it is short term in the year of sale, it continues to be short term when payments are received in later tax years. Filing 1040ez    The date the installment payment is received determines the capital gains rate that should be applied not the date the asset was sold under an installment contract. Filing 1040ez Nontaxable exchange. Filing 1040ez   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Filing 1040ez That is, it begins on the same day as your holding period for the old property. Filing 1040ez Example. Filing 1040ez You bought machinery on December 4, 2012. Filing 1040ez On June 4, 2013, you traded this machinery for other machinery in a nontaxable exchange. Filing 1040ez On December 5, 2013, you sold the machinery you got in the exchange. Filing 1040ez Your holding period for this machinery began on December 5, 2012. Filing 1040ez Therefore, you held it longer than 1 year. Filing 1040ez Corporate liquidation. Filing 1040ez   The holding period for property you receive in a liquidation generally starts on the day after you receive it if gain or loss is recognized. Filing 1040ez Profit-sharing plan. Filing 1040ez   The holding period of common stock withdrawn from a qualified contributory profit-sharing plan begins on the day following the day the plan trustee delivered the stock to the transfer agent with instructions to reissue the stock in your name. Filing 1040ez Gift. Filing 1040ez   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Filing 1040ez For more information on basis, see Publication 551, Basis of Assets. Filing 1040ez Real property. Filing 1040ez   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, the day after you took possession of it and assumed the burdens and privileges of ownership. Filing 1040ez   However, taking possession of real property under an option agreement is not enough to start the holding period. Filing 1040ez The holding period cannot start until there is an actual contract of sale. Filing 1040ez The holding period of the seller cannot end before that time. Filing 1040ez Repossession. Filing 1040ez   If you sell real property but keep a security interest in it and then later repossess it, your holding period for a later sale includes the period you held the property before the original sale, as well as the period after the repossession. Filing 1040ez Your holding period does not include the time between the original sale and the repossession. Filing 1040ez That is, it does not include the period during which the first buyer held the property. Filing 1040ez Nonbusiness bad debts. Filing 1040ez   Nonbusiness bad debts are short-term capital losses. Filing 1040ez For information on nonbusiness bad debts, see chapter 4 of Publication 550. Filing 1040ez    Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Filing 1040ez Net short-term capital gain or loss. Filing 1040ez   Combine your short-term capital gains and losses, including your share of short-term capital gains or losses from partnerships, S corporations, and fiduciaries and any short-term capital loss carryover. Filing 1040ez Do this by adding all your short-term capital gains. Filing 1040ez Then add all your short-term capital losses. Filing 1040ez Subtract the lesser total from the other. Filing 1040ez The result is your net short-term capital gain or loss. Filing 1040ez Net long-term capital gain or loss. Filing 1040ez   Follow the same steps to combine your long-term capital gains and losses. Filing 1040ez Include the following items. Filing 1040ez Net section 1231 gain from Part I, Form 4797, after any adjustment for nonrecaptured section 1231 losses from prior tax years. Filing 1040ez Capital gain distributions from regulated investment companies (mutual funds) and real estate investment trusts. Filing 1040ez Your share of long-term capital gains or losses from partnerships, S corporations, and fiduciaries. Filing 1040ez Any long-term capital loss carryover. Filing 1040ez The result from combining these items with other long-term capital gains and losses is your net long-term capital gain or loss. Filing 1040ez Net gain. Filing 1040ez   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Filing 1040ez Different tax rates may apply to the part that is a net capital gain. Filing 1040ez See Capital Gains Tax Rates, later. Filing 1040ez Net loss. Filing 1040ez   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Filing 1040ez But there are limits on how much loss you can deduct and when you can deduct it. Filing 1040ez See Treatment of Capital Losses, next. Filing 1040ez    Treatment of Capital Losses If your capital losses are more than your capital gains, you can deduct the difference as a capital loss deduction even if you do not have ordinary income to offset it. Filing 1040ez The yearly limit on the amount of the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Filing 1040ez Table 4-2. Filing 1040ez Holding Period for Different Types of Acquisitions Type of acquisition: When your holding period starts: Stocks and bonds bought on a securities market Day after trading date you bought security. Filing 1040ez Ends on trading date you sold security. Filing 1040ez U. Filing 1040ez S. Filing 1040ez Treasury notes and bonds If bought at auction, day after notification of bid acceptance. Filing 1040ez If bought through subscription, day after subscription was submitted. Filing 1040ez Nontaxable exchanges Day after date you acquired old property. Filing 1040ez Gift If your basis is giver's adjusted basis, same day as giver's holding period began. Filing 1040ez If your basis is FMV, day after date of gift. Filing 1040ez Real property bought Generally, day after date you received title to the property. Filing 1040ez Real property repossessed Day after date you originally received title to the property, but does not include time between the original sale and date of repossession. Filing 1040ez Capital loss carryover. Filing 1040ez   Generally, you have a capital loss carryover if either of the following situations applies to you. Filing 1040ez Your net loss is more than the yearly limit. Filing 1040ez Your taxable income without your deduction for exemptions is less than zero. Filing 1040ez If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carryover to 2014. Filing 1040ez Example. Filing 1040ez Bob and Gloria Sampson sold property in 2013. Filing 1040ez The sale resulted in a capital loss of $7,000. Filing 1040ez The Sampsons had no other capital transactions. Filing 1040ez On their joint 2013 return, the Sampsons deduct $3,000, the yearly limit. Filing 1040ez They had taxable income of $2,000. Filing 1040ez The unused part of the loss, $4,000 ($7,000 − $3,000), is carried over to 2014. Filing 1040ez If the Sampsons' capital loss had been $2,000, it would not have been more than the yearly limit. Filing 1040ez Their capital loss deduction would have been $2,000. Filing 1040ez They would have no carryover to 2014. Filing 1040ez Short-term and long-term losses. Filing 1040ez   When you carry over a loss, it retains its original character as either long term or short term. Filing 1040ez A short-term loss you carry over to the next tax year is added to short-term losses occurring in that year. Filing 1040ez A long-term loss you carry over to the next tax year is added to long-term losses occurring in that year. Filing 1040ez A long-term capital loss you carry over to the next year reduces that year's long-term gains before its short-term gains. Filing 1040ez   If you have both short-term and long-term losses, your short-term losses are used first against your allowable capital loss deduction. Filing 1040ez If, after using your short-term losses, you have not reached the limit on the capital loss deduction, use your long-term losses until you reach the limit. Filing 1040ez To figure your capital loss carryover from 2013 to 2014 use the Capital Loss Carryover Worksheet in the 2013 Instructions for Schedule D (Form 1040). Filing 1040ez Joint and separate returns. Filing 1040ez   On a joint return, the capital gains and losses of spouses are figured as the gains and losses of an individual. Filing 1040ez If you are married and filing a separate return, your yearly capital loss deduction is limited to $1,500. Filing 1040ez Neither you nor your spouse can deduct any part of the other's loss. Filing 1040ez   If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. Filing 1040ez However, if you and your spouse once filed jointly and are now filing separately, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss. Filing 1040ez Death of taxpayer. Filing 1040ez   Capital losses cannot be carried over after a taxpayer's death. Filing 1040ez They are deductible only on the final income tax return filed on the decedent's behalf. Filing 1040ez The yearly limit discussed earlier still applies in this situation. Filing 1040ez Even if the loss is greater than the limit, the decedent's estate cannot deduct the difference or carry it over to following years. Filing 1040ez Corporations. Filing 1040ez   A corporation can deduct capital losses only up to the amount of its capital gains. Filing 1040ez In other words, if a corporation has a net capital loss, it cannot be deducted in the current tax year. Filing 1040ez It must be carried to other tax years and deducted from capital gains occurring in those years. Filing 1040ez For more information, see Publication 542. Filing 1040ez Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Filing 1040ez These lower rates are called the maximum capital gains rates. Filing 1040ez The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Filing 1040ez For 2013, the maximum tax rates for individuals are 0%, 15%, 20%, 25%, and 28%. Filing 1040ez Also, individuals, use the Qualified Dividends and Capital Gain Worksheet in the Instructions for Form 1040, or the Schedule D Tax Computation Worksheet in the Instructions for Schedule D (Form 1040) (whichever applies) to figure your tax if you have qualified dividends or net capital gain. Filing 1040ez For more information, see chapter 4 of Publication 550. Filing 1040ez Also see the Instructions for Schedule D (Form 1040). Filing 1040ez Unrecaptured section 1250 gain. Filing 1040ez   Generally, this is the part of any long-term capital gain on section 1250 property (real property) that is due to depreciation. Filing 1040ez Unrecaptured section 1250 gain cannot be more than the net section 1231 gain or include any gain otherwise treated as ordinary income. Filing 1040ez Use the worksheet in the Schedule D instructions to figure your unrecaptured section 1250 gain. Filing 1040ez For more information about section 1250 property and net section 1231 gain, see chapter 3. Filing 1040ez Form 4797 Use Form 4797 to report: The sale or exchange of: Property used in your trade or business; Depreciable and amortizable property; Oil, gas, geothermal, or other mineral properties; and Section 126 property. Filing 1040ez The involuntary conversion (from other than 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. Filing 1040ez The disposition of noncapital assets (other than inventory or property held primarily for sale to customers in the ordinary course of your trade or business). Filing 1040ez The disposition of capital assets not reported on Schedule D. Filing 1040ez The gain or loss (including any related recapture) for partners and S corporation shareholders from certain section 179 property dispositions by partnerships (other than electing large partnerships) and S corporations. Filing 1040ez The computation of recapture amounts under sections 179 and 280F(b)(2) when the business use of section 179 or listed property decreases to 50% or less. Filing 1040ez Gains or losses treated as ordinary gains or losses, if you are a trader in securities or commodities and made a mark-to-market election under Internal Revenue Code section 475(f). Filing 1040ez You can use Form 4797 with Form 1040, 1065, 1120, or 1120S. Filing 1040ez Section 1231 gains and losses. Filing 1040ez   Show any section 1231 gains and losses in Part I. Filing 1040ez Carry a net gain to Schedule D (Form 1040) as a long-term capital gain. Filing 1040ez Carry a net loss to Part II of Form 4797 as an ordinary loss. Filing 1040ez   If you had any nonrecaptured net section 1231 losses from the preceding 5 tax years, reduce your net gain by those losses and report the amount of the reduction as an ordinary gain in Part II. Filing 1040ez Report any remaining gain on Schedule D (Form 1040). Filing 1040ez See Section 1231 Gains and Losses in chapter 3. Filing 1040ez Ordinary gains and losses. Filing 1040ez   Show any ordinary gains and losses in Part II. Filing 1040ez This includes a net loss or a recapture of losses from prior years figured in Part I of Form 4797. Filing 1040ez It also includes ordinary gain figured in Part III. Filing 1040ez Mark-to-market election. Filing 1040ez   If you made a mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Form 8949 and Schedule D (Form 1040). Filing 1040ez See the Instructions for Form 4797. Filing 1040ez Also see Special Rules for Traders in Securities, in chapter 4 of Publication 550. Filing 1040ez Ordinary income from depreciation. Filing 1040ez   Figure the ordinary income from depreciation on personal property and additional depreciation on real property (as discussed in chapter 3) in Part III. Filing 1040ez Carry the ordinary income to Part II of Form 4797 as an ordinary gain. Filing 1040ez Carry any remaining gain to Part I as section 1231 gain, unless it is from a casualty or theft. Filing 1040ez Carry any remaining gain from a casualty or theft to Form 4684. Filing 1040ez Prev  Up  Next   Home   More Online Publications
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The Filing 1040ez

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