Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free State Tax Preparation

2011 1040a Tax FormHow To Amend 2010 TaxesHow To File Student TaxesFiling Late TaxesState Tax Returns FreeIncome Tax PreparationFile 1040ez ElectronicallyTax Forms1040ez Fillable FormHr Block FreeFile State Taxes Online FreeIrs Amended Tax Form1042nr EzFiling 2011 Tax Returns Free1040-xAmend A 2010 Tax ReturnState TaxTurbo Tax 2007Irs Short FormHandr Block Free FileFree State E-fileIrs Tax Forms For 2011Amended Return Form 1040x1040ez Form PrintableState Tax Forms 2012File Free State Return OnlineTaxslayer 2012Free HrblockFile 2012 State Taxes Online FreeFile Free State Return Only1040 AmendmentWhat Form Do I Need To Amend My TaxesWhere To File 2012 Taxes OnlineTaxes 2011 Forms1040ez Tax InstructionsStudents TaxesFree Tax FileIrs Amended Tax FormsForm 1040xDo State Taxes Online Free

Free State Tax Preparation

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

U.S. Department of the Treasury

The Department of the Treasury manages Federal finances by collecting taxes and paying bills and by managing currency, government accounts and public debt. The Department of the Treasury also enforces finance and tax laws.

The Free State Tax Preparation

Free state tax preparation 18. Free state tax preparation   Alimony Table of Contents IntroductionSpouse or former spouse. Free state tax preparation Divorce or separation instrument. Free state tax preparation Useful Items - You may want to see: General RulesMortgage payments. Free state tax preparation Taxes and insurance. Free state tax preparation Other payments to a third party. Free state tax preparation Instruments Executed After 1984Payments to a third party. Free state tax preparation Exception. Free state tax preparation Substitute payments. Free state tax preparation Specifically designated as child support. Free state tax preparation Contingency relating to your child. Free state tax preparation Clearly associated with a contingency. Free state tax preparation How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule Introduction This chapter discusses the rules that apply if you pay or receive alimony. Free state tax preparation It covers the following topics. Free state tax preparation What payments are alimony. Free state tax preparation What payments are not alimony, such as child support. Free state tax preparation How to deduct alimony you paid. Free state tax preparation How to report alimony you received as income. Free state tax preparation Whether you must recapture the tax benefits of alimony. Free state tax preparation Recapture means adding back in your income all or part of a deduction you took in a prior year. Free state tax preparation Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. Free state tax preparation It does not include voluntary payments that are not made under a divorce or separation instrument. Free state tax preparation Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Free state tax preparation Although this chapter is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. Free state tax preparation To be alimony, a payment must meet certain requirements. Free state tax preparation Different requirements generally apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. Free state tax preparation This chapter discusses the rules for payments under instruments executed after 1984. Free state tax preparation If you need the rules for payments under pre-1985 instruments, get and keep a copy of the 2004 version of Publication 504. Free state tax preparation That was the last year the information on pre-1985 instruments was included in Publication 504. Free state tax preparation Use Table 18-1 in this chapter as a guide to determine whether certain payments are considered alimony. Free state tax preparation Definitions. Free state tax preparation   The following definitions apply throughout this chapter. Free state tax preparation Spouse or former spouse. Free state tax preparation   Unless otherwise stated, the term “spouse” includes former spouse. Free state tax preparation Divorce or separation instrument. Free state tax preparation   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. Free state tax preparation This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). Free state tax preparation Useful Items - You may want to see: Publication 504 Divorced or Separated Individuals General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. Free state tax preparation Payments not alimony. Free state tax preparation   Not all payments under a divorce or separation instrument are alimony. Free state tax preparation Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained under Community Property in Publication 504, Payments to keep up the payer's property, or Use of the payer's property. Free state tax preparation Payments to a third party. Free state tax preparation   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. Free state tax preparation These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. Free state tax preparation ), taxes, tuition, etc. Free state tax preparation The payments are treated as received by your spouse and then paid to the third party. Free state tax preparation Life insurance premiums. Free state tax preparation   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. Free state tax preparation Payments for jointly-owned home. Free state tax preparation   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse, some of your payments may be alimony. Free state tax preparation Mortgage payments. Free state tax preparation   If you must pay all the mortgage payments (principal and interest) on a jointly-owned home, and they otherwise qualify as alimony, you can deduct one-half of the total payments as alimony. Free state tax preparation If you itemize deductions and the home is a qualified home, you can claim one-half of the interest in figuring your deductible interest. Free state tax preparation Your spouse must report one-half of the payments as alimony received. Free state tax preparation If your spouse itemizes deductions and the home is a qualified home, he or she can claim one-half of the interest on the mortgage in figuring deductible interest. Free state tax preparation Taxes and insurance. Free state tax preparation   If you must pay all the real estate taxes or insurance on a home held as tenants in common, you can deduct one-half of these payments as alimony. Free state tax preparation Your spouse must report one-half of these payments as alimony received. Free state tax preparation If you and your spouse itemize deductions, you can each claim one-half of the real estate taxes and none of the home insurance. Free state tax preparation    If your home is held as tenants by the entirety or joint tenants, none of your payments for taxes or insurance are alimony. Free state tax preparation But if you itemize deductions, you can claim all of the real estate taxes and none of the home insurance. Free state tax preparation Other payments to a third party. Free state tax preparation   If you made other third-party payments, see Publication 504 to see whether any part of the payments qualifies as alimony. Free state tax preparation Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. Free state tax preparation Exception for instruments executed before 1985. Free state tax preparation   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. Free state tax preparation A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. Free state tax preparation A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. Free state tax preparation   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, get the 2004 version of Publication 504 at www. Free state tax preparation irs. Free state tax preparation gov/pub504. Free state tax preparation Example 1. Free state tax preparation In November 1984, you and your former spouse executed a written separation agreement. Free state tax preparation In February 1985, a decree of divorce was substituted for the written separation agreement. Free state tax preparation The decree of divorce did not change the terms for the alimony you pay your former spouse. Free state tax preparation The decree of divorce is treated as executed before 1985. Free state tax preparation Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. Free state tax preparation Example 2. Free state tax preparation Assume the same facts as in Example 1 except that the decree of divorce changed the amount of the alimony. Free state tax preparation In this example, the decree of divorce is not treated as executed before 1985. Free state tax preparation The alimony payments are subject to the rules for payments under instruments executed after 1984. Free state tax preparation Alimony requirements. Free state tax preparation   A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. Free state tax preparation The payment is in cash. Free state tax preparation The instrument does not designate the payment as not alimony. Free state tax preparation Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. Free state tax preparation There is no liability to make any payment (in cash or property) after the death of the recipient spouse. Free state tax preparation The payment is not treated as child support. Free state tax preparation Each of these requirements is discussed below. Free state tax preparation Cash payment requirement. Free state tax preparation   Only cash payments, including checks and money orders, qualify as alimony. Free state tax preparation The following do not qualify as alimony. Free state tax preparation Transfers of services or property (including a debt instrument of a third party or an annuity contract). Free state tax preparation Execution of a debt instrument by the payer. Free state tax preparation The use of the payer's property. Free state tax preparation Payments to a third party. Free state tax preparation   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. Free state tax preparation See Payments to a third party under General Rules, earlier. Free state tax preparation   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. Free state tax preparation The payments are in lieu of payments of alimony directly to your spouse. Free state tax preparation The written request states that both spouses intend the payments to be treated as alimony. Free state tax preparation You receive the written request from your spouse before you file your return for the year you made the payments. Free state tax preparation Payments designated as not alimony. Free state tax preparation   You and your spouse can designate that otherwise qualifying payments are not alimony. Free state tax preparation You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. Free state tax preparation For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). Free state tax preparation If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. Free state tax preparation   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. Free state tax preparation The copy must be attached each year the designation applies. Free state tax preparation Spouses cannot be members of the same household. Free state tax preparation    Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. Free state tax preparation A home you formerly shared is considered one household, even if you physically separate yourselves in the home. Free state tax preparation   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. Free state tax preparation Exception. Free state tax preparation   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. Free state tax preparation Table 18-1. Free state tax preparation Alimony Requirements (Instruments Executed After 1984) Payments ARE alimony if all of the following are true: Payments are NOT alimony if any of the following are true: Payments are required by a divorce or separation instrument. Free state tax preparation Payments are not required by a divorce or separation instrument. Free state tax preparation Payer and recipient spouse do not file a joint return with each other. Free state tax preparation Payer and recipient spouse file a joint return with each other. Free state tax preparation Payment is in cash (including checks or money orders). Free state tax preparation Payment is: Not in cash, A noncash property settlement, Spouse's part of community income, or To keep up the payer's property. Free state tax preparation Payment is not designated in the instrument as not alimony. Free state tax preparation Payment is designated in the instrument as not alimony. Free state tax preparation Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. Free state tax preparation Spouses legally separated under a decree of divorce or separate maintenance are members of the same household. Free state tax preparation Payments are not required after death of the recipient spouse. Free state tax preparation Payments are required after death of the recipient spouse. Free state tax preparation Payment is not treated as child support. Free state tax preparation Payment is treated as child support. Free state tax preparation These payments are deductible by the payer and includible in income by the recipient. Free state tax preparation These payments are neither deductible by the payer nor includible in income by the recipient. Free state tax preparation Liability for payments after death of recipient spouse. Free state tax preparation   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony, whether made before or after the death. Free state tax preparation If all of the payments would continue, then none of the payments made before or after the death are alimony. Free state tax preparation   The divorce or separation instrument does not have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law. Free state tax preparation Example. Free state tax preparation You must pay your former spouse $10,000 in cash each year for 10 years. Free state tax preparation Your divorce decree states that the payments will end upon your former spouse's death. Free state tax preparation You must also pay your former spouse or your former spouse's estate $20,000 in cash each year for 10 years. Free state tax preparation The death of your spouse would not terminate these payments under state law. Free state tax preparation The $10,000 annual payments may qualify as alimony. Free state tax preparation The $20,000 annual payments that do not end upon your former spouse's death are not alimony. Free state tax preparation Substitute payments. Free state tax preparation   If you must make any payments in cash or property after your spouse's death as a substitute for continuing otherwise qualifying payments before the death, the otherwise qualifying payments are not alimony. Free state tax preparation To the extent that your payments begin, accelerate, or increase because of the death of your spouse, otherwise qualifying payments you made may be treated as payments that were not alimony. Free state tax preparation Whether or not such payments will be treated as not alimony depends on all the facts and circumstances. Free state tax preparation Example 1. Free state tax preparation Under your divorce decree, you must pay your former spouse $30,000 annually. Free state tax preparation The payments will stop at the end of 6 years or upon your former spouse's death, if earlier. Free state tax preparation Your former spouse has custody of your minor children. Free state tax preparation The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 annually to a trust until the youngest child reaches the age of majority. Free state tax preparation The trust income and corpus (principal) are to be used for your children's benefit. Free state tax preparation These facts indicate that the payments to be made after your former spouse's death are a substitute for $10,000 of the $30,000 annual payments. Free state tax preparation Of each of the $30,000 annual payments, $10,000 is not alimony. Free state tax preparation Example 2. Free state tax preparation Under your divorce decree, you must pay your former spouse $30,000 annually. Free state tax preparation The payments will stop at the end of 15 years or upon your former spouse's death, if earlier. Free state tax preparation The decree provides that if your former spouse dies before the end of the 15-year period, you must pay the estate the difference between $450,000 ($30,000 × 15) and the total amount paid up to that time. Free state tax preparation For example, if your spouse dies at the end of the tenth year, you must pay the estate $150,000 ($450,000 − $300,000). Free state tax preparation These facts indicate that the lump-sum payment to be made after your former spouse's death is a substitute for the full amount of the $30,000 annual payments. Free state tax preparation None of the annual payments are alimony. Free state tax preparation The result would be the same if the payment required at death were to be discounted by an appropriate interest factor to account for the prepayment. Free state tax preparation Child support. Free state tax preparation   A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument is not alimony. Free state tax preparation The amount of child support may vary over time. Free state tax preparation Child support payments are not deductible by the payer and are not taxable to the recipient. Free state tax preparation Specifically designated as child support. Free state tax preparation   A payment will be treated as specifically designated as child support to the extent that the payment is reduced either: On the happening of a contingency relating to your child, or At a time that can be clearly associated with the contingency. Free state tax preparation A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support. Free state tax preparation Contingency relating to your child. Free state tax preparation   A contingency relates to your child if it depends on any event relating to that child. Free state tax preparation It does not matter whether the event is certain or likely to occur. Free state tax preparation Events relating to your child include the child's: Becoming employed, Dying, Leaving the household, Leaving school, Marrying, or Reaching a specified age or income level. Free state tax preparation Clearly associated with a contingency. Free state tax preparation   Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations. Free state tax preparation The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority. Free state tax preparation The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. Free state tax preparation This certain age must be the same for each child, but need not be a whole number of years. Free state tax preparation In all other situations, reductions in payments are not treated as clearly associated with the happening of a contingency relating to your child. Free state tax preparation   Either you or the IRS can overcome the presumption in the two situations above. Free state tax preparation This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. Free state tax preparation For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony. Free state tax preparation How To Deduct Alimony Paid You can deduct alimony you paid, whether or not you itemize deductions on your return. Free state tax preparation You must file Form 1040. Free state tax preparation You cannot use Form 1040A or Form 1040EZ. Free state tax preparation Enter the amount of alimony you paid on Form 1040, line 31a. Free state tax preparation In the space provided on line 31b, enter your spouse's social security number (SSN) or individual taxpayer identification number (ITIN). Free state tax preparation If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Free state tax preparation Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Free state tax preparation Enter your total payments on line 31a. Free state tax preparation You must provide your spouse's SSN or ITIN. Free state tax preparation If you do not, you may have to pay a $50 penalty and your deduction may be disallowed. Free state tax preparation For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Free state tax preparation How To Report Alimony Received Report alimony you received as income on Form 1040, line 11. Free state tax preparation You cannot use Form 1040A or Form 1040EZ. Free state tax preparation You must give the person who paid the alimony your SSN or ITIN. Free state tax preparation If you do not, you may have to pay a $50 penalty. Free state tax preparation Recapture Rule If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. Free state tax preparation If you are subject to this rule, you have to include in income in the third year part of the alimony payments you previously deducted. Free state tax preparation Your spouse can deduct in the third year part of the alimony payments he or she previously included in income. Free state tax preparation The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. Free state tax preparation Do not include any time in which payments were being made under temporary support orders. Free state tax preparation The second and third years are the next 2 calendar years, whether or not payments are made during those years. Free state tax preparation The reasons for a reduction or end of alimony payments that can require a recapture include: A change in your divorce or separation instrument, A failure to make timely payments, A reduction in your ability to provide support, or A reduction in your spouse's support needs. Free state tax preparation When to apply the recapture rule. Free state tax preparation   You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year. Free state tax preparation   When you figure a decrease in alimony, do not include the following amounts. Free state tax preparation Payments made under a temporary support order. Free state tax preparation Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment. Free state tax preparation Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year. Free state tax preparation Figuring the recapture. Free state tax preparation   You can use Worksheet 1 in Publication 504 to figure recaptured alimony. Free state tax preparation Including the recapture in income. Free state tax preparation   If you must include a recapture amount in income, show it on Form 1040, line 11 (“Alimony received”). Free state tax preparation Cross out “received” and enter “recapture. Free state tax preparation ” On the dotted line next to the amount, enter your spouse's last name and SSN or ITIN. Free state tax preparation Deducting the recapture. Free state tax preparation   If you can deduct a recapture amount, show it on Form 1040, line 31a (“Alimony paid”). Free state tax preparation Cross out “paid” and enter “recapture. Free state tax preparation ” In the space provided, enter your spouse's SSN or ITIN. Free state tax preparation Prev  Up  Next   Home   More Online Publications