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How To Do Tax Amendment

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How To Do Tax Amendment

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

How to do tax amendment 2. How to do tax amendment   Tax Shelters and Other Reportable Transactions Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Abusive Tax SheltersRules To Curb Abusive Tax Shelters Investor Reporting Penalties Whether To Invest Introduction Investments that yield tax benefits are sometimes called “tax shelters. How to do tax amendment ” In some cases, Congress has concluded that the loss of revenue is an acceptable side effect of special tax provisions designed to encourage taxpayers to make certain types of investments. How to do tax amendment In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. How to do tax amendment Those cases are called “abusive tax shelters. How to do tax amendment ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. How to do tax amendment Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . How to do tax amendment Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 556 Examination of Returns, Appeal Rights, and Claims for Refund 561 Determining the Value of Donated Property 925 Passive Activity and At-Risk Rules Form (and Instructions) 8275 Disclosure Statement 8275-R Regulation Disclosure Statement 8283 Noncash Charitable Contributions 8886 Reportable Transaction Disclosure Statement See chapter 5, How To Get Tax Help , for information about getting these publications and forms. How to do tax amendment Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. How to do tax amendment They often make use of unrealistic allocations, inflated appraisals, losses in connection with nonrecourse loans, mismatching of income and deductions, financing techniques that do not conform to standard commercial business practices, or mischaracterization of the substance of the transaction. How to do tax amendment Despite appearances to the contrary, the taxpayer generally risks little. How to do tax amendment Abusive tax shelters commonly involve package deals designed from the start to generate losses, deductions, or credits that will be far more than present or future investment. How to do tax amendment Or, they may promise investors from the start that future inflated appraisals will enable them, for example, to reap charitable contribution deductions based on those appraisals. How to do tax amendment (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. How to do tax amendment ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. How to do tax amendment This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. How to do tax amendment Because there are many abusive tax shelters, it is not possible to list all the factors you should consider in determining whether an offering is an abusive tax shelter. How to do tax amendment However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. How to do tax amendment Do the tax benefits far outweigh the economic benefits? Is this a transaction you would seriously consider, apart from the tax benefits, if you hoped to make a profit? Do shelter assets really exist and, if so, are they insured for less than their purchase price? Is there a nontax justification for the way profits and losses are allocated to partners? Do the facts and supporting documents make economic sense? In that connection, are there sales and resales of the tax shelter property at ever increasing prices? Does the investment plan involve a gimmick, device, or sham to hide the economic reality of the transaction? Does the promoter offer to backdate documents after the close of the year? Are you instructed to backdate checks covering your investment? Is your debt a real debt or are you assured by the promoter that you will never have to pay it? Does this transaction involve laundering United States source income through foreign corporations incorporated in a tax haven and owned by United States shareholders? Rules To Curb Abusive Tax Shelters Congress has enacted a series of income tax laws designed to halt the growth of abusive tax shelters. How to do tax amendment These provisions include the following. How to do tax amendment Disclosure of reportable transactions. How to do tax amendment   You must disclose information for each reportable transaction in which you participate. How to do tax amendment See Reportable Transaction Disclosure Statement , later. How to do tax amendment   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. How to do tax amendment To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. How to do tax amendment   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. How to do tax amendment They must provide this number to all persons to whom they acted as a material advisor. How to do tax amendment They must provide the number at the time the transaction is entered into. How to do tax amendment If they do not have the number at that time, they must provide it within 60 days from the date the number is mailed to them. How to do tax amendment For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. How to do tax amendment Requirement to maintain list. How to do tax amendment   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. How to do tax amendment The list must be available for inspection by the IRS, and the information required to be included on the list generally must be kept for 7 years. How to do tax amendment See Regulations section 301. How to do tax amendment 6112-1 for more information (including what information is required to be included on the list). How to do tax amendment Confidentiality privilege. How to do tax amendment   The confidentiality privilege between you and a federally authorized tax practitioner does not apply to written communications made after October 21, 2004, regarding the promotion of your direct or indirect participation in any tax shelter. How to do tax amendment Appraisal requirement for donated property. How to do tax amendment   If you claim a deduction of more than $5,000 for an item or group of similar items of donated property, you generally must get a qualified appraisal from a qualified appraiser and complete and attach section B of Form 8283 to your return. How to do tax amendment If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. How to do tax amendment If you file electronically, see Form 8453, U. How to do tax amendment S. How to do tax amendment Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. How to do tax amendment For more information about appraisals, including exceptions, see Publication 561. How to do tax amendment Passive activity loss and credit limits. How to do tax amendment   The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities and limit the amount that can offset nonpassive income, such as certain portfolio income from investments. How to do tax amendment For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. How to do tax amendment Interest on penalties. How to do tax amendment   If you are assessed an accuracy-related or civil fraud penalty (as discussed under Penalties , later), interest will be imposed on the amount of the penalty from the due date of the return (including any extensions) to the date you pay the penalty. How to do tax amendment Accounting method restriction. How to do tax amendment   Tax shelters generally cannot use the cash method of accounting. How to do tax amendment Uniform capitalization rules. How to do tax amendment   The uniform capitalization rules generally apply to producing property or acquiring it for resale. How to do tax amendment Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. How to do tax amendment For more information, see Publication 538. How to do tax amendment Denial of deduction for interest on an underpayment due to a reportable transaction. How to do tax amendment   You cannot deduct any interest you paid or accrued on any part of an underpayment of tax due to an understatement arising from a reportable transaction (discussed later) if the relevant facts affecting the tax treatment of the item are not adequately disclosed. How to do tax amendment This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. How to do tax amendment Authority for Disallowance of Tax Benefits The IRS has published guidance concluding that the claimed tax benefits of various abusive tax shelters should be disallowed. How to do tax amendment The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. How to do tax amendment Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. How to do tax amendment So, if your return is examined and an abusive tax shelter is identified and challenged, published guidance dealing with that type of shelter, which disallows certain claimed tax shelter benefits, could serve as the basis for the examining official's challenge of the tax benefits you claimed. How to do tax amendment In such a case, the examiner will not compromise even if you or your representative believes you have authority for the positions taken on your tax return. How to do tax amendment The courts have generally been unsympathetic to taxpayers involved in abusive tax shelter schemes and have ruled in favor of the IRS in the majority of the cases in which these shelters have been challenged. How to do tax amendment Investor Reporting You may be required to file a reportable transaction disclosure statement. How to do tax amendment Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. How to do tax amendment Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. How to do tax amendment Under certain circumstances, a transaction must be disclosed within 90 days of the transaction being identified as a listed transaction or a transaction of interest (discussed later). How to do tax amendment In addition, for the first year Form 8886 is attached to your return, you must send a copy of the form to: Internal Revenue Service OTSA Mail Stop 4915 1973 North Rulon White Blvd. How to do tax amendment  Ogden, UT 84404 If you file your return electronically, the copy sent to OTSA must show exactly the same information, word for word, provided with the electronically filed return and it must be provided on the official IRS Form 8886 or an exact copy of the form. How to do tax amendment If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. How to do tax amendment If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. How to do tax amendment See Penalty for failure to disclose a reportable transaction , later under Penalties. How to do tax amendment The following discussion briefly describes reportable transactions. How to do tax amendment For more details, see the Instructions for Form 8886. How to do tax amendment Reportable transaction. How to do tax amendment   A reportable transaction is any of the following. How to do tax amendment A listed transaction. How to do tax amendment A confidential transaction. How to do tax amendment A transaction with contractual protection. How to do tax amendment A loss transaction. How to do tax amendment A transaction of interest entered into after November 1, 2006. How to do tax amendment Note. How to do tax amendment Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. How to do tax amendment Listed transaction. How to do tax amendment   A listed transaction is the same as, or substantially similar to, one of the types of transactions the IRS has determined to be a tax-avoidance transaction. How to do tax amendment These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. How to do tax amendment For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2009-31_IRB/ar07. How to do tax amendment html. How to do tax amendment Confidential transaction. How to do tax amendment   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. How to do tax amendment A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on your disclosure of the tax treatment or tax structure of the transaction and the limit protects the confidentiality of the advisor's tax strategies. How to do tax amendment The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. How to do tax amendment Transaction with contractual protection. How to do tax amendment   Generally, a transaction with contractual protection is one in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. How to do tax amendment For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2007-07_IRB/ar15. How to do tax amendment html. How to do tax amendment Loss transaction. How to do tax amendment   For individuals, a loss transaction is one that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. How to do tax amendment A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. How to do tax amendment   Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886. How to do tax amendment For information on other exceptions, see Revenue Procedure 2004-66 in Internal Revenue Bulletin 2004-50, as modified and superseded by Revenue Procedure 2013-11, (or future published guidance) available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2004-50_IRB/ar11. How to do tax amendment html. How to do tax amendment Transaction of interest. How to do tax amendment   A transaction of interest is a transaction entered into after November 1, 2006, that is the same as, or substantially similar to, one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest. How to do tax amendment The IRS has identified the following transactions of interest. How to do tax amendment “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. How to do tax amendment R. How to do tax amendment B. How to do tax amendment 545, available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2007-36_IRB/ar20. How to do tax amendment html. How to do tax amendment Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. How to do tax amendment R. How to do tax amendment B. How to do tax amendment 544, available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2007-36_IRB/ar19. How to do tax amendment html. How to do tax amendment Certain transactions involving the sale or other disposition of all interests in a charitable remainder trust and claiming little or no taxable gain as described in Notice 2008-99, 2008-47 I. How to do tax amendment R. How to do tax amendment B. How to do tax amendment 1194, available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2008-47_IRB/ar11. How to do tax amendment html. How to do tax amendment Certain transactions involving a U. How to do tax amendment S. How to do tax amendment taxpayer owning controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership to avoid reporting income as described in Notice 2009-7, 2009-3 I. How to do tax amendment R. How to do tax amendment B. How to do tax amendment 312, available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2009-03_IRB/ar10. How to do tax amendment html. How to do tax amendment   For updates to this list, go to www. How to do tax amendment irs. How to do tax amendment gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. How to do tax amendment Penalties Investing in an abusive tax shelter may lead to substantial expenses. How to do tax amendment First, the promoter generally charges a substantial fee. How to do tax amendment If your return is examined by the IRS and a tax deficiency is determined, you will be faced with payment of more tax, interest on the underpayment, possibly a 20%, 30%, or even 40% accuracy-related penalty, or a 75% civil fraud penalty. How to do tax amendment You may also be subject to the penalty for failure to pay tax. How to do tax amendment These penalties are explained in the following paragraphs. How to do tax amendment Accuracy-related penalties. How to do tax amendment   An accuracy-related penalty of 20% can be imposed for underpayments of tax due to: Negligence or disregard of rules or regulations, Substantial understatement of tax, Substantial valuation misstatement (increased to 40% for gross valuation misstatement), Transaction lacking economic substance (increased to 40% for undisclosed transaction lacking economic substance), or Undisclosed foreign financial asset understatement (40% in all cases). How to do tax amendment Except for a transaction lacking economic substance, this penalty will not be imposed if you can show you had reasonable cause for any understatement of tax and that you acted in good faith. How to do tax amendment Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. How to do tax amendment   If you are charged an accuracy-related penalty, interest will be imposed on the amount of the penalty from the due date of the return (including extensions) to the date you pay the penalty. How to do tax amendment   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). How to do tax amendment Negligence or disregard of rules or regulations. How to do tax amendment   The penalty for negligence or disregard of rules or regulations is imposed only on the part of the underpayment due to negligence or disregard of rules or regulations. How to do tax amendment The penalty will not be charged if you can show you had reasonable cause for understating your tax and that you acted in good faith. How to do tax amendment    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. How to do tax amendment It also includes any failure to keep adequate books and records. How to do tax amendment A return position that has a reasonable basis is not negligence. How to do tax amendment   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. How to do tax amendment   The penalty for disregard of rules and regulations can be avoided if all the following are true. How to do tax amendment You keep adequate books and records. How to do tax amendment You have a reasonable basis for your position on the tax issue. How to do tax amendment You make an adequate disclosure of your position. How to do tax amendment Use Form 8275 to make your disclosure and attach it to your return. How to do tax amendment To disclose a position contrary to a regulation, use Form 8275-R. How to do tax amendment Use Form 8886 to disclose a reportable transaction (discussed earlier). How to do tax amendment Substantial understatement of tax. How to do tax amendment   An understatement is considered to be substantial if it is more than the greater of: 10% of the tax required to be shown on the return, or $5,000. How to do tax amendment An “understatement” is the amount of tax required to be shown on your return for a tax year minus the amount of tax shown on the return, reduced by any rebates. How to do tax amendment The term “rebate” generally means a decrease in the tax shown on your original return as the result of your filing an amended return or claim for refund. How to do tax amendment   For items other than tax shelters, you can file Form 8275 or Form 8275-R to disclose items that could cause a substantial understatement of income tax. How to do tax amendment In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. How to do tax amendment Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. How to do tax amendment   Also, the understatement penalty will not be imposed if you can show there was reasonable cause for the underpayment caused by the understatement and that you acted in good faith. How to do tax amendment An important factor in establishing reasonable cause and good faith will be the extent of your effort to determine your proper tax liability under the law. How to do tax amendment Substantial valuation misstatement. How to do tax amendment   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. How to do tax amendment The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. How to do tax amendment You underpaid your tax by more than $5,000 because of the misstatement. How to do tax amendment You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. How to do tax amendment   You may be assessed a penalty of 40% for a gross valuation misstatement. How to do tax amendment If you misstate the value or the adjusted basis of property by 200% or more of the amount determined to be correct, you will be assessed a penalty of 40%, instead of 20%, of the amount you underpaid because of the gross valuation misstatement. How to do tax amendment The penalty rate is also 40% if the property's correct value or adjusted basis is zero. How to do tax amendment Transaction lacking economic substance. How to do tax amendment   The economic substance doctrine only applies to an individual that entered into a transaction in connection with a trade or business or an activity engaged in for the production of income. How to do tax amendment For transactions entered into after March 30, 2010, a transaction has economic substance for you as an individual taxpayer only if: The transaction changes your economic position in a meaningful way (apart from federal income tax effects), or You have a substantial purpose (apart from federal income tax effects) for entering into the transaction. How to do tax amendment   For purposes of determining whether economic substance exists, a transaction's profit potential will only be taken into account if the present value of the reasonably expected pre-tax profit from the transaction is substantial compared to the present value of the expected net tax benefits that would be allowed if the transaction were respected. How to do tax amendment   If any part of your underpayment is due to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any similar rule of law, that part of your underpayment will be subject to the 20% accuracy-related penalty even if you had a reasonable cause and acted in good faith concerning that part. How to do tax amendment   Additionally, the penalty increases to 40% if you do not adequately disclose on your return or in a statement attached to your return the relevant facts affecting the tax treatment of a transaction that lacks economic substance. How to do tax amendment Relevant facts include any facts affecting the tax treatment of the transaction. How to do tax amendment    Any excessive amount of an erroneous claim for an income tax refund or credit (other than a refund or credit related to the earned income credit) that results from a transaction found to be lacking economic substance will not be treated as having a reasonable basis and could be subject to a 20% penalty. How to do tax amendment Undisclosed foreign financial asset understatement. How to do tax amendment   For tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset. How to do tax amendment An undisclosed foreign financial asset is any asset for which an information return, required to be provided under Internal Revenue Code section 6038, 6038B, 6038D, 6046A, or 6048 for any taxable year, is not provided. How to do tax amendment The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. How to do tax amendment Any foreign business you control, reportable on Form 5471, Information Return of U. How to do tax amendment S. How to do tax amendment Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. How to do tax amendment S. How to do tax amendment Persons With Respect to Certain Foreign Partnerships. How to do tax amendment Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. How to do tax amendment S. How to do tax amendment Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. How to do tax amendment Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. How to do tax amendment    Instead of, or in addition to, Form 8275 or 8275-R, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. How to do tax amendment See the Instructions for Form 8938 for details. How to do tax amendment    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. How to do tax amendment Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. How to do tax amendment Penalty for incorrect appraisals. How to do tax amendment   The person who prepares an appraisal of the value of property may have to pay a penalty if: He or she knows, or reasonably should have known, that the appraisal would be used in connection with a return or claim for refund; and The claimed value of the property on a return or claim for refund based on that appraisal results in a substantial valuation misstatement or a gross valuation misstatement as discussed earlier. How to do tax amendment For details on the penalty amount and exceptions, see Publication 561. How to do tax amendment Penalty for failure to disclose a reportable transaction. How to do tax amendment   If you fail to include any required information regarding a reportable transaction (discussed earlier) on a return or statement, you may have to pay a penalty of 75% of the decrease in tax shown on your return as a result of such transaction (or that would have resulted if the transaction were respected for federal tax purposes). How to do tax amendment For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). How to do tax amendment This penalty is in addition to any other penalty that may be imposed. How to do tax amendment   The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. How to do tax amendment For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. How to do tax amendment irs. How to do tax amendment gov/irb/2007-09_IRB/ar12. How to do tax amendment html. How to do tax amendment Accuracy-related penalty for a reportable transaction understatement. How to do tax amendment   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. How to do tax amendment This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. How to do tax amendment The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. How to do tax amendment You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. How to do tax amendment The reasonable cause and good faith exception does not apply to any part of a reportable transaction understatement attributable to one or more transactions that lack economic substance. How to do tax amendment   This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. How to do tax amendment Civil fraud penalty. How to do tax amendment   If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. How to do tax amendment Joint return. How to do tax amendment   The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse. How to do tax amendment Failure to pay tax. How to do tax amendment   If a deficiency is assessed and is not paid within 10 days of the demand for payment, an investor can be penalized with up to a 25% addition to tax if the failure to pay continues. How to do tax amendment Whether To Invest In light of the adverse tax consequences and the substantial amount of penalties and interest that will result if the claimed tax benefits are disallowed, you should consider tax shelter investments carefully and seek competent legal and financial advice. How to do tax amendment Prev  Up  Next   Home   More Online Publications