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Liberty Tax

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Liberty Tax

Liberty tax Publication 597 - Introductory Material Table of Contents Introduction Introduction This publication provides information on the income tax treaty between the United States and Canada. Liberty tax It discusses a number of treaty provisions that often apply to U. Liberty tax S. Liberty tax citizens or residents who may be liable for Canadian tax. Liberty tax Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). Liberty tax Therefore, a Canadian resident who receives income from the United States may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. Liberty tax This publication does not deal with Canadian income tax laws; nor does it provide Canada's interpretation of treaty articles, definitions, or specific terms not defined in the treaty itself. Liberty tax The United States—Canada income tax treaty was signed on September 26, 1980. Liberty tax It has been amended by five protocols, the most recent of which generally became effective January 1, 2009. Liberty tax In this publication, the term “article” refers to the particular article of the treaty, as amended. Liberty tax Prev  Up  Next   Home   More Online Publications
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Employer ID Numbers (EINs)

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An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service. You must check with your state to make sure you need a state number or charter.

Apply for an EIN Online

Check out our Interview-style online EIN application. No need to file a Form SS-4! We ask you the questions and you give us the answers. The application includes embedded help topics and hyperlinked keywords and definitions so separate instructions aren’t needed. After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your confirmation notice. It’s fast, free, and user-friendly!

Change of Ownership or Structure

Generally, businesses need a new EIN when their ownership or structure has changed. Refer to "Do You Need a New EIN?" to determine if this applies to your business.

Verify Your EIN

If you want to verify your EIN, see the Lost or Misplaced Your EIN page for instructions.

Daily Limitation of an Employer Identification Number

Effective May 21, 2012, to ensure fair and equitable treatment for all taxpayers, the Internal Revenue Service will limit Employer Identification Number (EIN) issuance to one per responsible party per day. This limitation is applicable to all requests for EINs whether online or by fax or mail. We apologize for any inconvenience this may cause.

Page Last Reviewed or Updated: 03-Jan-2014

The Liberty Tax

Liberty tax 25. Liberty tax   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Liberty tax Progressive deterioration. Liberty tax Damage from corrosive drywall. Liberty tax Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Liberty tax  Section C of Form 4684 is new for 2013. Liberty tax You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Liberty tax Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Liberty tax You do not need to complete Appendix A. Liberty tax For details, see Losses from Ponzi-type investment schemes , in this chapter. Liberty tax Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Liberty tax The chapter also explains the following  topics. Liberty tax How to figure the amount of your loss. Liberty tax How to treat insurance and other reimbursements you receive. Liberty tax The deduction limits. Liberty tax When and how to report a casualty or theft. Liberty tax Forms to file. Liberty tax    When you have a casualty or theft, you have to file Form 4684. Liberty tax You will also have to file one or more of the following forms. Liberty tax Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Liberty tax   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Liberty tax Workbook for casualties and thefts. Liberty tax    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Liberty tax It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Liberty tax Business or investment-related losses. Liberty tax   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Liberty tax Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Liberty tax A sudden event is one that is swift, not gradual or progressive. Liberty tax An unexpected event is one that is ordinarily unanticipated and unintended. Liberty tax 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. Liberty tax Deductible losses. Liberty tax   Deductible casualty losses can result from a number of different causes, including the following. Liberty tax Car accidents (but see Nondeductible losses , next, for exceptions). Liberty tax Earthquakes. Liberty tax Fires (but see Nondeductible losses , next, for exceptions). Liberty tax Floods. Liberty tax Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547. Liberty tax Mine cave-ins. Liberty tax Shipwrecks. Liberty tax Sonic booms. Liberty tax Storms, including hurricanes and tornadoes. Liberty tax Terrorist attacks. Liberty tax Vandalism. Liberty tax Volcanic eruptions. Liberty tax Nondeductible losses. Liberty tax   A casualty loss is not deductible if the damage or destruction is caused by the following. Liberty tax Accidentally breaking articles such as glassware or china under normal conditions. Liberty tax A family pet (explained below). Liberty tax A fire if you willfully set it or pay someone else to set it. Liberty tax A car accident if your willful negligence or willful act caused it. Liberty tax The same is true if the willful act or willful negligence of someone acting for you caused the accident. Liberty tax Progressive deterioration (explained later). Liberty tax Family pet. Liberty tax   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. Liberty tax Example. Liberty tax Your antique oriental rug was damaged by your new puppy before it was housebroken. Liberty tax Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Liberty tax Progressive deterioration. Liberty tax    Loss of property due to progressive deterioration is not deductible as a casualty loss. Liberty tax This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Liberty tax The following are examples of damage due to progressive deterioration. Liberty tax The steady weakening of a building due to normal wind and weather conditions. Liberty tax The deterioration and damage to a water heater that bursts. Liberty tax However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Liberty tax Most losses of property caused by droughts. Liberty tax To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Liberty tax Termite or moth damage. Liberty tax The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Liberty tax However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Liberty tax Damage from corrosive drywall. Liberty tax   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Liberty tax For details, see Publication 547. Liberty tax Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Liberty tax The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Liberty tax You do not need to show a conviction for theft. Liberty tax Theft includes the taking of money or property by the following means. Liberty tax Blackmail. Liberty tax Burglary. Liberty tax Embezzlement. Liberty tax Extortion. Liberty tax Kidnapping for ransom. Liberty tax Larceny. Liberty tax Robbery. Liberty tax The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Liberty tax Decline in market value of stock. Liberty tax   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. Liberty tax 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. Liberty tax You report a capital loss on Schedule D (Form 1040). Liberty tax For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Liberty tax Mislaid or lost property. Liberty tax   The simple disappearance of money or property is not a theft. Liberty tax 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. Liberty tax Sudden, unexpected, and unusual events are defined earlier. Liberty tax Example. Liberty tax A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Liberty tax The diamond falls from the ring and is never found. Liberty tax The loss of the diamond is a casualty. Liberty tax Losses from Ponzi-type investment schemes. Liberty tax   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Liberty tax R. Liberty tax B. Liberty tax 735 (available at www. Liberty tax irs. Liberty tax gov/irb/2009-14_IRB/ar07. Liberty tax html). Liberty tax Revenue Procedure 2009-20, 2009-14 I. Liberty tax R. Liberty tax B. Liberty tax 749 (available at www. Liberty tax irs. Liberty tax gov/irb/2009-14_IRB/ar11. Liberty tax html). Liberty tax Revenue Procedure 2011-58, 2011-50 I. Liberty tax R. Liberty tax B. Liberty tax 849 (available at www. Liberty tax irs. Liberty tax gov/irb/2011-50_IRB/ar11. Liberty tax html). Liberty tax 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. Liberty tax Skip lines 19 to 27. Liberty tax Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Liberty tax You do not need to complete Appendix A. Liberty tax For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Liberty tax   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Liberty tax Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Liberty tax If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Liberty tax As a casualty loss. Liberty tax As an ordinary loss. Liberty tax As a nonbusiness bad debt. Liberty tax Casualty loss or ordinary loss. Liberty tax   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. Liberty tax The choice is generally 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. Liberty tax 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. Liberty tax 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. Liberty tax Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Liberty tax   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Liberty tax The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Liberty tax Your loss is subject to the 2%-of-adjusted-gross-income limit. Liberty tax You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Liberty tax Nonbusiness bad debt. Liberty tax   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. Liberty tax How to report. Liberty tax   The kind of deduction you choose for your loss on deposits determines how you report your loss. Liberty tax If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Liberty tax Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Liberty tax Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Liberty tax More information. Liberty tax   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Liberty tax Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Liberty tax You also must be able to support the amount you take as a deduction. Liberty tax Casualty loss proof. Liberty tax   For a casualty loss, your records should show all the following. Liberty tax The type of casualty (car accident, fire, storm, etc. Liberty tax ) and when it occurred. Liberty tax That the loss was a direct result of the casualty. Liberty tax 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. Liberty tax Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Liberty tax Theft loss proof. Liberty tax   For a theft loss, your records should show all the following. Liberty tax When you discovered that your property was missing. Liberty tax That your property was stolen. Liberty tax That you were the owner of the property. Liberty tax Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Liberty tax It is important that you have records that will prove your deduction. Liberty tax If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Liberty tax Figuring a Loss Figure the amount of your loss using the following steps. Liberty tax Determine your adjusted basis in the property before the casualty or theft. Liberty tax Determine the decrease in fair market value of the property as a result of the casualty or theft. Liberty tax From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Liberty tax 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. Liberty tax Gain from reimbursement. Liberty tax   If your reimbursement is more than your adjusted basis in the property, you have a gain. Liberty tax This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Liberty tax If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Liberty tax See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Liberty tax Leased property. Liberty tax   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. Liberty tax 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. Liberty tax 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. Liberty tax FMV of stolen property. Liberty tax   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Liberty tax Example. Liberty tax Several years ago, you purchased silver dollars at face value for $150. Liberty tax This is your adjusted basis in the property. Liberty tax Your silver dollars were stolen this year. Liberty tax The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Liberty tax Your theft loss is $150. Liberty tax Recovered stolen property. Liberty tax   Recovered stolen property is your property that was stolen and later returned to you. Liberty tax 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. Liberty tax Use this amount to refigure your total loss for the year in which the loss was deducted. Liberty tax   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Liberty tax But report the difference only up to the amount of the loss that reduced your tax. Liberty tax For more information on the amount to report, see Recoveries in chapter 12. Liberty tax 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. Liberty tax However, other measures can also be used to establish certain decreases. Liberty tax Appraisal. Liberty tax   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Liberty tax The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Liberty tax This information is needed to limit any deduction to the actual loss resulting from damage to the property. Liberty tax   Several factors are important in evaluating the accuracy of an appraisal, including the following. Liberty tax The appraiser's familiarity with your property before and after the casualty or theft. Liberty tax The appraiser's knowledge of sales of comparable property in the area. Liberty tax The appraiser's knowledge of conditions in the area of the casualty. Liberty tax The appraiser's method of appraisal. Liberty tax    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. Liberty tax For more information on disasters, see Disaster Area Losses, in Pub. Liberty tax 547. Liberty tax Cost of cleaning up or making repairs. Liberty tax   The cost of repairing damaged property is not part of a casualty loss. Liberty tax Neither is the cost of cleaning up after a casualty. Liberty tax But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Liberty tax The repairs are actually made. Liberty tax The repairs are necessary to bring the property back to its condition before the casualty. Liberty tax The amount spent for repairs is not excessive. Liberty tax The repairs take care of the damage only. Liberty tax The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Liberty tax Landscaping. Liberty tax   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Liberty tax You may be able to measure your loss by what you spend on the following. Liberty tax Removing destroyed or damaged trees and shrubs minus any salvage you receive. Liberty tax Pruning and other measures taken to preserve damaged trees and shrubs. Liberty tax Replanting necessary to restore the property to its approximate value before the casualty. Liberty tax Car value. Liberty tax    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Liberty tax You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Liberty tax 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. Liberty tax If your car is not listed in the books, determine its value from other sources. Liberty tax A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Liberty tax 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. Liberty tax Cost of protection. Liberty tax   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Liberty tax The amount you spend on insurance or to board up your house against a storm is not part of your loss. Liberty tax   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. Liberty tax An example would be the cost of a dike to prevent flooding. Liberty tax Exception. Liberty tax   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. Liberty tax See Disaster Area Losses in Publication 547. Liberty tax Incidental expenses. Liberty tax   Any incidental expenses you have 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. Liberty tax Replacement cost. Liberty tax   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Liberty tax Sentimental value. Liberty tax   Do not consider sentimental value when determining your loss. Liberty tax 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. Liberty tax Decline in market value of property in or near casualty area. Liberty tax   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. Liberty tax You have a loss only for actual casualty damage to your property. Liberty tax However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Liberty tax Costs of photographs and appraisals. Liberty tax    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Liberty tax Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Liberty tax    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Liberty tax See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Liberty tax   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. Liberty tax You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Liberty tax For information about miscellaneous deductions, see chapter 28. Liberty tax Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Liberty tax For more information, see chapter 13. Liberty tax Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Liberty tax You do not have a casualty or theft loss to the extent you are reimbursed. Liberty tax If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Liberty tax You must reduce your loss even if you do not receive payment until a later tax year. Liberty tax See Reimbursement Received After Deducting Loss , later. Liberty tax Failure to file a claim for reimbursement. Liberty tax   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Liberty tax Otherwise, you cannot deduct this loss as a casualty or theft loss. Liberty tax However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Liberty tax Example. Liberty tax You have a car insurance policy with a $1,000 deductible. Liberty tax Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Liberty tax This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Liberty tax Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Liberty tax Other types of reimbursements are discussed next. Liberty tax Also see the Instructions for Form 4684. Liberty tax Employer's emergency disaster fund. Liberty tax   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. Liberty tax Take into consideration only the amount you used to replace your destroyed or damaged property. Liberty tax Example. Liberty tax Your home was extensively damaged by a tornado. Liberty tax Your loss after reimbursement from your insurance company was $10,000. Liberty tax Your employer set up a disaster relief fund for its employees. Liberty tax Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Liberty tax You received $4,000 from the fund and spent the entire amount on repairs to your home. Liberty tax In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Liberty tax Your casualty loss before applying the deduction limits discussed later is $6,000. Liberty tax Cash gifts. Liberty tax   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. Liberty tax This applies even if you use the money to pay for repairs to property damaged in the disaster. Liberty tax Example. Liberty tax Your home was damaged by a hurricane. Liberty tax Relatives and neighbors made cash gifts to you that were excludable from your income. Liberty tax You used part of the cash gifts to pay for repairs to your home. Liberty tax There were no limits or restrictions on how you could use the cash gifts. Liberty tax Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Liberty tax Insurance payments for living expenses. Liberty tax   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Liberty tax You lose the use of your main home because of a casualty. Liberty tax Government authorities do not allow you access to your main home because of a casualty or threat of one. Liberty tax Inclusion in income. Liberty tax   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Liberty tax Report this amount on Form 1040, line 21. Liberty tax However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Liberty tax See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Liberty tax   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. Liberty tax Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Liberty tax Generally, these expenses include the amounts you pay for the following. Liberty tax Rent for suitable housing. Liberty tax Transportation. Liberty tax Food. Liberty tax Utilities. Liberty tax Miscellaneous services. Liberty tax 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. Liberty tax Example. Liberty tax As a result of a fire, you vacated your apartment for a month and moved to a motel. Liberty tax You normally pay $525 a month for rent. Liberty tax None was charged for the month the apartment was vacated. Liberty tax Your motel rent for this month was $1,200. Liberty tax You normally pay $200 a month for food. Liberty tax Your food expenses for the month you lived in the motel were $400. Liberty tax You received $1,100 from your insurance company to cover your living expenses. Liberty tax You determine the payment you must include in income as follows. Liberty tax 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Liberty tax   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. Liberty tax Example. Liberty tax Your main home was destroyed by a tornado in August 2011. Liberty tax You regained use of your home in November 2012. Liberty tax The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Liberty tax You include this amount in income on your 2012 Form 1040. Liberty tax 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. Liberty tax Disaster relief. Liberty tax   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. Liberty tax Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Liberty tax For more information, see Disaster Area Losses in Publication 547. Liberty tax Disaster unemployment assistance payments are unemployment benefits that are taxable. Liberty tax Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Liberty tax Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Liberty tax See Disaster Area Losses in Publication 547. Liberty tax Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Liberty tax This section explains the adjustment you may have to make. Liberty tax Actual reimbursement less than expected. Liberty tax   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. Liberty tax Example. Liberty tax Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Liberty tax The accident was due to the negligence of the other driver. Liberty tax At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Liberty tax You did not have a deductible loss in 2012. Liberty tax In January 2013, the court awarded you a judgment of $2,000. Liberty tax However, in July it became apparent that you will be unable to collect any amount from the other driver. Liberty tax You can deduct the loss in 2013 subject to the limits discussed later. Liberty tax Actual reimbursement more than expected. Liberty tax   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Liberty tax 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. Liberty tax You do not refigure your tax for the year you claimed the deduction. Liberty tax For more information, see Recoveries in chapter 12. Liberty tax 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. Liberty tax 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. Liberty tax Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Liberty tax See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Liberty tax Actual reimbursement same as expected. Liberty tax   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. Liberty tax Example. Liberty tax In December 2013, you had a collision while driving your personal car. Liberty tax Repairs to the car cost $950. Liberty tax You had $100 deductible collision insurance. Liberty tax Your insurance company agreed to reimburse you for the rest of the damage. Liberty tax Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Liberty tax Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Liberty tax When you receive the $850 from the insurance company in 2014, do not report it as income. Liberty tax Single Casualty on Multiple Properties Personal property. Liberty tax   Personal property is any property that is not real property. Liberty tax 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. Liberty tax Then combine these separate losses to figure the total loss from that casualty or theft. Liberty tax Example. Liberty tax A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Liberty tax You did not have fire insurance to cover your loss. Liberty tax (This was the only casualty or theft you had during the year. Liberty tax ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Liberty tax The rug cost $3,000 and had an FMV of $2,500 just before the fire. Liberty tax You bought the table at an auction for $100 before discovering it was an antique. Liberty tax It had been appraised at $900 before the fire. Liberty tax You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Liberty tax   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Liberty tax Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Liberty tax Example. Liberty tax You bought your home a few years ago. Liberty tax You paid $160,000 ($20,000 for the land and $140,000 for the house). Liberty tax You also spent $2,000 for landscaping. Liberty tax This year a fire destroyed your home. Liberty tax The fire also damaged the shrubbery and trees in your yard. Liberty tax The fire was your only casualty or theft loss this year. Liberty tax Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Liberty tax (The loss to your household furnishings is not shown in this example. Liberty tax It would be figured separately on each item, as explained earlier under Personal property . Liberty tax ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Liberty tax You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Liberty tax If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Liberty tax You must reduce each casualty or theft loss by $100 ($100 rule). Liberty tax You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Liberty tax You make these reductions on Form 4684. Liberty tax These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Liberty tax For more detailed explanations and examples, see Publication 547. Liberty tax Table 25-1. Liberty tax How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Liberty tax Apply this rule after you have figured the amount of your loss. Liberty tax You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Liberty tax Apply this rule after you reduce each loss by $100 (the $100 rule). Liberty tax Single Event Apply this rule only once, even if many pieces of property are affected. Liberty tax Apply this rule only once, even if many pieces of property are affected. Liberty tax More Than One Event Apply to the loss from each event. Liberty tax Apply to the total of all your losses from all events. Liberty tax More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Liberty tax Apply separately to each person. Liberty tax Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Liberty tax Apply as if you were one person. Liberty tax Filing Separately Apply separately to each spouse. Liberty tax Apply separately to each spouse. Liberty tax More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Liberty tax Apply separately to each owner of jointly owned property. Liberty tax Property used partly for business and partly for personal purposes. Liberty tax   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 part and for the business or income-producing part. Liberty tax You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Liberty tax $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Liberty tax This reduction applies to each total casualty or theft loss. Liberty tax It does not matter how many pieces of property are involved in an event. Liberty tax Only a single $100 reduction applies. Liberty tax Example. Liberty tax A hailstorm damages your home and your car. Liberty tax Determine the amount of loss, as discussed earlier, for each of these items. Liberty tax Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Liberty tax Single event. Liberty tax   Generally, events closely related in origin cause a single casualty. Liberty tax 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. Liberty tax 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. Liberty tax Apply this rule after you reduce each loss by $100. Liberty tax For more information, see the Form 4684 instructions. Liberty tax If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Liberty tax Example 1. Liberty tax In June, you discovered that your house had been burglarized. Liberty tax Your loss after insurance reimbursement was $2,000. Liberty tax Your adjusted gross income for the year you discovered the theft is $29,500. Liberty tax You first apply the $100 rule and then the 10% rule. Liberty tax Figure your theft loss deduction as follows. Liberty tax 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Liberty tax Example 2. Liberty tax In March, you had a car accident that totally destroyed your car. Liberty tax You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Liberty tax Your loss on the car was $1,800. Liberty tax In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Liberty tax Your loss on the basement items after reimbursement was $2,100. Liberty tax Your adjusted gross income for the year that the accident and fire occurred is $25,000. Liberty tax You figure your casualty loss deduction as follows. Liberty tax       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Liberty tax   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Liberty tax 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. Liberty tax Casualty or theft gains do not include gains you choose to postpone. Liberty tax See Publication 547 for information on the postponement of gain. Liberty tax Losses more than gains. Liberty tax   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. Liberty tax The rest, if any, is your deductible loss from personal-use property. Liberty tax Gains more than losses. Liberty tax   If your recognized gains are more than your losses, subtract your losses from your gains. Liberty tax The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Liberty tax The 10% rule does not apply to your gains. Liberty tax When To Report Gains and Losses Gains. Liberty tax   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Liberty tax You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Liberty tax If you have a loss, see Table 25-2 . Liberty tax Table 25-2. Liberty tax When To Deduct a Loss IF you have a loss. Liberty tax . Liberty tax . Liberty tax THEN deduct it in the year. Liberty tax . Liberty tax . Liberty tax from a casualty, the loss occurred. Liberty tax in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Liberty tax from a theft, the theft was discovered. Liberty tax on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Liberty tax • bad debt, deposits are totally worthless. Liberty tax Losses. Liberty tax   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Liberty tax This is true even if you do not repair or replace the damaged property until a later year. Liberty tax   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Liberty tax   If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Liberty tax Loss on deposits. Liberty tax   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Liberty tax Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Liberty tax However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Liberty tax The year the disaster occurred. Liberty tax The year immediately preceding the year the disaster occurred. Liberty tax Gains. Liberty tax    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Liberty tax For those special rules, see Publication 547. Liberty tax Postponed tax deadlines. Liberty tax   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Liberty tax The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Liberty tax   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Liberty tax Go to www. Liberty tax irs. Liberty tax gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Liberty tax Who is eligible. Liberty tax   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Liberty tax Any individual whose main home is located in a covered disaster area (defined next). Liberty tax Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Liberty tax Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Liberty tax Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Liberty tax The main home or principal place of business does not have to be located in the covered disaster area. Liberty tax Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Liberty tax The spouse on a joint return with a taxpayer who is eligible for postponements. Liberty tax Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Liberty tax Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Liberty tax Any other person determined by the IRS to be affected by a federally declared disaster. Liberty tax Covered disaster area. Liberty tax   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Liberty tax Abatement of interest and penalties. Liberty tax   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Liberty tax More information. Liberty tax   For more information, see Disaster Area Losses in Publication 547. Liberty tax How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Liberty tax If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Liberty tax Combine the gains and losses on one Form 4684. Liberty tax Follow the form instructions as to which lines to fill out. Liberty tax In addition, you must use the appropriate schedule to report a gain or loss. Liberty tax The schedule you use depends on whether you have a gain or loss. Liberty tax If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Liberty tax   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive, and by any deductible loss. Liberty tax Amounts you spend to restore your property after a casualty increase your adjusted basis. Liberty tax See Adjusted Basis in chapter 13 for more information. Liberty tax Net operating loss (NOL). Liberty tax    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Liberty tax You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Liberty tax Or, you can use it to lower your tax in a later year. Liberty tax You do not have to be in business to have an NOL from a casualty or theft loss. Liberty tax For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Liberty tax Prev  Up  Next   Home   More Online Publications