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Turbotax 11. Turbotax   Other Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Reimbursement of Travel, Meals, and EntertainmentReimbursements Miscellaneous ExpensesMeaning of generally enforced. Turbotax Kickbacks. Turbotax Form 1099-MISC. Turbotax Exception. Turbotax Tax preparation fees. Turbotax Covered executive branch official. Turbotax Exceptions to denial of deduction. Turbotax Indirect political contributions. Turbotax Type of deduction. Turbotax Repayment—$3,000 or less. Turbotax Repayment—over $3,000. Turbotax Method 1. Turbotax Method 2. Turbotax Repayment does not apply. Turbotax Year of deduction (or credit). Turbotax Telephone. Turbotax What's New Standard mileage rate. Turbotax  Beginning in 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business use is 56. Turbotax 5 cents per mile. Turbotax For more information, see Car and truck expenses under Miscellaneous Expenses. Turbotax Introduction This chapter covers business expenses that may not have been explained to you, as a business owner, in previous chapters of this publication. Turbotax Topics - This chapter discusses: Travel, meals, and entertainment Bribes and kickbacks Charitable contributions Education expenses Lobbying expenses Penalties and fines Repayments (claim of right) Other miscellaneous expenses Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 463 Travel, Entertainment, Gift, and Car Expenses 526 Charitable Contributions 529 Miscellaneous Deductions 544 Sales and Other Dispositions of Assets 970 Tax Benefits for Education 1542 Per Diem Rates See chapter 12 for information about getting publications and forms. Turbotax Reimbursement of Travel, Meals, and Entertainment The following discussion explains how to handle any reimbursements or allowances you may provide to your employees under a reimbursement or allowance arrangement for travel, meals, and entertainment expenses. Turbotax If you are self-employed and report your income and expenses on Schedule C or C-EZ (Form 1040), see Publication 463. Turbotax To be deductible for tax purposes, expenses incurred for travel, meals, and entertainment must be ordinary and necessary expenses incurred while carrying on your trade or business. Turbotax Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your trade or business. Turbotax For more information on travel, meals, and entertainment, including deductibility, see Publication 463. Turbotax Reimbursements A “reimbursement or allowance arrangement” provides for payment of advances, reimbursements, and allowances for travel, meals, and entertainment expenses incurred by your employees during the ordinary course of business. Turbotax If the expenses are substantiated, you can deduct the allowable amount on your tax return. Turbotax Because of differences between accounting methods and tax law, the amount you can deduct for tax purposes may not be the same as the amount you deduct on your business books and records. Turbotax For example, you can deduct 100% of the cost of meals on your business books and records. Turbotax However, only 50% of these costs are allowed by law as a tax deduction. Turbotax How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: An accountable plan, or A nonaccountable plan. Turbotax If you reimburse these expenses under an accountable plan, deduct them as travel, meals, or entertainment expenses. Turbotax If you reimburse these expenses under a nonaccountable plan, report the reimbursements as wages on Form W-2, Wage and Tax Statement, and deduct them as wages on the appropriate line of your tax return. Turbotax If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement and report it accordingly. Turbotax See Table 11-1 , Reporting Reimbursements. Turbotax Accountable Plans An accountable plan requires your employees to meet all of the following requirements. Turbotax Each employee must: Have paid or incurred deductible expenses while performing services as your employee, Adequately account to you for these expenses within a reasonable period of time, and Return any excess reimbursement or allowance within a reasonable period of time. Turbotax An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. Turbotax The advance is reasonably calculated not to exceed the amount of anticipated expenses. Turbotax You make the advance within a reasonable period of time of your employee paying or incurring the expense. Turbotax If any expenses reimbursed under this arrangement are not substantiated, or an excess reimbursement is not returned within a reasonable period of time by an employee, you cannot treat these expenses as reimbursed under an accountable plan. Turbotax Instead, treat the reimbursed expenses as paid under a nonaccountable plan, discussed later. Turbotax Adequate accounting. Turbotax   Your employees must adequately account to you for their travel, meals, and entertainment expenses. Turbotax They must give you documentary evidence of their travel, mileage, and other employee business expenses. Turbotax This evidence should include items such as receipts, along with either a statement of expenses, an account book, a day-planner, or similar record in which the employee entered each expense at or near the time the expense was incurred. Turbotax Excess reimbursement or allowance. Turbotax   An excess reimbursement or allowance is any amount you pay to an employee that is more than the business-related expenses for which the employee adequately accounted. Turbotax The employee must return any excess reimbursement or other expense allowance to you within a reasonable period of time. Turbotax Reasonable period of time. Turbotax   A reasonable period of time depends on the facts and circumstances. Turbotax Generally, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Turbotax You give an advance within 30 days of the time the employee pays or incurs the expense. Turbotax Your employees adequately account for their expenses within 60 days after the expenses were paid or incurred. Turbotax Your employees return any excess reimbursement within 120 days after the expenses were paid or incurred. Turbotax You give a periodic statement (at least quarterly) to your employees that asks them to either return or adequately account for outstanding advances and they comply within 120 days of the date of the statement. Turbotax How to deduct. Turbotax   You can claim a deduction for travel, meals, and entertainment expenses if you reimburse your employees for these expenses under an accountable plan. Turbotax Generally, the amount you can deduct for meals and entertainment is subject to a 50% limit, discussed later. Turbotax If you are a sole proprietor, or are filing as a single member limited liability company, deduct the travel reimbursement on line 24a and the deductible part of the meals and entertainment reimbursement on line 24b, Schedule C (Form 1040) or line 2, Schedule C-EZ (Form 1040). Turbotax   If you are filing an income tax return for a corporation, include the reimbursement on the Other deductions line of Form 1120, U. Turbotax S. Turbotax Corporation Income Tax Return. Turbotax If you are filing any other business income tax return, such as a partnership or S corporation return, deduct the reimbursement on the appropriate line of the return as provided in the instructions for that return. Turbotax Table 11-1. Turbotax Reporting Reimbursements IF the type of reimbursement (or other expense allowance) arrangement is under THEN the employer reports on Form W-2 An accountable plan with: Actual expense reimbursement:  Adequate accounting made and excess returned No amount. Turbotax Actual expense reimbursement:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Turbotax Per diem or mileage allowance up to the federal rate:  Adequate accounting made and excess returned No amount. Turbotax Per diem or mileage allowance up to the federal rate:  Adequate accounting and return of excess both required but excess not returned The excess amount as wages in box 1. Turbotax The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Turbotax Per diem or mileage allowance exceeds the federal rate:  Adequate accounting made up to the federal rate only and excess not returned The excess amount as wages in box 1. Turbotax The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Turbotax A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan The entire amount as wages in box 1. Turbotax No reimbursement plan The entire amount as wages in box 1. Turbotax Per Diem and Car Allowances You can reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. Turbotax In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. Turbotax Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose. Turbotax Federal rate. Turbotax   The federal rate can be figured using any one of the following methods. Turbotax For car expenses: The standard mileage rate. Turbotax A fixed and variable rate (FAVR). Turbotax For per diem amounts: The regular federal per diem rate. Turbotax The standard meal allowance. Turbotax The high-low rate. Turbotax Car allowance. Turbotax   Your employee is considered to have accounted to you for car expenses that do not exceed the standard mileage rate. Turbotax Beginning in 2013, the standard business mileage rate is 56. Turbotax 5 cents per mile. Turbotax   You can choose to reimburse your employees using a fixed and variable rate (FAVR) allowance. Turbotax This is an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your employees' variable operating costs (such as gas, oil, etc. Turbotax ) plus a flat amount to cover your employees' fixed costs (such as depreciation, insurance, etc. Turbotax ). Turbotax For information on using a FAVR allowance, see Revenue Procedure 2010-51, available at www. Turbotax irs. Turbotax gov/irb/2010-51_IRB/ar14. Turbotax html and Notice 2012-72, available at www. Turbotax irs. Turbotax gov/irb/2012-50_IRB/ar10. Turbotax html. Turbotax Per diem allowance. Turbotax   If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate. Turbotax Regular federal per diem rate. Turbotax   The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. Turbotax It has two components: Lodging expense, and Meal and incidental expense (M&IE). Turbotax The rates are different for different locations. Turbotax Publication 1542 lists the rates in the continental United States. Turbotax Standard meal allowance. Turbotax   The federal rate for meal and incidental expenses (M&IE) is the standard meal allowance. Turbotax You can pay only an M&IE allowance to employees who travel away from home if: You pay the employee for actual expenses for lodging based on receipts submitted to you, You provide for the lodging, You pay for the actual expense of the lodging directly to the provider, You do not have a reasonable belief that lodging expenses were incurred by the employee, or The allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled). Turbotax Internet access. Turbotax    Per diem rates are available on the Internet. Turbotax You can access per diem rates at www. Turbotax gsa. Turbotax gov/perdiemrates. Turbotax High-low method. Turbotax   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Turbotax It eliminates the need to keep a current list of the per diem rate for each city. Turbotax   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 ($65 for M&IE) for certain high-cost locations. Turbotax All other areas have a per diem amount of $163 ($52 for M&IE). Turbotax The high-cost locations eligible for the higher per diem amount under the high-low method are listed in Publication 1542. Turbotax   Effective October 1, 2013, the per diem rate for high-cost locations increased to $251 ($65 for M&IE). Turbotax The rate for all other locations increased to $170 ($52 for M&IE). Turbotax For October, November, and December 2013, you can either continue to use the rates described in the preceding paragraph or change to the new rates. Turbotax However, you must use the same rate for all employees reimbursed under the high-low method. Turbotax   For more information about the high-low method, see Notice 2013-65, available at www. Turbotax irs. Turbotax gov/irb/2013-44_IRB/ar13. Turbotax html. Turbotax See Publication 1542 (available on the Internet at IRS. Turbotax gov) for the current per diem rates for all locations. Turbotax Reporting per diem and car allowances. Turbotax   The following discussion explains how to report per diem and car allowances. Turbotax The manner in which you report them depends on how the allowance compares to the federal rate. Turbotax See Table 11-1. Turbotax Allowance less than or equal to the federal rate. Turbotax   If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. Turbotax Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). Turbotax See How to deduct under Accountable Plans, earlier. Turbotax Allowance more than the federal rate. Turbotax   If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items. Turbotax   Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Turbotax Deduct it as travel expenses (as explained above). Turbotax This part of the allowance is treated as reimbursed under an accountable plan. Turbotax   Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. Turbotax Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Turbotax This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans. Turbotax Meals and Entertainment Under an accountable plan, you can generally deduct only 50% of any otherwise deductible business-related meal and entertainment expenses you reimburse your employees. Turbotax The deduction limit applies even if you reimburse them for 100% of the expenses. Turbotax Application of the 50% limit. Turbotax   The 50% deduction limit applies to reimbursements you make to your employees for expenses they incur for meals while traveling away from home on business and for entertaining business customers at your place of business, a restaurant, or another location. Turbotax It applies to expenses incurred at a business convention or reception, business meeting, or business luncheon at a club. Turbotax The deduction limit may also apply to meals you furnish on your premises to your employees. Turbotax Related expenses. Turbotax   Taxes and tips relating to a meal or entertainment activity you reimburse to your employee under an accountable plan are included in the amount subject to the 50% limit. Turbotax Reimbursements you make for expenses, such as cover charges for admission to a nightclub, rent paid for a room to hold a dinner or cocktail party, or the amount you pay for parking at a sports arena, are all subject to the 50% limit. Turbotax However, the cost of transportation to and from an otherwise allowable business meal or a business-related entertainment activity is not subject to the 50% limit. Turbotax Amount subject to 50% limit. Turbotax   If you provide your employees with a per diem allowance only for meal and incidental expenses, the amount treated as an expense for food and beverages is the lesser of the following. Turbotax The per diem allowance. Turbotax The federal rate for M&IE. Turbotax   If you provide your employees with a per diem allowance that covers lodging, meals, and incidental expenses, you must treat an amount equal to the federal M&IE rate for the area of travel as an expense for food and beverages. Turbotax If the per diem allowance you provide is less than the federal per diem rate for the area of travel, you can treat 40% of the per diem allowance as the amount for food and beverages. Turbotax Meal expenses when subject to “hours of service” limits. Turbotax   You can deduct 80% of the cost of reimbursed meals your employees consume while away from their tax home on business during, or incident to, any period subject to the Department of Transportation's “hours of service” limits. Turbotax   See Publication 463 for a detailed discussion of individuals subject to the Department of Transportation's “hours of service” limits. Turbotax De minimis (minimal) fringe benefit. Turbotax   The 50% limit does not apply to an expense for food or beverage that is excluded from the gross income of an employee because it is a de minimis fringe benefit. Turbotax See Publication 15-B for additional information on de minimis fringe benefits. Turbotax Company cafeteria or executive dining room. Turbotax   The cost of food and beverages you provide primarily to your employees on your business premises is deductible. Turbotax This includes the cost of maintaining the facilities for providing the food and beverages. Turbotax These expenses are subject to the 50% limit unless they qualify as a de minimis fringe benefit, as just discussed, or unless they are compensation to your employees (explained later). Turbotax Employee activities. Turbotax   The expense of providing recreational, social, or similar activities (including the use of a facility) for your employees is deductible and is not subject to the 50% limit. Turbotax The benefit must be primarily for your employees who are not highly compensated. Turbotax   For this purpose, a highly compensated employee is an employee who meets either of the following requirements. Turbotax Owned a 10% or more interest in the business during the year or the preceding year. Turbotax An employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors, and lineal descendants. Turbotax Received more than $115,000 in pay for the preceding year. Turbotax You can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year. Turbotax   For example, the expenses for food, beverages, and entertainment for a company-wide picnic are not subject to the 50% limit. Turbotax Meals or entertainment treated as compensation. Turbotax   The 50% limit does not apply to either of the following. Turbotax Expenses for meals or entertainment that you treat as: Compensation to an employee who was the recipient of the meals or entertainment, and Wages subject to withholding of federal income tax. Turbotax Expenses for meals or entertainment if: A recipient of the meals or entertainment who is not your employee has to include the expenses in gross income as compensation for services or as a prize or award, and You include that amount on a Form 1099 issued to the recipient, if a Form 1099 is required. Turbotax Sales of meals or entertainment. Turbotax   You can deduct the cost of meals or entertainment (including the use of facilities) you sell to the public. Turbotax For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is a business expense that is fully deductible. Turbotax The 50% limit does not apply to this expense. Turbotax Providing meals or entertainment to general public to promote goodwill. Turbotax   You can deduct the cost of providing meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Turbotax The 50% limit does not apply to this expense. Turbotax Director, stockholder, or employee meetings. Turbotax   You can deduct entertainment expenses directly related to business meetings of your employees, partners, stockholders, agents, or directors. Turbotax You can provide some minor social activities, but the main purpose of the meeting must be your company's business. Turbotax These expenses are subject to the 50% limit. Turbotax Trade association meetings. Turbotax   You can deduct expenses directly related to and necessary for attending business meetings or conventions of certain tax-exempt organizations. Turbotax These organizations include business leagues, chambers of commerce, real estate boards, and trade and professional associations. Turbotax Nonaccountable Plans A nonaccountable plan is an arrangement that does not meet the requirements for an accountable plan. Turbotax All amounts paid, or treated as paid, under a nonaccountable plan are reported as wages on Form W-2. Turbotax The payments are subject to income tax withholding, social security, Medicare, and federal unemployment taxes. Turbotax You can deduct the reimbursement as compensation or wages only to the extent it meets the deductibility tests for employees' pay in chapter 2. Turbotax Deduct the allowable amount as compensation or wages on the appropriate line of your income tax return, as provided in its instructions. Turbotax Miscellaneous Expenses In addition to travel, meal, and entertainment expenses, there are other expenses you can deduct. Turbotax Advertising expenses. Turbotax   You generally can deduct reasonable advertising expenses that are directly related to your business activities. Turbotax Generally, you cannot deduct amounts paid to influence legislation (i. Turbotax e. Turbotax , lobbying). Turbotax See Lobbying expenses , later. Turbotax   You can usually deduct as a business expense the cost of institutional or goodwill advertising to keep your name before the public if it relates to business you reasonably expect to gain in the future. Turbotax For example, the cost of advertising that encourages people to contribute to the Red Cross, to buy U. Turbotax S. Turbotax Savings Bonds, or to participate in similar causes is usually deductible. Turbotax Anticipated liabilities. Turbotax   Anticipated liabilities or reserves for anticipated liabilities are not deductible. Turbotax For example, assume you sold 1-year TV service contracts this year totaling $50,000. Turbotax From experience, you know you will have expenses of about $15,000 in the coming year for these contracts. Turbotax You cannot deduct any of the $15,000 this year by charging expenses to a reserve or liability account. Turbotax You can deduct your expenses only when you actually pay or accrue them, depending on your accounting method. Turbotax Bribes and kickbacks. Turbotax   Engaging in the payment of bribes or kickbacks is a serious criminal matter. Turbotax Such activity could result in criminal prosecution. Turbotax Any payments that appear to have been made, either directly or indirectly, to an official or employee of any government or an agency or instrumentality of any government are not deductible for tax purposes and are in violation of the law. Turbotax   Payments paid directly or indirectly to a person in violation of any federal or state law (but only if that state law is generally enforced, defined below) that provides for a criminal penalty or for the loss of a license or privilege to engage in a trade or business are also not allowed as a deduction for tax purposes. Turbotax Meaning of “generally enforced. Turbotax ”   A state law is considered generally enforced unless it is never enforced or enforced only for infamous persons or persons whose violations are extraordinarily flagrant. Turbotax For example, a state law is generally enforced unless proper reporting of a violation of the law results in enforcement only under unusual circumstances. Turbotax Kickbacks. Turbotax   A kickback is a payment for referring a client, patient, or customer. Turbotax The common kickback situation occurs when money or property is given to someone as payment for influencing a third party to purchase from, use the services of, or otherwise deal with the person who pays the kickback. Turbotax In many cases, the person whose business is being sought or enjoyed by the person who pays the kickback is not aware of the payment. Turbotax   For example, the Yard Corporation is in the business of repairing ships. Turbotax It returns 10% of the repair bills as kickbacks to the captains and chief officers of the vessels it repairs. Turbotax Although this practice is considered an ordinary and necessary expense of getting business, it is clearly a violation of a state law that is generally enforced. Turbotax These expenditures are not deductible for tax purposes, whether or not the owners of the shipyard are subsequently prosecuted. Turbotax Form 1099-MISC. Turbotax   It does not matter whether any kickbacks paid during the tax year are deductible on your income tax return in regards to information reporting. Turbotax See Form 1099-MISC for more information. Turbotax Car and truck expenses. Turbotax   The costs of operating a car, truck, or other vehicle in your business are deductible. Turbotax For more information on how to figure your deduction, see Publication 463. Turbotax Charitable contributions. Turbotax   Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Turbotax If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. Turbotax However, corporations (other than S corporations) can deduct charitable contributions on their income tax returns, subject to limitations. Turbotax See the Instructions for Form 1120 for more information. Turbotax Sole proprietors, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Turbotax Example. Turbotax You paid $15 to a local church for a half-page ad in a program for a concert it is sponsoring. Turbotax The purpose of the ad was to encourage readers to buy your products. Turbotax Your payment is not a charitable contribution. Turbotax You can deduct it as an advertising expense. Turbotax Example. Turbotax You made a $100,000 donation to a committee organized by the local Chamber of Commerce to bring a convention to your city, intended to increase business activity, including yours. Turbotax Your payment is not a charitable contribution. Turbotax You can deduct it as a business expense. Turbotax See Publication 526 for a discussion of donated inventory, including capital gain property. Turbotax Club dues and membership fees. Turbotax   Generally, you cannot deduct amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or any other social purpose. Turbotax This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Turbotax Exception. Turbotax   The following organizations are not treated as clubs organized for business, pleasure, recreation, or other social purpose unless one of the main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Turbotax Boards of trade. Turbotax Business leagues. Turbotax Chambers of commerce. Turbotax Civic or public service organizations. Turbotax Professional organizations such as bar associations and medical associations. Turbotax Real estate boards. Turbotax Trade associations. Turbotax Credit card convenience fees. Turbotax   Credit card companies charge a fee to businesses who accept their cards. Turbotax This fee when paid or incurred by the business can be deducted as a business expense. Turbotax Damages recovered. Turbotax   Special rules apply to compensation you receive for damages sustained as a result of patent infringement, breach of contract or fiduciary duty, or antitrust violations. Turbotax You must include this compensation in your income. Turbotax However, you may be able to take a special deduction. Turbotax The deduction applies only to amounts recovered for actual economic injury, not any additional amount. Turbotax The deduction is the smaller of the following. Turbotax The amount you received or accrued for damages in the tax year reduced by the amount you paid or incurred in the year to recover that amount. Turbotax Your losses from the injury you have not deducted. Turbotax Demolition expenses or losses. Turbotax   Amounts paid or incurred to demolish a structure are not deductible. Turbotax These amounts are added to the basis of the land where the demolished structure was located. Turbotax Any loss for the remaining undepreciated basis of a demolished structure would not be recognized until the property is disposed of. Turbotax Education expenses. Turbotax   Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. Turbotax See Education Expenses in chapter 2. Turbotax   You can also deduct the cost of your own education (including certain related travel) related to your trade or business. Turbotax You must be able to show the education maintains or improves skills required in your trade or business, or that it is required by law or regulations, for keeping your license to practice, status, or job. Turbotax For example, an attorney can deduct the cost of attending Continuing Legal Education (CLE) classes that are required by the state bar association to maintain his or her license to practice law. Turbotax   Education expenses you incur to meet the minimum requirements of your present trade or business, or those that qualify you for a new trade or business, are not deductible. Turbotax This is true even if the education maintains or improves skills presently required in your business. Turbotax For more information on education expenses, see Publication 970. Turbotax Franchise, trademark, trade name. Turbotax   If you buy a franchise, trademark, or trade name, you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are: Contingent on productivity, use, or disposition of the item, Payable at least annually for the entire term of the transfer agreement, and Substantially equal in amount (or payable under a fixed formula). Turbotax   When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferrer reasonably expect the agreement to be renewed. Turbotax   A franchise includes an agreement that gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities within a specified area. Turbotax Impairment-related expenses. Turbotax   If you are disabled, you can deduct expenses necessary for you to be able to work (impairment-related expenses) as a business expense, rather than as a medical expense. Turbotax   You are disabled if you have either of the following. Turbotax A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed. Turbotax A physical or mental impairment that substantially limits one or more of your major life activities. Turbotax   The expense qualifies as a business expense if all the following apply. Turbotax Your work clearly requires the expense for you to satisfactorily perform that work. Turbotax The goods or services purchased are clearly not needed or used, other than incidentally, in your personal activities. Turbotax Their treatment is not specifically provided for under other tax law provisions. Turbotax Example. Turbotax You are blind. Turbotax You must use a reader to do your work, both at and away from your place of work. Turbotax The reader's services are only for your work. Turbotax You can deduct your expenses for the reader as a business expense. Turbotax Internet-related expenses. Turbotax   Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. Turbotax If you are starting a business you may have to amortize these expenses as start-up costs. Turbotax For more information about amortizing start-up and organizational costs, see chapter 8. Turbotax Interview expense allowances. Turbotax   Reimbursements you make to job candidates for transportation or other expenses related to interviews for possible employment are not wages. Turbotax You can deduct the reimbursements as a business expense. Turbotax However, expenses for food, beverages, and entertainment are subject to the 50% limit discussed earlier under Meals and Entertainment. Turbotax Legal and professional fees. Turbotax   Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses. Turbotax However, usually legal fees you pay to acquire business assets are not deductible. Turbotax These costs are added to the basis of the property. Turbotax   Fees that include payments for work of a personal nature (such as drafting a will, or damages arising from a personal injury) are not allowed as a business deduction on Schedule C or C-EZ. Turbotax If the invoice includes both business and personal charges, compute the business portion as follows: multiply the total amount of the bill by a fraction, the numerator of which is the amount attributable to business matters, the denominator of which is the total amount paid. Turbotax The result is the portion of the invoice attributable to business expenses. Turbotax The portion attributable to personal matters is the difference between the total amount and the business portion (computed above). Turbotax   Legal fees relating to personal tax advice may be deductible on Schedule A (Form 1040), if you itemize deductions. Turbotax However, the deduction is subject to the 2% limitation on miscellaneous itemized deductions. Turbotax See Publication 529, Miscellaneous Deductions. Turbotax Tax preparation fees. Turbotax   The cost of hiring a tax professional, such as a C. Turbotax P. Turbotax A. Turbotax , to prepare that part of your tax return relating to your business as a sole proprietor is deductible on Schedule C or Schedule C-EZ. Turbotax Any remaining cost may be deductible on Schedule A (Form 1040) if you itemize deductions. Turbotax   You can also claim a business deduction for amounts paid or incurred in resolving asserted tax deficiencies for your business operated as a sole proprietor. Turbotax Licenses and regulatory fees. Turbotax   Licenses and regulatory fees for your trade or business paid annually to state or local governments generally are deductible. Turbotax Some licenses and fees may have to be amortized. Turbotax See chapter 8 for more information. Turbotax Lobbying expenses. Turbotax   Generally, lobbying expenses are not deductible. Turbotax Lobbying expenses include amounts paid or incurred for any of the following activities. Turbotax Influencing legislation. Turbotax Participating in or intervening in any political campaign for, or against, any candidate for public office. Turbotax Attempting to influence the general public, or segments of the public, about elections, legislative matters, or referendums. Turbotax Communicating directly with covered executive branch officials (defined later) in any attempt to influence the official actions or positions of those officials. Turbotax Researching, preparing, planning, or coordinating any of the preceding activities. Turbotax   Your expenses for influencing legislation and communicating directly with a covered executive branch official include a portion of your labor costs and general and administrative costs of your business. Turbotax For information on making this allocation, see section 1. Turbotax 162-28 of the regulations. Turbotax   You cannot claim a charitable or business expense deduction for amounts paid to an organization if both of the following apply. Turbotax The organization conducts lobbying activities on matters of direct financial interest to your business. Turbotax A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses. Turbotax   If a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues. Turbotax Covered executive branch official. Turbotax   For purposes of this discussion, a covered executive branch official is any of the following. Turbotax The President. Turbotax The Vice President. Turbotax Any officer or employee of the White House Office of the Executive Office of the President and the two most senior level officers of each of the other agencies in the Executive Office. Turbotax Any individual who: Is serving in a position in Level I of the Executive Schedule under section 5312 of title 5, United States Code, Has been designated by the President as having Cabinet-level status, or Is an immediate deputy of an individual listed in item (a) or (b). Turbotax Exceptions to denial of deduction. Turbotax   The general denial of the deduction does not apply to the following. Turbotax Expenses of appearing before, or communicating with, any committee or member of any local council or similar governing body concerning its legislation (local legislation) if the legislation is of direct interest to you or to you and an organization of which you are a member. Turbotax An Indian tribal government is treated as a local council or similar governing body. Turbotax Any in-house expenses for influencing legislation and communicating directly with a covered executive branch official if those expenses for the tax year do not exceed $2,000 (excluding overhead expenses). Turbotax Expenses incurred by taxpayers engaged in the trade or business of lobbying (professional lobbyists) on behalf of another person (but does apply to payments by the other person to the lobbyist for lobbying activities). Turbotax Moving machinery. Turbotax   Generally, the cost of moving machinery from one city to another is a deductible expense. Turbotax So is the cost of moving machinery from one plant to another, or from one part of your plant to another. Turbotax You can deduct the cost of installing the machinery in the new location. Turbotax However, you must capitalize the costs of installing or moving newly purchased machinery. Turbotax Outplacement services. Turbotax   The costs of outplacement services you provide to your employees to help them find new employment, such as career counseling, résumé assistance, skills assessment, etc. Turbotax are deductible. Turbotax   The costs of outplacement services may cover more than one deduction category. Turbotax For example, deduct as a utilities expense the cost of telephone calls made under this service and deduct as rental expense the cost of renting machinery and equipment for this service. Turbotax   For information on whether the value of outplacement services is includable in your employees' income, see Publication 15-B. Turbotax Penalties and fines. Turbotax   Penalties paid for late performance or nonperformance of a contract are generally deductible. Turbotax For instance, you own and operate a construction company. Turbotax Under a contract, you are to finish construction of a building by a certain date. Turbotax Due to construction delays, the building is not completed and ready for occupancy on the date stipulated in the contract. Turbotax You are now required to pay an additional amount for each day that completion is delayed beyond the completion date stipulated in the contract. Turbotax These additional costs are deductible business expenses. Turbotax   On the other hand, penalties or fines paid to any government agency or instrumentality because of a violation of any law are not deductible. Turbotax These fines or penalties include the following amounts. Turbotax Paid because of a conviction for a crime or after a plea of guilty or no contest in a criminal proceeding. Turbotax Paid as a penalty imposed by federal, state, or local law in a civil action, including certain additions to tax and additional amounts and assessable penalties imposed by the Internal Revenue Code. Turbotax Paid in settlement of actual or possible liability for a fine or penalty, whether civil or criminal. Turbotax Forfeited as collateral posted for a proceeding that could result in a fine or penalty. Turbotax   Examples of nondeductible penalties and fines include the following. Turbotax Fines for violating city housing codes. Turbotax Fines paid by truckers for violating state maximum highway weight laws. Turbotax Fines for violating air quality laws. Turbotax Civil penalties for violating federal laws regarding mining safety standards and discharges into navigable waters. Turbotax   A fine or penalty does not include any of the following. Turbotax Legal fees and related expenses to defend yourself in a prosecution or civil action for a violation of the law imposing the fine or civil penalty. Turbotax Court costs or stenographic and printing charges. Turbotax Compensatory damages paid to a government. Turbotax Political contributions. Turbotax   Contributions or gifts paid to political parties or candidates are not deductible. Turbotax In addition, expenses paid or incurred to take part in any political campaign of a candidate for public office are not deductible. Turbotax Indirect political contributions. Turbotax   You cannot deduct indirect political contributions and costs of taking part in political activities as business expenses. Turbotax Examples of nondeductible expenses include the following. Turbotax Advertising in a convention program of a political party, or in any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Turbotax Admission to a dinner or program (including, but not limited to, galas, dances, film presentations, parties, and sporting events) if any of the proceeds from the function are for, or intended for, the use of a political party or candidate. Turbotax Admission to an inaugural ball, gala, parade, concert, or similar event if identified with a political party or candidate. Turbotax Repairs. Turbotax   The cost of repairing or improving property used in your trade or business is either a deductible or capital expense. Turbotax Routine maintenance that keeps your property in a normal efficient operating condition, but that does not materially increase the value or substantially prolong the useful life of the property, is deductible in the year that it is incurred. Turbotax Otherwise, the cost must be capitalized and depreciated. Turbotax See Form 4562 and its instructions for how to compute and claim the depreciation deduction. Turbotax   The cost of repairs includes the costs of labor, supplies, and certain other items. Turbotax The value of your own labor is not deductible. Turbotax Examples of repairs include: Reconditioning floors (but not replacement), Repainting the interior and exterior walls of a building, Cleaning and repairing roofs and gutters, and Fixing plumbing leaks (but not replacement of fixtures). Turbotax Repayments. Turbotax   If you had to repay an amount you included in your income in an earlier year, you may be able to deduct the amount repaid for the year in which you repaid it. Turbotax Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Turbotax Type of deduction. Turbotax   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Turbotax For instance, if you repay an amount you previously reported as a capital gain, deduct the repayment as a capital loss on Form 8949. Turbotax If you reported it as self-employment income, deduct it as a business deduction on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Turbotax   If you reported the amount as wages, unemployment compensation, or other nonbusiness ordinary income, enter it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is subject to the 2% limitation. Turbotax However, if the repayment is over $3,000 and Method 1 (discussed later) applies, deduct it on Schedule A (Form 1040) as a miscellaneous itemized deduction that is not subject to the 2% limitation. Turbotax Repayment—$3,000 or less. Turbotax   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Turbotax Repayment—over $3,000. Turbotax   If the amount you repaid was more than $3,000, you can deduct the repayment, as described earlier. Turbotax However, you can instead choose to take a tax credit for the year of repayment if you included the income under a “claim of right. Turbotax ” This means that at the time you included the income, it appeared that you had an unrestricted right to it. Turbotax If you qualify for this choice, figure your tax under both methods and use the method that results in less tax. Turbotax Method 1. Turbotax   Figure your tax for 2013 claiming a deduction for the repaid amount. Turbotax Method 2. Turbotax   Figure your tax for 2013 claiming a credit for the repaid amount. Turbotax Follow these steps. Turbotax Figure your tax for 2013 without deducting the repaid amount. Turbotax Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Turbotax Subtract the tax in (2) from the tax shown on your return for the earlier year. Turbotax This is the amount of your credit. Turbotax Subtract the answer in (3) from the tax for 2013 figured without the deduction (step 1). Turbotax   If Method 1 results in less tax, deduct the amount repaid as discussed earlier under Type of deduction. Turbotax   If Method 2 results in less tax, claim the credit on line 71 of Form 1040, and write “I. Turbotax R. Turbotax C. Turbotax 1341” next to line 71. Turbotax Example. Turbotax For 2012, you filed a return and reported your income on the cash method. Turbotax In 2013, you repaid $5,000 included in your 2012 gross income under a claim of right. Turbotax Your filing status in 2013 and 2012 is single. Turbotax Your income and tax for both years are as follows:   2012  With Income 2012  Without Income Taxable Income $15,000 $10,000 Tax $ 1,819 $ 1,069   2013  Without Deduction 2013  With Deduction Taxable Income $49,950 $44,950 Tax $8,423 $7,173 Your tax under Method 1 is $7,173. Turbotax Your tax under Method 2 is $7,673, figured as follows: Tax previously determined for 2012 $ 1,819 Less: Tax as refigured − 1,069 Decrease in 2012 tax $ 750 Regular tax liability for 2013 $8,423 Less: Decrease in 2012 tax − 750 Refigured tax for 2013 $ 7,673 Because you pay less tax under Method 1, you should take a deduction for the repayment in 2013. Turbotax Repayment does not apply. Turbotax   This discussion does not apply to the following. Turbotax Deductions for bad debts. Turbotax Deductions from sales to customers, such as returns and allowances, and similar items. Turbotax Deductions for legal and other expenses of contesting the repayment. Turbotax Year of deduction (or credit). Turbotax   If you use the cash method of accounting, you can take the deduction (or credit, if applicable) for the tax year in which you actually make the repayment. Turbotax If you use any other accounting method, you can deduct the repayment or claim a credit for it only for the tax year in which it is a proper deduction under your accounting method. Turbotax For example, if you use the accrual method, you are entitled to the deduction or credit in the tax year in which the obligation for the repayment accrues. Turbotax Subscriptions. Turbotax   Subscriptions to professional, technical, and trade journals that deal with your business field are deductible. Turbotax Supplies and materials. Turbotax   Unless you have deducted the cost in any earlier year, you generally can deduct the cost of materials and supplies actually consumed and used during the tax year. Turbotax   If you keep incidental materials and supplies on hand, you can deduct the cost of the incidental materials and supplies you bought during the tax year if all the following requirements are met. Turbotax You do not keep a record of when they are used. Turbotax You do not take an inventory of the amount on hand at the beginning and end of the tax year. Turbotax This method does not distort your income. Turbotax   You can also deduct the cost of books, professional instruments, equipment, etc. Turbotax , if you normally use them within a year. Turbotax However, if the usefulness of these items extends substantially beyond the year they are placed in service, you generally must recover their costs through depreciation. Turbotax For more information regarding depreciation see Publication 946, How To Depreciate Property. Turbotax Utilities. Turbotax   Business expenses for heat, lights, power, telephone service, and water and sewerage are deductible. Turbotax However, any part due to personal use is not deductible. Turbotax Telephone. Turbotax   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Turbotax However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. Turbotax Prev  Up  Next   Home   More Online Publications
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The Turbotax

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