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Publication 547 Cat. No. 15090K Contents

What’s New ...... 1 Department of the Casualties, Reminders ...... 1 Treasury Internal Introduction ...... 2 Revenue Disasters, Service Casualty ...... 3 and Thefts Theft ...... 5

Loss on Deposits ...... 5 For use in preparing Proof of Loss ...... 6 Figuring a Loss ...... 6 Returns 2020 Deduction Limits ...... 10

Figuring a Gain ...... 13

When To Report Gains and Losses ... 16

Disaster Area Losses ...... 16

How To Report Gains and Losses .... 20

How To Get Tax Help ...... 20

Index ...... 22

What’s New Declaration numbers. A new entry space has been added to Form 4684 for taxpayers who are reporting a casualty or theft loss attributable to a federally declared disaster. For more infor- mation, see FEMA disaster declaration num- bers, later, and the Instructions for Form 4684. Qualified disaster loss. A qualified disaster loss is now expanded to include an individual's casualty and theft loss of personal-use property that is attributable to a major disaster that was declared by Presidential Declaration that is dated between January 1, 2020, and February 25, 2021 (inclusive). However, in order to qual- ify under this expansion, the major disaster must have an incident period beginning be- tween December 28, 2019, and December 27, 2020 (inclusive). Further, the major disaster must have an incident period ending no later than January 26, 2021. This expansion does not include those losses attributable to any ma- jor disaster which has been declared only by reason of COVID-19.

Reminders Future developments. For the latest informa- tion about developments related to Pub. 547, such as legislation enacted after it was pub- lished, go to IRS.gov/Pub547. Limitation on personal casualty and theft losses. Personal casualty and theft losses of Get forms and other information faster and easier at: an individual, sustained in a tax year beginning • IRS.gov (English) • IRS.gov/Korean (한국어) after 2017, are deductible only to the extent that • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) the losses are attributable to a federally de- • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) clared disaster. Personal casualty and theft los- ses attributable to a federally declared disaster

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are subject to the $100 per casualty and 10% of gain in a QOF, you may be able to elect to tem- help you make a list of your stolen or damaged your adjusted gross income (AGI) limitations porarily defer part or all of the gain that would personal-use property and figure your loss. It in- unless they are attributable to a qualified disas- otherwise be included in income. If you make cludes schedules to help you figure the loss on ter loss. the election, the gain is included in taxable in- your home and its contents, and your motor ve- An exception to the rule above, limiting the come only to the extent, if any, that the amount hicles. personal casualty and theft loss deduction to of realized gain exceeds the aggregate amount Pub. 584-B, Business Casualty, Disaster, losses attributable to a federally declared disas- invested in a QOF during the 180-day period and Theft Loss Workbook, is available to help ter, applies if you have personal casualty gains beginning on the date the gain was realized. you make a list of your stolen or damaged busi- for the tax year. For more information, see De- ness or income-producing property and figure duction Limits, later. How to report. Report the gain as it would your loss. otherwise be reported if you were not making Special rules and return procedures expan- the election. Report the election for the amount Comments and suggestions. We welcome ded for claiming qualified disaster-related invested in a QOF on Form 8949. See the In- your comments about this publication and sug- personal casualty losses. Personal casualty structions for Form 8949 for information on how gestions for future editions. losses attributable to a major disaster declared to make the election. You will need to attach You can send us comments through by the President under section 401 of the Rob- Form 8997 annually until you dispose of the IRS.gov/FormComments. Or, you can write to ert T. Stafford Disaster Relief and Emergency QOF investment. See the Form 8997 instruc- the Internal Revenue Service, Tax Forms and Assistance Act (Stafford Act) in 2016, as well as tions for more information. Publications, 1111 Constitution Ave. NW, from Hurricane Harvey, Tropical Storm Harvey, QOF investment. If you held a qualified invest- IR-6526, Washington, DC 20224. Hurricanes Irma and Maria, the California wild- ment in a QOF at any time during the year, you Although we can’t respond individually to fires, the disasters described in the Taxpayer must file your return with Form 8997 attached. each comment received, we do appreciate your Certainty and Disaster Tax Relief Act of 2019, See the Form 8997 instructions. feedback and will consider your comments and and the disasters described in the Taxpayer Photographs of missing children. The Inter- suggestions as we revise our tax forms, instruc- Certainty and Disaster Tax Relief Act of 2020, nal Revenue Service is a proud partner with the tions, and publications. Do not send tax ques- may be claimed as a qualified disaster loss on National Center for Missing & Exploited tions, tax returns, or payments to the above ad- your Form 4684 for the year in which the loss Children® (NCMEC). Photographs of missing dress. was sustained. You can deduct qualified disas- children selected by the Center may appear in ter losses without itemizing other deductions on Getting answers to your tax questions. this publication on pages that would otherwise Schedule A (Form 1040). Moreover, your net If you have a tax question not answered by this be blank. You can help bring these children casualty loss from these qualified disasters publication or the How To Get Tax Help section home by looking at the photographs and calling doesn’t need to exceed 10% of your AGI to at the end of this publication, go to the IRS In- 1-800-THE-LOST (1-800-843-5678) if you rec- qualify for the deduction, but the $100 limit per teractive Tax Assistant page at IRS.gov/ ognize a child. casualty is increased to $500. Help/ITA where you can find topics by using the See Disaster Area Losses and Qualified dis- search feature or viewing the categories listed. aster loss, later, for more information on the Introduction Getting tax forms, instructions, and pub- special relief provided as part of the Disaster This publication explains the tax treatment of lications. Visit IRS.gov/Forms to download Tax Relief and Airport and Airway Extension Act casualties, thefts, and losses on deposits. A current and prior-year forms, instructions, and of 2017, the Tax Cuts and Jobs Act of 2017, the casualty occurs when your property is damaged publications. Bipartisan Budget Act of 2018, the Taxpayer as a result of a disaster such as a storm, fire, Certainty and Disaster Tax Relief Act of 2019, car accident, or similar event. A theft occurs Ordering tax forms, instructions, and and the Taxpayer Certainty and Disaster Tax when someone steals your property. A loss on publications. Go to IRS.gov/OrderForms to Relief Act of 2020. Also see IRS.gov/ deposits occurs when your financial institution order current forms, instructions, and publica- DisasterTaxRelief for more information about becomes insolvent or bankrupt. tions; call 800-829-3676 to order prior-year these and other disaster tax relief provisions. This publication discusses the following top- forms and instructions. The IRS will process See the 2019 Form 4684 and its in- ics. your order for forms and publications as soon TIP structions for the special rules regard- • Definitions of a casualty, theft, and loss on as possible. Do not resubmit requests you’ve ing your 2019 return. You may have to deposits. already sent us. You can get forms and publica- file an amended return on Form 1040-X to claim • How to figure the amount of your gain or tions faster online. these benefits on your 2019 return. Form loss. 1040-X is available at IRS.gov/Form1040X. The • How to treat insurance and other reim- Useful Items 2019 Form 4684 is available at IRS.gov/ bursements you receive. You may want to see: Form4684. See How to report the loss on Form • The deduction limits. 1040-X, later. • When and how to report a casualty or theft. Publication • The special rules for disaster area losses.

Special rules for capital gains invested in 523 523 Selling Your Home qualified opportunity funds (QOFs). If you Forms to file. Generally, when you have a

525 525 Taxable and Nontaxable Income have a capital gain for 2020, you can invest that casualty or theft, you have to file Form 4684. You may also have to file one or more of the fol- gain into a qualified opportunity fund (QOF) and 536 536 Net Operating Losses (NOLs) for elect to defer part or all of the gain that you lowing forms. Individuals, Estates, and Trusts would otherwise include in income until Decem- • Schedule A (Form 1040). ber 31, 2026. You may also be able to perma- • Schedule A (Form 1040-NR) (for nonresi- 550 550 Investment Income and Expenses nently exclude gain from the sale or exchange dent aliens).

551 551 Basis of Assets of an investment in a QOF if the investment is • Schedule D (Form 1040). Form 4797. held for at least 10 years. For information about • 584 584 Casualty, Disaster, and Theft Loss how to elect to use these special rules, see the For details on which form to use, see How To Workbook (Personal-Use Property) Instructions for Form 8949, Sales and Other Report Gains and Losses, later. Dispositions of Capital Assets. For additional in- 584-B 584-B Business Casualty, Disaster, and formation, see Opportunity Zones Frequently Condemnations. For information on condem- Theft Loss Workbook Asked Questions on IRS.gov. nations of property, see Involuntary Conver- sions in chapter 1 of Pub. 544, Sales and Other Form (and Instructions) Deferral of gain invested in a QOF. If you Dispositions of Assets. realize a gain from an actual, or deemed, sale Schedule A (Form 1040) Schedule A (Form 1040) Itemized Deductions or exchange with an unrelated person and dur- Workbooks for casualties and thefts. Pub. ing the 180-day period beginning on the date 584, Casualty, Disaster, and Theft Loss Work- Schedule A (Form 1040-NR) Schedule A (Form 1040-NR) Itemized realizing the gain, invested an amount of the book (Personal-Use Property), is available to Deductions (for nonresident aliens)

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Schedule D (Form 1040) Schedule D (Form 1040) Capital Gains Qualified disaster loss. A qualified disas- An exception to the rule limiting the de- and Losses ter loss also includes an individual's casualty ! duction for personal casualty and theft and theft loss of personal-use property that is CAUTION losses to federal casualty losses ap-

4684 4684 Casualties and Thefts attributable to: plies where you have personal casualty gains.

4797 4797 Sales of Business Property • A major disaster declared by the President In this case, you may deduct personal casualty under section 401 of the Stafford Act in losses that aren’t attributable to a federally de- See How To Get Tax Help near the end of this 2016; clared disaster to the extent they don’t exceed publication for information about getting publi- • Hurricane Harvey; your personal casualty gains. cations and forms. • Tropical Storm Harvey; Casualty losses can result from a number of • Hurricane Irma; different causes, including the following. • Hurricane Maria; Car accidents (but see Nondeductible los- Casualty • The California wildfires in 2017 and Janu- • ses, next, for exceptions). ary 2018; and Earthquakes. A casualty is the damage, destruction, or loss of • A major disaster that was declared by the • Fires (but see Nondeductible losses, next, property resulting from an identifiable event that President under section 401 of the Stafford • for exceptions). is sudden, unexpected, or unusual. Act and that occurred in 2018 and before Floods. • A sudden event is one that is swift, not December 21, 2019, and continued no • Government-ordered demolition or reloca- gradual or progressive. later than January 19, 2020 (except those • tion of a home that is unsafe to use be- • An unexpected event is one that is ordina- attributable to the California wildfires in cause of a disaster as discussed under rily unanticipated and unintended. January 2018 that received prior relief). An unusual event is one that isn’t a Disaster Area Losses, later. • A qualified disaster loss is now expanded to day-to-day occurrence and that isn’t typical • Mine cave-ins. include an individual's casualty and theft loss of of the activity in which you were engaged. • Shipwrecks. personal-use property that is attributable to a • Sonic booms. Casualty losses are deductible during the major disaster that was declared by Presidential • Storms, including hurricanes and torna- tax year that the loss is sustained. This is gen- Declaration that is dated between January 1, does. erally the tax year that the loss occurred. How- 2020, and February 25, 2021 (inclusive). How- • Terrorist attacks. ever, a casualty loss may be sustained in a year ever, in order to qualify under this expansion, • Vandalism. after the casualty occurred. See When To Re- the major disaster must have an incident period • Volcanic eruptions. port Gains and Losses and Table 3, later. beginning between December 28, 2019, and December 27, 2020 (inclusive). Further, the Nondeductible losses. A casualty loss isn’t Definitions. Three specific types of casualty major disaster must have an incident period deductible, even to the extent the loss doesn’t losses are described in this publication. ending no later than January 26, 2021. This ex- exceed your personal casualty gains, if the pansion does not include those losses attributa- damage or destruction is caused by the follow- 1. Federal casualty losses, ble to any major disaster which has been de- ing. 2. Disaster losses, and clared only by reason of COVID-19. • Accidentally breaking articles such as If you suffered a qualified disaster loss, you glassware or china under normal condi- 3. Qualified disaster losses. are eligible to claim a casualty loss deduction, tions. All three types of losses refer to federally de- to elect to claim the loss in the preceding tax • A family pet (explained below). clared disasters, but the requirements for each year, and to deduct the loss without itemizing • A fire if you willfully set it, or pay someone loss vary. A federally declared disaster is a dis- other deductions on Schedule A (Form 1040). else to set it. aster determined by the President of the United See Qualified disaster losses, later. See also • A car accident if your willful negligence or States to warrant assistance by the federal gov- IRS.gov/DisasterTaxRelief for date-specific willful act caused it. The same is true if the ernment under the Stafford Act. A federally de- declarations associated with these disasters willful act or willful negligence of someone clared disaster includes (a) a major disaster and for more information. acting for you caused the accident. declaration, or (b) an emergency declaration • Progressive deterioration (explained be- under the Stafford Act. Deductible losses. For tax years 2018 low). However, see Special Procedure for through 2025, if you are an individual, casualty Damage From Corrosive Drywall and Spe- Federal casualty loss. A federal casualty losses of personal-use property are deductible cial Procedure for Damage From Deterio- loss is an individual’s casualty or theft loss of only if the loss is attributable to a federally de- rating Concrete Foundation, later. personal-use property that is attributable to a clared disaster (federal casualty loss). If the federally declared disaster. The casualty loss event causing you to suffer a personal casualty Family pet. Loss of property due to dam- must occur in a state receiving a federal disas- loss (not attributed to a federally declared dis- age by a family pet isn’t deductible as a casu- ter declaration. If you suffered a federal casu- aster) occurred before January 1, 2018, but the alty loss unless the requirements discussed alty loss, you are eligible to claim a casualty casualty loss wasn’t sustained until January 1, earlier under Casualty are met. loss deduction. If you suffered a casualty or 2018, or later, the casualty loss isn’t deductible. theft loss of personal-use property that wasn’t See When To Report Gains and Losses, later, Example. Your antique oriental rug was attributable to a federally declared disaster, it for more information on when a casualty loss is damaged by your new puppy before it was isn’t a federal casualty loss, and you may not sustained. housebroken. Because the damage wasn’t un- claim a casualty loss deduction unless the ex- expected and unusual, the loss isn’t deductible ception applies. See the Caution under Deduc- Example. As a result of a storm, a tree fell as a casualty loss. tible losses, later. on your house in December 2017, and you suf- Progressive deterioration. Loss of prop- fered $5,000 in damage. The President didn’t Disaster loss. A disaster loss is a loss that erty due to progressive deterioration isn’t de- declare the storm a federally declared disaster. ductible as a casualty loss. This is because the is attributable to a federally declared disaster You filed a claim with your insurance company and that occurs in an area eligible for assis- damage results from a steadily operating cause and reasonably expected the entire amount of or a normal process, rather than from a sudden tance pursuant to the Presidential declaration. the claim to be covered by your insurance com- The disaster loss must occur in a county eligible event. The following are examples of damage pany. In January 2019, your insurance com- due to progressive deterioration. for public or individual assistance (or both). Dis- pany paid you $3,000 and determined it didn’t aster losses aren’t limited to individual per- • The steady weakening of a building due to owe you the remaining $2,000 from your claim. normal wind and weather conditions. sonal-use property and may be claimed for indi- The $2,000 personal casualty loss is sustained vidual business or income-producing property • The deterioration and damage to a water in 2019 even though the storm occurred in heater that bursts. However, the rust and and by corporations, S corporations, and part- 2017. Thus, the $2,000 isn’t a federal casualty nerships. If you suffered a disaster loss, you are water damage to rugs and drapes caused loss and isn’t deductible as a casualty loss un- by the bursting of a water heater does eligible to claim a casualty loss deduction and der the new limitations. to elect to claim the loss in the preceding tax qualify as a casualty. year. See Disaster Area Losses, later.

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• Most losses of property caused by Line 1. Enter the information required by Special Procedure for droughts. To be deductible, a drought-rela- the line 1 instructions. ted loss must generally be incurred in a Damage From Deteriorating trade or business or in a transaction en- Line 2. Skip this line. Concrete Foundation tered into for profit. Line 3. Enter the amount of insurance or Under a special safe harbor procedure, you can • Termite or moth damage. other reimbursements you received (including deduct the amounts you paid to repair damage • The damage or destruction of trees, through litigation). If none, enter -0-. shrubs, or other plants by a fungus, dis- to your home caused by a deteriorating con- ease, insects, worms, or similar pests. Lines 4–7. Skip these lines. crete foundation containing the mineral pyrrho- However, a sudden destruction due to an tite. Under this procedure, you treat the unexpected or unusual infestation of bee- Line 8. Enter the amount you paid to repair amounts paid as a casualty loss in the year of tles or other insects may result in a casu- the damage to your home and household appli- payment for amounts paid prior to 2018. See alty loss. ances due to corrosive drywall. Enter only the the note below for amounts paid after 2017. amounts you paid to restore your home to the condition existing immediately before the dam- Note. If you paid for any repairs before Special Procedure for age. Don’t enter any amounts you paid for im- 2017 and you choose to follow this special pro- Damage From Corrosive provements or additions that increased the cedure, you can amend your return for the ear- Drywall value of your home above its pre-loss value. If lier year by filing Form 1040-X and attaching a you replaced a household appliance instead of completed Form 4684 for the appropriate year. Because the personal casualty losses repairing it, enter the lesser of: If you paid for any repairs after filing your origi- ! claimed under this special procedure • The current cost to replace the original ap- nal 2017 tax return and before the last day for CAUTION aren’t attributable to a federally de- pliance, or filing a timely Form 1040-X for the 2017 tax clared disaster, they’re only deductible to the • The basis of the original appliance (gener- year, you may treat the amount paid as a casu- extent such losses don’t exceed your personal ally its cost). alty loss on a timely filed Form 1040-X for the casualty gains. 2017 tax year. Form 4684 for the appropriate Line 9. If line 8 is more than line 3, do one year can be found at IRS.gov. Generally, Form of the following. 1040-X must be filed within 3 years after the If you suffered property losses due to the ef- 1. If you have a pending claim for reimburse- date the original return was filed or within 2 fects of certain imported drywall installed in ment (or you intend to pursue reimburse- years after the date the tax was paid, whichever homes between 2001 and 2009, under a spe- ment), enter 75% of the difference be- is later. cial procedure, you can deduct the amounts tween lines 3 and 8. For example, amounts you paid for repairs you paid to repair damage to your home and in 2016 are deductible on your 2016 tax return 2. If item (1) doesn’t apply to you, enter the household appliances due to corrosive drywall. and amounts you paid for repairs in 2017 are full amount of the difference between lines Under this procedure, you treat the amounts deductible on your 2017 tax return. Amounts 3 and 8. paid for repairs as a casualty loss in the year of paid in 2018 through 2021 after filing an original payment. For example, amounts you paid for If line 8 is less than or equal to line 3, you can’t 2017 tax return and before the last day to file a repairs in 2020 are deductible on your 2020 tax claim a casualty loss deduction using this spe- timely Form 1040-X for the 2017 tax year are return and amounts you paid for repairs in 2019 cial procedure. treated as a casualty loss on a timely filed Form are deductible on your 2019 tax return. 1040-X for the 2017 tax year (under a special If you have a pending claim for reim- rule applicable for repairs to deteriorating con- Note. If you paid for any repairs before bursement (or you intend to pursue re- crete foundations). 2020 and you choose to follow this special pro- imbursement), you may have income or cedure, you can amend your return for the ear- an additional deduction in a later tax year de- Deteriorating concrete foundation. For pur- lier year by filing Form 1040-X, Amended U.S. pending on the actual amount of reimbursement poses of this procedure, “deteriorating concrete Individual Income Tax Return, and attaching a received. See Reimbursement Received After foundation” means a concrete foundation that is completed Form 4684 for the appropriate year. Deducting Loss, later. damaged because of the presence of the min- Form 4684 for the appropriate year can be eral pyrrhotite in the concrete mixture used be- found at IRS.gov. Generally, Form 1040-X must Lines 10–18. Complete these lines accord- fore January 1, 2018, in pouring the foundation. be filed within 3 years after the date the original ing to the Instructions for Form 4684. See Revenue Procedure 2017-60, 2017-50 return was filed or within 2 years after the date I.R.B. 559, available at IRS.gov/irb/ the tax was paid, whichever is later. Choosing not to follow this special proce- 2017-50_IRB#RP-2017-60, as modified by dure. If you choose not to follow this special Revenue Procedure 2018-14, 2018-9 I.R.B. Corrosive drywall. For purposes of this spe- procedure, you are subject to all of the provi- 378, available at IRS.gov/irb/ cial procedure, “corrosive drywall” means dry- sions that apply to the deductibility of casualty 2018-09_IRB#RP-2018-14, for more informa- wall that is identified as problem drywall under losses, and you must complete lines 1–9 ac- tion. the two-step identification method published by cording to the Instructions for Form 4684. This the Consumer Product Safety Commission means, for example, that you must establish Applying the safe harbor procedure. You (CPSC) and the Department of Housing and Ur- that the damage, destruction, or loss of property may apply this safe harbor procedure if: ban Development (HUD) in their interim guid- resulted from an identifiable event as defined • You obtained a written evaluation from a li- ance dated January 28, 2010, as revised by the earlier under Casualty. Furthermore, you must censed engineer indicating that the foun- CPSC and HUD. The revised identification have proof that shows the following. dation was made with defective concrete, guidance and remediation guidelines are avail- • The loss is properly deductible in the tax and have requested and received a reas- able at CPSC.gov/en/Safety-Education/Safety- year you claimed it and not in some other sessment report that shows the reduced Education-Centers/Drywall-Information-Center. year. See When To Report Gains and Los- reassessed value of the residential prop- ses, later. erty based on the written evaluation from Special instructions for completing Form • The amount of the claimed loss. See Proof the engineer and an inspection pursuant to 4684. If you choose to follow this special pro- of Loss, later. Connecticut Public Act No. 16-45; or cedure, complete Form 4684, Section A, ac- • No claim for reimbursement of any portion • If your home is either in Connecticut or out- cording to the instructions below. The IRS won’t of the loss exists for which there is a rea- side of Connecticut, you have obtained a challenge your treatment of damage resulting sonable prospect of recovery. See When written evaluation from a licensed engineer from corrosive drywall as a casualty loss if you To Report Gains and Losses, later. indicating that the foundation was made determine and report the loss as explained be- with defective concrete containing the min- low. eral pyrrhotite. Top margin of Form 4684. Enter “Reve- Only amounts paid to restore your home to nue Procedure 2010-36.” the condition existing immediately prior to the

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damage qualify for loss treatment. Amounts The taking of money or property through fraud • Revenue Procedure 2011-58, 2011-50 paid for improvements or additions that in- or misrepresentation is theft if it is illegal under I.R.B. 849 (available at IRS.gov/irb/ crease the value of your home above its state or local law. 2011-50_IRB#RP-2011-58). pre-loss value aren’t allowed as a casualty loss. If you qualify to use Revenue Procedure Theft loss deduction limited. For tax years You must report the amount of the loss on 2009-20, as modified by Revenue Procedure 2018 through 2025, if you are an individual, Form 4684 and must enter “Revenue Procedure 2011-58, and you choose to follow the proce- casualty and theft losses of personal-use prop- 2017-60” at the top of that form. The IRS won’t dures in the guidance, first fill out Section C of erty are deductible only if the losses are attribut- challenge your treatment of damage resulting Form 4684 to determine the amount to enter on able to a federally declared disaster (federal from a deteriorating concrete foundation as a Section B, line 28. Skip lines 19 through 27, but casualty loss). casualty loss if the loss is determined and re- you must fill out Section B, lines 29 through 39, ported as provided in Revenue Procedure An exception to the rule limiting the de- as appropriate. Section C of Form 4684 repla- 2017-60. However, these losses will be subject duction for personal casualty and theft ces Appendix A in Revenue Procedure to the $100 rule and the 10% rule, discussed losses to federal casualty losses ap- 2009-20. You don’t need to complete Appendix later. Because this would be claimed on an plies where you have personal casualty gains. A. For more information, see the above revenue original or amended Form 1040 for a tax year In this case, you may deduct personal casualty ruling and revenue procedures, and the Instruc- prior to 2018, the personal casualty loss limita- losses that aren’t attributable to a federally de- tions for Form 4684. tion isn’t applicable. clared disaster to the extent they don’t exceed If you choose not to use the procedures in Claims for reimbursement. If you have a your personal casualty gains. Revenue Procedure 2009-20, as modified by pending claim for reimbursement, or you intend Revenue Procedure 2011-58, you may claim to pursue reimbursement, you may claim a loss Example. Martin and Grace experienced your theft loss by filling out Section B, lines 19 for 75% of the unreimbursed amounts paid dur- multiple personal casualties in 2020. Grace’s di- through 39, as appropriate. ing the tax year to repair damage to your per- amond necklace was stolen, resulting in a Note that the personal-use property limita- sonal residence caused by the deteriorating $15,500 casualty loss. Martin and Grace also tion for tax years 2018 through 2025 does not concrete foundation. If you have been fully re- lost their camper as a result of a lightning strike. apply to losses on income-producing property, imbursed before filing a return for the year the They have replacement-value insurance on the such as losses from Ponzi-type investment loss was sustained, you may not claim a loss. camper, so they have a $13,000 gain. Finally, schemes. If you don’t have a pending claim for reim- they lost their car in a flood determined to be a bursement, and you don’t intend to pursue re- federally declared disaster, resulting in a casu- imbursement, you may claim as a loss all unre- alty loss of $25,000. Because Martin and Grace Loss on Deposits imbursed amounts (subject to the adjusted experienced a $13,000 personal casualty gain basis limitation) paid during the tax year to re- as a result of the replacement-value insurance, A loss on deposits can occur when a bank, pair damage to your home caused by the deteri- they can offset that gain with a portion of their credit union, or other financial institution be- orating concrete foundation. loss attributable to the stolen necklace and comes insolvent or bankrupt. If you incurred this If you paid amounts to repair damage claim the full federal casualty loss of $25,000 type of loss, you can choose one of the follow- ! to a personal residence with a deterio- subject to the $100 and 10% of AGI limitations. ing ways to deduct the loss. CAUTION rating concrete foundation and claimed • As a casualty loss (to the extent the loss a deduction on an original or amended federal Decline in market value of stock. You can’t doesn’t exceed your personal casualty income tax return and payments were made to deduct as a theft loss the decline in market gains). you (or on your behalf to contractors) by the value of stock acquired on the open market for • As a nonbusiness bad debt. investment if the decline is caused by disclo- Connecticut Foundation Solutions Indemnity You can no longer claim any miscella- Company (CFSIC), you must include some or sure of accounting fraud or other illegal miscon- duct by the officers or directors of the corpora- neous itemized deductions, including part of the payments in your gross income. See the deduction for an ordinary loss on Announcement 2020-5, 2020-19 I.R.B. 796 tion that issued the stock. However, you may be able to deduct it as a capital loss on Schedule D deposits in insolvent or bankrupt financial insti- (available at IRS.gov/irb/ tutions. 2020-19_IRB#ANN-2020-5). (Form 1040) if the stock is sold or exchanged or becomes completely worthless. For more infor- If you have a pending claim for reim- mation about stock sales, worthless stock, and Casualty loss. You can choose to deduct a bursement (or you intend to pursue re- capital losses, see chapter 4 of Pub. 550. loss on deposits as a casualty loss for any year imbursement), you may have income or in which you can reasonably estimate how an additional deduction in a later tax year de- Mislaid or lost property. The simple disap- much of your deposits you have lost in an insol- pending on the actual amount of reimbursement pearance of money or property isn’t a theft. vent or bankrupt financial institution. The choice received. See Reimbursement Received After However, an accidental loss or disappearance is generally made on the return you file for that Deducting Loss, later. of property can qualify as a casualty if it results year and applies to all your losses on deposits from an identifiable event that is sudden, unex- for the year in that particular financial institution. pected, or unusual. Sudden, unexpected, and If you treat the loss as a casualty loss, you can’t unusual events were defined earlier under treat the same amount of the loss as a nonbusi- Theft Casualty. ness bad debt when it actually becomes worth- less. However, you can take a nonbusiness bad A theft is the taking and removing of money or Example. A car door is accidentally slam- debt deduction for any amount of loss that is property with the intent to deprive the owner of med on your hand, breaking the setting of your more than the estimated amount you deducted it. The taking of property must be illegal under diamond ring. The diamond falls from the ring as a casualty or ordinary loss. Once you make the law of the state where it occurred and it and is never found. The loss of the diamond is a the choice, you can’t change it without permis- must have been done with criminal intent. You casualty. sion from the IRS. don’t need to show a conviction for theft. Losses from Ponzi-type investment Casualty loss limitation. If you are an in- Theft includes the taking of money or prop- schemes. The IRS has issued the following dividual, casualty losses of personal-use prop- erty by the following means. guidance to assist taxpayers who are victims of erty are deductible only if the loss is attributable • Blackmail. losses from Ponzi-type investment schemes. to a federally declared disaster. An exception to • Burglary. • Revenue Ruling 2009-9, 2009-14 I.R.B. the rule limiting the deduction for personal • Embezzlement. 735 (available at IRS.gov/irb/ casualty and theft losses to federal casualty los- • Extortion. 2009-14_IRB#RR-2009-9). ses applies where you have personal casualty • Kidnapping for ransom. • Revenue Procedure 2009-20, 2009-14 gains. Because a loss on deposits isn’t attribut- • Larceny. I.R.B. 749 (available at IRS.gov/irb/ able to a federally declared disaster, you may • Robbery. 2009-14_IRB#RP-2009-20). deduct losses on deposits as personal casualty

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Table 1. Reporting Loss on Deposits include the reimbursement in gross income. If you don’t receive the reimbursement by the end IF you choose to report the loss as a... THEN report it on... of the year, you may not claim a loss to the ex- tent you have a reasonable prospect of recov- casualty loss (see Casualty loss limitation under Form 4684 and Schedule A (Form 1040). ery. Loss on Deposits) Leased property. If you are liable for casu- nonbusiness bad debt Form 8949 and Schedule D (Form 1040). alty damage to property you lease, your loss is the amount you must pay to repair the property losses only to the extent they don’t exceed your minus any insurance or other reimbursement personal casualty gains. Figuring a Loss you receive or expect to receive. Nonbusiness bad debt. If you don’t choose to Separate computations. Generally, if a single claim the loss as a casualty loss for purposes of To determine your deduction for a casualty or casualty or theft involves more than one item of offsetting gains, you must wait until the year the theft loss, you must first figure your loss. property, you must figure the loss on each item actual loss is determined and deduct the loss separately. Then combine the losses to deter- as a nonbusiness bad debt in that year. Amount of loss. Figure the amount of your loss using the following steps. mine the total loss from that casualty or theft. How to report. The kind of deduction you 1. Determine your adjusted basis in the prop- Exception for personal-use real prop- choose for your loss on deposits determines erty before the casualty or theft. erty. In figuring a casualty loss on per- how you report your loss. See Table 1. sonal-use real property, the entire property (in- 2. Determine the decrease in fair market cluding any improvements, such as buildings, More information. For more information, see value (FMV) of the property as a result of trees, and shrubs) is treated as one item. Figure Deposit in Insolvent or Bankrupt Financial Insti- the casualty or theft. the loss using the smaller of the following. tution in Pub. 550. 3. From the smaller of the amounts you de- • The decrease in FMV of the entire prop- termined in (1) and (2), subtract any insur- erty. Deducted loss recovered. If you recover an ance or other reimbursement you received • The adjusted basis of the entire property. amount you deducted as a loss in an earlier or expect to receive. year, you may have to include the amount re- See Real property under Figuring the De- duction, later. covered in your income for the year of recovery. For personal-use property, apply the deduction If any part of the original deduction didn’t re- limits, discussed later, to determine the amount duce your tax in the earlier year, you don’t have of your deductible loss. Decrease in Fair Market to include that part of the recovery in your in- Value come. For more information, see Recoveries in Gain from reimbursement. If your reim- Pub. 525. bursement is more than your adjusted basis in the property, you have a gain. This is true even Fair market value (FMV) is the price for which if the decrease in the FMV of the property is you could sell your property to a willing buyer Proof of Loss smaller than your adjusted basis. If you have a when neither of you has to sell or buy and both gain, you may have to pay tax on it, or you may of you know all the relevant facts. be able to postpone reporting the gain. See Fig- To deduct a casualty or theft loss, you must be The decrease in FMV used to figure the uring a Gain, later. able to show that there was a casualty or theft. amount of a casualty or theft loss is the differ- You must also be able to support the amount Business or income-producing property. ence between the property’s FMV immediately you take as a deduction. If you have business or income-producing prop- before and immediately after the casualty or erty, such as rental property, and it is stolen or theft. Casualty loss proof. For a casualty loss, you completely destroyed, the decrease in FMV should be able to show all of the following. isn’t considered. Your loss is figured as follows: FMV of stolen property. The FMV of property • That you were the owner of the property, or immediately after a theft is considered to be if you leased the property from someone zero because you no longer have the property. else, that you were contractually liable to Your adjusted basis in the property Example. Several years ago, you pur- the owner for the damage. MINUS • The type of casualty (car accident, fire, chased silver dollars at face value for $150. storm, etc.) and when it occurred. Any salvage value This is your adjusted basis in the property. Your silver dollars were stolen this year. The FMV of • That the loss was a direct result of the MINUS casualty. the coins was $1,000 just before they were sto- • Whether a claim for reimbursement exists Any insurance or other reimbursement len, and insurance didn’t cover them. Your theft for which there is a reasonable expectation you loss is $150. of recovery. receive or expect to receive Recovered stolen property. Recovered sto- len property is your property that was stolen Theft loss proof. For a theft loss, you should Loss of inventory. There are two ways and later returned to you. If you recovered prop- be able to show all of the following. you can deduct a casualty or theft loss of inven- erty after you had already taken a theft loss de- • That you were the owner of the property. tory, including items you hold for sale to cus- duction, you must refigure your loss using the • That your property was stolen. tomers. smaller of the property’s adjusted basis (ex- • When you discovered your property was One way is to deduct the loss through the in- plained later) or the decrease in FMV from the missing. crease in the cost of goods sold by properly re- time just before it was stolen until the time it was • Whether a claim for reimbursement exists porting your opening and closing inventories. recovered. Use this amount to refigure your to- for which there is a reasonable expectation Don’t claim this loss again as a casualty or theft tal loss for the year in which the loss was de- of recovery. loss. If you take the loss through the increase in ducted. It is important that you have records the cost of goods sold, include any insurance or other reimbursement you receive for the loss in If your refigured loss is less than the loss that will prove your deduction. If you you deducted, you generally have to report the RECORDS don’t have the actual records to sup- gross income. The other way is to deduct the loss sepa- difference as income in the recovery year. But port your deduction, you can use other satisfac- report the difference only up to the amount of tory evidence to support it. rately. If you deduct it separately, eliminate the affected inventory items from the cost of goods the loss that reduced your tax. For more infor- sold by making a downward adjustment to mation on the amount to report, see Recoveries opening inventory or purchases. Reduce the in Pub. 525. loss by the reimbursement you received. Don’t

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Figuring Decrease in FMV—Items value for your car listed in the book and modify personal-use residential real property using the To Consider it by such factors as mileage and the condition lesser of two repair estimates prepared by sep- of your car to determine its value. The prices arate and independent licensed contractors. To figure the decrease in FMV because of a aren’t official, but they may be useful in deter- The estimates must detail the itemized costs to casualty or theft, you generally need a compe- mining value and suggesting relative prices for restore your property to its condition immedi- tent appraisal. However, other measures can comparison with current sales and offerings in ately before the casualty. The estimated repair also be used to establish certain decreases. your area. If your car isn’t listed in the books, cost safe harbor method is limited to casualty See Appraisal, Cost of cleaning up or making determine its value from other sources. A deal- losses of $20,000 or less. repairs, and Special Procedure—Safe Harbor er’s offer for your car as a trade-in on a new car Methods for Determining Casualty and Theft isn’t usually a measure of its true value. De minimis method. The de minimis safe Losses below. harbor method allows you to figure the de- crease in the FMV of your personal-use resi- Special Procedure—Safe Harbor Appraisal. An appraisal to determine the dif- dential real property based on a written Methods for Determining Casualty good-faith estimate of the cost of repairs re- ference between the FMV of the property imme- and Theft Losses diately before a casualty or theft and immedi- quired to restore your property to its condition immediately before the casualty. You must ately afterward should be made by a competent To figure the amount of your casualty and theft appraiser. The appraiser must recognize the ef- keep documentation showing how you estima- losses, you must generally determine the actual ted the amount of your loss. The de minimis fects of any general market decline that may oc- reduction in the FMV of lost or damaged prop- cur along with the casualty. This information is safe harbor method is available for casualty los- erty using a competent appraisal or the cost of ses of $5,000 or less. needed to limit any deduction to the actual loss repairs you actually make. But the special safe resulting from damage to the property. harbor methods in Revenue Procedure Insurance method. The insurance safe Several factors are important in evaluating 2018-08, 2018-2 I.R.B. 286, and Revenue Pro- harbor method allows you to figure the de- the accuracy of an appraisal, including the fol- cedure 2018-09, 2018-2 I.R.B. 290, allow you to crease in the FMV of your personal-use resi- lowing. determine the decrease in FMV in other ways. dential real property based upon the estimated • The appraiser’s familiarity with your prop- loss in reports prepared by your homeowners or erty before and after the casualty or theft. If you are an individual, casualty losses flood insurance company. These reports must • The appraiser’s knowledge of sales of ! of personal-use property are deductible set forth the estimated loss you sustained from comparable property in the area. CAUTION only if the loss is attributable to a feder- the damage to or the destruction of your prop- • The appraiser’s knowledge of conditions in ally declared disaster. An exception to the rule erty. the area of the casualty. limiting the deduction for personal casualty and • The appraiser’s method of appraisal. theft losses applies if you have personal casu- Federally declared disaster alty gains. In this case, you may deduct per- method—contractor safe harbor. If the loss You may be able to use an appraisal sonal casualty losses that aren’t attributable to occurred in a disaster area and was due to a TIP that you used to get a federal loan (or a a federally declared disaster to the extent they federally declared disaster, then you may use federal loan guarantee) as the result of don’t exceed your personal casualty gains. the contractor safe harbor method or the disas- a federally declared disaster to establish the ter loan appraisal method. Under the contractor amount of your disaster loss. For more informa- Special procedure for determining casualty safe harbor method, you may use the contract tion on disasters, see Disaster Area Losses, price for the repairs specified in a contract pre- later. and theft losses generally. Revenue Proce- dure 2018-08, 2018-2 I.R.B. 286, available at pared by an independent and licensed contrac- IRS.gov/irb/2018-02_IRB#RP-2018-08, pro- tor to determine the decrease in the FMV of Cost of cleaning up or making repairs. The vides safe harbor methods that you may use to your personal-use residential real property. This cost of repairing damaged property isn’t part of figure the amount of your casualty and theft los- safe harbor method doesn’t apply unless you a casualty loss. Neither is the cost of cleaning ses of your personal-use residential real prop- are subject to a binding contract signed by you up after a casualty. But you can use the cost of erty and personal belongings. If you qualify for and the contractor setting forth the itemized cleaning up or of making repairs after a casualty and use a safe harbor method described in costs to restore your personal-use residential as a measure of the decrease in FMV if you Revenue Procedure 2018-08, the IRS won’t real property to its condition immediately before meet all the following conditions. challenge your determination. The use of a safe the casualty. The repairs are actually made. • harbor method described in Revenue Proce- Federally declared disaster The repairs are necessary to bring the • dure 2018-08 isn’t mandatory. method—disaster loan appraisal. Under the property back to its condition before the disaster loan appraisal safe harbor method, you casualty. Personal-use residential real property safe may use an appraisal prepared to obtain a loan The amount spent for repairs isn’t exces- • harbor methods. Personal-use residential real of federal funds or a loan guarantee from the sive. property is generally real property, including im- federal government that identifies your estima- The repairs take care of the damage only. • provements, that is owned by the individual who ted loss from a federally declared disaster to The value of the property after the repairs • suffered a casualty loss and that contains at determine the decrease in the FMV of your per- isn’t, due to the repairs, more than the least one personal residence. It doesn’t include sonal-use residential real property. value of the property before the casualty. a personal residence if any part of the personal Landscaping. The cost of restoring land- residence is used as rental property or contains Personal belongings safe harbor methods. scaping to its original condition after a casualty a home office used in a trade or business or Personal belongings generally include items of may indicate the decrease in FMV. You may be transaction entered into for profit. For more de- tangible personal property owned by an individ- able to measure your loss by what you spend tails, see Revenue Procedure 2018-08. ual who suffered a casualty or theft loss if they on the following. The safe harbor methods for personal-use aren’t used in a trade or business. Personal be- • Removing destroyed or damaged trees residential real property available through Rev- longings don’t include an item that maintains or and shrubs, minus any salvage you re- enue Procedure 2018-08 are the following. increases its value over time or certain other ceive. • Estimated repair cost method. types of property. For more details, see Reve- • Pruning and other measures taken to pre- • De minimis method. nue Procedure 2018-08. The safe harbor meth- serve damaged trees and shrubs. • Insurance method. ods for personal belongings are the de minimis • Replanting necessary to restore the prop- • Federally declared disaster method—con- method and the replacement cost safe harbor erty to its approximate value before the tractor safe harbor. method for federally declared disasters. casualty. • Federally declared disaster method—dis- aster loan appraisal. De minimis method. Under the de minimis method, you can make a good-faith estimate of Car value. Books issued by various automo- Estimated repair cost method. The esti- the decrease in the FMV of your personal be- bile organizations that list the manufacturer and mated repair cost safe harbor method allows longings. You must maintain records describing the model of your car may be useful in figuring you to figure the decrease in the FMV of your your affected personal belongings as well as the value of your car. You can use the retail

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your methodology for estimating your loss. This Cost of protection. The cost of protecting through 2025, they can no longer be deducted method is limited to losses of $5,000 or less. your property against a casualty or theft isn’t as miscellaneous itemized deductions. part of a casualty or theft loss. The amount you Replacement cost safe harbor method spend on insurance or to board up your house for federally declared disasters. The re- against a storm isn’t part of your loss. If the Adjusted Basis placement cost safe harbor method for federally property is business property, these expenses declared disasters allows you to determine the are deductible as business expenses. The measure of your investment in the property FMV of your personal belongings located in a If you make permanent improvements to you own is its basis. For property you buy, your disaster area immediately before a federally de- your property to protect it against a casualty or basis is usually its cost to you. For property you clared disaster to figure the amount of your theft, add the cost of these improvements to acquire in some other way, such as inheriting it, casualty or theft loss. To use the replacement your basis in the property. An example would receiving it as a gift, or getting it in a nontaxable cost safe harbor method, you must first deter- be the cost of a dike to prevent flooding. exchange, you must figure your basis in another mine the current cost to replace your personal way, as explained in Pub. 551. If you inherited belonging with a new one and then reduce that Exception. You can’t increase your basis in the property from someone who died in 2010 amount by 10% for each year you have owned the property by, or deduct as a business ex- and the executor of the decedent’s estate made the personal belonging. See the Personal Be- pense, any expenditures you made with respect the election to file Form 8939, refer to the infor- longings Valuation Table in Revenue Procedure to qualified disaster mitigation payments (dis- mation provided by the executor or see Pub. 2018-08. If you choose to use the replacement cussed later under Disaster Area Losses). 4895, Tax Treatment of Property Acquired cost safe harbor method, then you must use From a Decedent Dying in 2010. that method for all your personal belongings, Related expenses. The incidental expenses with certain exceptions identified in Revenue due to a casualty or theft, such as expenses for Adjustments to basis. While you own the Procedure 2018-08. the treatment of personal injuries, for temporary property, various events may take place that Each of these safe harbor methods is sub- housing, or for a rental car, aren’t part of your change your basis. Some events, such as addi- ject to additional rules and exceptions. For ad- casualty or theft loss. However, they may be tions or permanent improvements to the prop- ditional information, see Revenue Procedure deductible as business expenses if the dam- erty, increase basis. Others, such as earlier 2018-08. aged or stolen property is business property. casualty losses and depreciation deductions, decrease basis. When you add the increases to Decreases to safe harbor loss amount. The Replacement cost. The cost of replacing sto- the basis and subtract the decreases from the loss determined through the safe harbor meth- len or destroyed property isn’t part of a casualty basis, the result is your adjusted basis. See ods must be reduced by the value of any re- or theft loss. Pub. 551 for more information on figuring the pairs provided by a third party at no cost (for ex- basis of your property. ample, work done by volunteers or via Example. You bought a new chair 4 years donations) to you. Additionally, reduce your ago for $300. In April, a flood destroyed the loss by the amount of any insurance, reim- chair. You estimate that it would cost $500 to Insurance and Other bursements, or other compensation received. replace it. If you had sold the chair before the Reimbursements flood, you estimate that you could have re- Reporting requirements on Form 4684. At- ceived only $100 for it because it was 4 years If you receive an insurance or other type of re- tach a statement to Form 4684 stating that you old. The chair wasn’t insured. Your loss is $100, imbursement, you must subtract the reimburse- used Revenue Procedure 2018-08 to determine the FMV of the chair before the flood. It isn’t ment when you figure your loss. You don’t have the amount of your casualty loss. Include the $500, the replacement cost. a casualty or theft loss to the extent you are re- specific safe harbor method used. When com- imbursed. pleting Form 4684, don’t enter an amount on Sentimental value. Don’t consider sentimen- line 5 or line 6 for each property. Instead, enter tal value when determining your loss. If a family If in the year of the casualty there is a claim the decrease in the FMV determined under the portrait, heirloom, or keepsake is damaged, de- for reimbursement with a reasonable prospect relevant safe harbor method on line 7. stroyed, or stolen, you must base your loss on of recovery, the loss isn’t sustained until you its FMV, as limited by your adjusted basis in the know with reasonable certainty whether such Special procedure for determining casualty property. reimbursement will be received. If you expect to losses due to Hurricane Harvey, Tropical be reimbursed for part or all of your loss, you Storm Harvey, Hurricane Irma, and Hurri- Decline in market value of property in or must subtract the expected reimbursement cane Maria. Revenue Procedure 2018-09, near casualty area. A decrease in the value of when you figure your loss. You must reduce 2018-2 I.R.B. 290, available at IRS.gov/irb/ your property because it is in or near an area your loss even if you don’t receive payment until 2018-02_IRB#RP-2018-09, provides a safe that suffered a casualty, or that might again suf- a later tax year. See Reimbursement Received harbor method you may use to calculate the fer a casualty, isn’t to be taken into considera- After Deducting Loss, later. amount of your casualty losses for your per- tion. You have a loss only for actual casualty sonal-use residential real property damaged or damage to your property. However, if your Failure to file a claim for reimbursement. If destroyed in Texas, Louisiana, Florida, Geor- home is in a federally declared disaster area, your property is covered by insurance, you gia, South Carolina, the Commonwealth of Pu- see Disaster Area Losses, later. should file a timely insurance claim for reim- erto Rico, or the territory of the U.S. Virgin Is- bursement of your loss. If you don’t file an insur- lands as a result of Hurricane Harvey, Tropical Costs of photographs and appraisals. Pho- ance claim, you can’t deduct the full unrecov- Storm Harvey, Hurricane Irma, or Hurricane tographs taken after a casualty will be helpful in ered amount as a casualty or theft loss and only Maria. If you qualify for and use the cost in- establishing the condition and value of the prop- the part of the loss that isn’t covered by your in- dexes safe harbor method described in Reve- erty after it was damaged. Photographs show- surance policy is deductible. nue Procedure 2018-09, the IRS won’t chal- ing the condition of the property after it was re- lenge your determination. The use of the cost paired, restored, or replaced may also be The portion of the loss usually not covered indexes safe harbor method isn’t mandatory. helpful. by insurance (for example, a deductible) isn’t See Pub. 976 and Special Procedure—Cost in- Appraisals are used to figure the decrease subject to this rule. dexes safe harbor method for calculating losses in FMV because of a casualty or theft. See Ap- due to the 2017 hurricanes, later, for more infor- praisal, earlier, under Figuring Decrease in Example. Your car insurance policy in- mation. FMV—Items To Consider for information about cludes comprehensive coverage with a $1,000 appraisals. deductible. Because your insurance doesn’t Figuring Decrease in FMV—Items The costs of photographs and appraisals cover the first $1,000 of damages resulting from Not To Consider used as evidence of the value and condition of a storm, the $1,000 is deductible (subject to the property damaged as a result of a casualty $100 and 10% rules, discussed later). This is You generally shouldn’t consider the following aren’t a part of the loss. They are expenses in true, even if you don’t file an insurance claim, items when attempting to establish the de- determining your tax liability. For tax years 2018 because your insurance policy won’t reimburse crease in FMV of your property. you for the deductible.

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Types of Reimbursements the period you couldn’t use your home and your Disaster unemployment assistance pay- normal living expenses for that period. Actual ments are unemployment benefits that are taxa- The most common type of reimbursement is an living expenses are the reasonable and neces- ble. insurance payment for your stolen or damaged sary expenses incurred because of the loss of Generally, disaster relief grants received un- property. Other types of reimbursements are your main home. Generally, these expenses in- der the Stafford Act aren’t included in your in- discussed next. Also see the Instructions for clude the amounts you pay for the following. come. See Federal disaster relief grants, later, Form 4684. • Renting suitable housing. under Disaster Area Losses. • Transportation. Employer’s emergency disaster fund. If you • Food. Loan proceeds. Don’t reduce your casualty receive money from your employer’s emer- • Utilities. loss by loan proceeds you use to rehabilitate or gency disaster fund and you must use that • Miscellaneous services. replace property on which you are claiming a money to rehabilitate or replace property on Normal living expenses consist of these same casualty loss deduction. If you have a federal which you are claiming a casualty loss deduc- expenses that you would have incurred but loan that is canceled (forgiven), see Federal tion, you must take that money into considera- didn’t because of the casualty or the threat of loan canceled, later, under Disaster Area Los- tion in computing the casualty loss deduction. one. ses. Take into consideration only the amount you used to replace your destroyed or damaged Example. As a result of a hurricane, you Reimbursement Received After property. vacated your apartment for a month and moved Deducting Loss to a motel. You normally pay $525 a month for Example. Your home was extensively dam- rent. None was charged for the month the If you figured your casualty or theft loss using aged by a tornado. Your loss after reimburse- apartment was vacated. Your motel rent for this the amount of your expected reimbursement, ment from your insurance company was month was $1,200. You normally pay $200 a you may have to adjust your tax return for the $10,000. Your employer set up a disaster relief month for food. Your food expenses for the tax year in which you get your actual reimburse- fund for its employees. Employees receiving month you lived in the motel were $400. You re- ment. This section explains the adjustment you money from the fund had to use it to rehabilitate ceived $1,100 from your insurance company to may have to make. or replace their damaged or destroyed property. cover your living expenses. You determine the You received $4,000 from the fund and spent payment you must include in income as follows. Actual reimbursement less than expected. the entire amount on repairs to your home. In If you later receive less reimbursement than you figuring your casualty loss, you must reduce expected, include that difference as a loss with your unreimbursed loss ($10,000) by the 1. Insurance payment for living your other losses (if any) on your return for the $4,000 you received from your employer’s fund. expenses ...... $1,100 year in which you can reasonably expect no Your casualty loss before applying the deduc- 2. Actual expenses during the more reimbursement. tion limits (discussed later) is $6,000. month you are unable to use your home because of Example. Your personal car had an FMV of Cash gifts. If you receive excludable cash gifts the hurricane ...... $1,600 $2,000 when it was destroyed in a collision with as a disaster victim and there are no limits on 3. Normal living expenses ... 725 another car in 2019. The accident was due to how you can use the money, you don’t reduce the negligence of the other driver. At the end of your casualty loss by these excludable cash 4. Temporary increase in 2019, there was a reasonable prospect that the gifts. This applies even if you use the money to living expenses: Subtract line 3 owner of the other car would reimburse you in pay for repairs to property damaged in the dis- from line 2 ...... 875 full. You didn’t have a deductible loss in 2019. aster. 5. Amount of payment includible in In January 2020, the court awards you a income: Subtract line 4 from judgment of $2,000. However, in July it be- Example. Your home was damaged by a $ 225 line 1 ...... comes apparent that you will be unable to col- hurricane. Relatives and neighbors made cash lect any amount from the other driver. You can gifts to you that were excludable from your in- Tax year of inclusion. You include the tax- deduct the loss in 2020 (to the extent it doesn’t come. You used part of the cash gifts to pay for able part of the insurance payment in income exceed your 2020 personal casualty gains) that repairs to your home. There were no limits or for the year you regain the use of your main is figured by applying the deduction limits (dis- restrictions on how you could use the cash gifts. home or, if later, for the year you receive the cussed later). It was an excludable gift, so the money you re- taxable part of the insurance payment. ceived and used to pay for repairs to your home Actual reimbursement more than expected. doesn’t reduce your casualty loss on the dam- Example. Your main home was destroyed If you later receive a larger reimbursement aged home. by a tornado in June 2018. You regained use of amount than you expected, after you have your home in November 2019. The insurance claimed a deduction for the loss, you may have Insurance payments for living expenses. payments you received in 2018 and 2019 were to include the extra reimbursement amount in You don’t reduce your casualty loss by insur- $1,500 more than the temporary increase in your income for the year you receive it. How- ance payments you receive to cover living ex- your living expenses during those years. You in- ever, if any part of the original deduction didn’t penses in either of the following situations. clude this amount in income on your 2019 Form reduce your tax for the earlier year, don’t in- You lose the use of your main home be- • 1040. If, in 2020, you receive further payments clude that part of the reimbursement amount in cause of a casualty. to cover the living expenses you had in 2018 your income. You don’t refigure your tax for the Government authorities don’t allow you ac- • and 2019, you must include those payments in year you claimed the deduction. See Recover- cess to your main home because of a income on your 2020 Form 1040 or 1040-SR. ies in Pub. 525 to find out how much extra reim- casualty or threat of one. bursement to include in income. Inclusion in income. If these insurance Disaster relief. Food, medical supplies, and payments are more than the temporary in- other forms of assistance you receive don’t re- Example. In 2019, a hurricane that was a crease in your living expenses, you must in- duce your casualty loss, unless they are re- federally declared disaster destroyed your mo- clude the excess in your income. Report this placements for lost or destroyed property. torboat. Your loss was $3,000, and you estima- amount on Schedule 1 (Form 1040), line 8. Qualified disaster relief payments you ted that your insurance would cover $2,500 of it. However, if the casualty occurs in a federally TIP receive for expenses you incurred as a You didn't itemize deductions on your 2019 re- declared disaster area, none of the insurance result of a federally declared disaster turn nor did you increase your standard deduc- payments are taxable. See Qualified disaster aren’t taxable income to you. For more informa- tion by the amount of your loss. When the insur- relief payments, later, under Disaster Area Los- tion, see Qualified disaster relief payments un- ance company reimburses you for the loss, you ses. der Disaster Area Losses, later. don’t report any of the reimbursement as in- A temporary increase in your living expen- come. This is true even if it is for the full $3,000 ses is the difference between the actual living because you didn’t deduct the loss on your expenses you and your family incurred during 2019 return. The loss didn’t reduce your tax.

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Table 2. Deduction Limit Rules for Personal-Use Property

$100 Rule 10% Rule General Application You must reduce each casualty or theft loss by You must reduce your total casualty or theft $100 when figuring your deduction. Apply this loss attributable to a federally declared disaster rule to personal-use property after you have by 10% of your adjusted gross income. Apply figured the amount of your loss.* this rule to personal-use property after you reduce each loss by $100 (the $100 rule).** Single Event Apply this rule only once, even if many pieces Apply this rule only once, even if many pieces of property are affected. of property are affected. More Than One Event Apply to the loss from each event. Apply to the total of all your losses from all federally declared disasters. More Than One Person— Apply separately to each person. Apply separately to each person. With Loss From the Same Event (other than a married couple filing jointly) Married Couple— Filing With Loss From the Joint Apply as if you were one person. Apply as if you were one person. Same Event Return Filing Separate Apply separately to each spouse. Apply separately to each spouse. Return More Than One Owner Apply separately to each owner of jointly Apply separately to each owner of jointly (other than a married owned property. owned property. couple filing jointly) * Qualified disaster losses must be reduced by $500 when figuring your deduction. See Disaster Area Losses, later, for more information. ** The 10% rule doesn’t apply to qualified disaster losses. See Disaster Area Losses, later, for more information.

If the total of all the reimbursements The deduction for casualty and theft losses reduce your personal casualty gains. It doesn’t ! you receive is more than your adjusted of personal-use property is limited. For tax matter how many pieces of property are in- CAUTION basis in the destroyed or stolen prop- years 2018 through 2025, personal casualty volved in an event. Only a single $100 reduction erty, you will have a gain on the casualty or and theft losses of an individual are deductible applies. theft. If you have already taken a deduction for only to the extent they’re attributable to a feder- a loss and you receive the reimbursement in a ally declared disaster. Personal casualty and Example. You have $750 deductible colli- later year, you may have to include the gain in theft losses attributable to a federally declared sion insurance on your car. The car is damaged your income for the later year. Include the gain disaster are subject to the $100 per casualty in a collision. The insurance company pays you as ordinary income up to the amount of your de- and 10% rules, discussed later. The $100 and for the damage minus the $750 deductible. The duction that reduced your tax for the earlier 10% rules are also summarized in Table 2. amount of the casualty loss is based solely on year. You may be able to postpone reporting the deductible. The casualty loss is $650 ($750 any remaining gain as explained under Post- An exception to the rule above, limiting the − $100) because the first $100 of a casualty ponement of Gain, later. personal casualty and theft loss deduction to loss on personal-use property isn’t deductible. losses attributable to a federally declared disas- ter, applies if you have personal casualty gains Qualified disaster losses must be re- Actual reimbursement same as expected. If for the tax year. In this case, you may reduce duced by $500. See Disaster Area Los- you later receive exactly the reimbursement you your personal casualty gains by any casualty ses, later, for more information. expected to receive, you don’t have to include losses not attributable to a federally declared any of the reimbursement in your income and disaster. Any excess gain is used to reduce los- Single event. Generally, events closely rela- you can’t deduct any additional loss. ses from a federally declared disaster. The 10% ted in origin cause a single casualty. It is a sin- rule is applied to any federal disaster losses gle casualty when the damage is from two or Example. In December 2020, your per- that remain. more closely related causes, such as wind and sonal car was damaged in a flood that was a flood damage caused by the same storm. A sin- federally declared disaster. Repairs to the car Losses on business property and in- gle casualty may also damage two or more cost $950. You had $100 deductible compre- come-producing property aren’t subject to pieces of property, such as a tornado that dam- hensive insurance. Your insurance company these rules. However, if your casualty or theft ages both your home and your car parked in agreed to reimburse you for the rest of the dam- loss involved a home you used for business or your driveway. age. Because you expected a reimbursement rented out, your deductible loss may be limited. from the insurance company, you didn’t have a See the Instructions for Form 4684, Section B. If Example 1. A tornado destroyed your casualty loss deduction in 2020. the casualty or theft loss involved property used pleasure boat. You also lost some boating Due to the $100 rule, you can’t deduct the in a passive activity, see Form 8582, Passive equipment in the storm. Your loss was $5,000 $100 you paid as the deductible. When you re- Activity Loss Limitations, and its instructions. on the boat and $1,200 on the equipment. Your ceive the $850 from the insurance company in insurance company reimbursed you $4,500 for 2021, don’t report it as income. $100 Rule the damage to your boat. You had no insurance coverage on the equipment. Your casualty loss is from a single event and the $100 rule applies After you have figured your casualty or theft Deduction Limits once. Figure your loss before applying the 10% loss on personal-use property, as discussed rule (discussed later) as follows. After you have figured the amount of your casu- earlier, you must reduce that loss by $100. This alty or theft loss, you must figure how much of reduction applies to each total casualty or theft the loss you can deduct. loss, including those losses not attributable to a federally declared disaster that are applied to

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and they have a casualty loss on the home, the in applying the 10% rule. It doesn’t matter if you Boat Equipment $100 rule applies separately to each sister. own the property jointly or separately. 1. Loss ...... $5,000 $1,200 If you file separate returns, the 10% rule ap- 2. Subtract 10% Rule plies to each return on which a loss is claimed. insurance ...... 4,500 -0- More than one owner. If two or more individu- 3. Loss after You must reduce your total federal casualty los- als (other than spouses filing a joint return) have reimbursement .... $ 500 $1,200 ses by 10% of your adjusted gross income. Ap- a loss on property that is owned jointly, the 10% ply this rule after you reduce each loss by $100...... rule applies separately to each. 4. Total loss $1,700 For more information, see the Instructions for 5. Subtract $100 ...... 100 Form 4684. If you have both gains and losses Gains and losses. If you have casualty or 6. Loss before 10% rule ..... $1,600 from casualties or thefts, see Gains and losses, theft gains as well as losses to your per- later in this discussion. sonal-use property, you must compare your to- tal gains to your total losses. Do this after you Example 2. Thieves broke into your home Example. In September, your house was have reduced each loss by any reimbursements in January and stole a ring and a fur coat. You damaged by a tropical storm that was a feder- and by $100 but before you have reduced the had a loss of $200 on the ring and $700 on the ally declared disaster. Your loss after insurance federal casualty losses by 10% of your adjusted coat. This is a single theft. The $100 rule ap- reimbursement was $2,000. Your adjusted gross income. plies to the total $900 loss. gross income for the year the loss was sus- tained is $29,500. Figure your casualty loss as Casualty or theft gains don’t include Example 3. In October, hurricane winds follows. gains you choose to postpone. See blew the roof off your home. Flood waters Postponement of Gain, later. caused by the hurricane further damaged your 1. Loss after insurance ...... $2,000 home and destroyed your furniture and per- 2. Subtract $100 ...... 100 sonal car. This is considered a single casualty. Losses more than gains. If your losses The $100 rule is applied to your total loss from 3. Loss after $100 rule ...... $1,900 are more than your recognized gains, subtract the flood waters and the wind. 4. Subtract 10% of $29,500 your gains from your losses and reduce the re- AGI ...... $2,950 sult by 10% of your adjusted gross income. The rest, if any, is your deductible loss from per- More than one loss. If you have more than 5. Casualty loss deduction .... $ -0- one casualty or theft loss during your tax year, sonal-use property. you must reduce each loss by $100. If you have losses not attributable to a feder- You don’t have a casualty loss deduction ally declared disaster, see Line 14 in the In- because your loss ($1,900) is less than 10% of structions for Form 4684. Losses not attributa- Example. Your family car was damaged in your adjusted gross income ($2,950). a storm in January. Your loss after the insur- ble to a federally declared disaster can be used ance reimbursement was $75. In February, your The 10% rule doesn’t apply to qualified only to offset gains. car was damaged in another storm. This time ! disaster losses. See Disaster Area Los- If you have qualified disaster losses, see your loss after the insurance reimbursement CAUTION ses, later, for more information. Line 15 in the Instructions for Form 4684 for was $90. Apply the $100 rule to each separate more details. casualty loss. Since neither storm resulted in a More than one loss. If you have more than Example. Your theft loss after reducing it loss of over $100, you aren’t entitled to any de- one casualty or theft loss during your tax year, duction for these storms. by reimbursements and by $100 is $2,700. Your reduce each loss by any reimbursement and by casualty gain is $700. Because your theft loss $100. Then you must reduce your total federal More than one person. If two or more individ- wasn’t attributable to a federally declared disas- casualty losses by 10% of your adjusted gross ter, you can only use $700 of your loss to offset uals (other than spouses filing a joint return) income. have losses from the same casualty or theft, the the $700 casualty gain. $100 rule applies separately to each individual. Example. In March, your car was de- Gains more than losses. If your recog- stroyed in a flood that was a federally declared nized gains are more than your losses, subtract Example. Hurricane winds damaged your disaster. You didn’t have insurance on your car, your losses from your gains. The difference is house and also damaged the personal property so you didn’t receive any insurance reimburse- treated as a capital gain and must be reported of your house guest. You must reduce your loss ment. Your loss on the car was $1,800. In No- on Schedule D (Form 1040). The 10% rule by $100. Your house guest must reduce his or vember, another flood, which was also a feder- doesn’t apply to your gains. If you have losses her loss by $100. ally declared disaster, damaged your basement not attributable to a federally declared disaster, Married taxpayers. If you and your spouse and totally destroyed the furniture, washer, see Line 14 in the Instructions for Form 4684. file a joint return, you are treated as one individ- dryer, and other items you had stored there. ual in applying the $100 rule. It doesn’t matter Your loss on the basement items after reim- Example. Your theft loss is $600 after re- whether you own the property jointly or sepa- bursement from your insurer was $2,100. Your ducing it by reimbursements and by $100. Your rately. adjusted gross income for the year that the casualty gain is $1,600. Because your gain is If you and your spouse have a casualty or floods occurred is $25,000. You figure your more than your loss, you must report the $1,000 theft loss and you file separate returns, each of casualty loss deduction as follows. net gain ($1,600 − $600) on Schedule D (Form you must reduce your loss by $100. This is true 1040). Car Basement even if you own the property jointly. If one More information. For information on how spouse owns the property, only that spouse can 1. Loss ...... $1,800 $2,100 to figure recognized gains, see Figuring a Gain, claim a loss deduction on a separate return. 2. Subtract $100 per later. If the casualty or theft loss is on property you incident ...... 100 100 own as tenants by the entirety, each of you can figure your deduction on only one-half of the 3. Loss after $100 Figuring the Deduction $1,700 $2,000 loss on separate returns. Neither of you can fig- rule ...... Generally, you must figure your loss separately ure your deduction on the entire loss on a sepa- 4. Total loss ...... $3,700 for each item stolen, damaged, or destroyed. rate return. Each of you must reduce the loss by 5. Subtract 10% of $25,000 $100. 2,500 However, a special rule applies to real property AGI ...... you own for personal use. 6. Casualty loss deduction ... $1,200 More than one owner. If two or more individu- als (other than spouses filing a joint return) have Real property. In figuring a loss to real estate a loss on property jointly owned, the $100 rule Married taxpayers. If you and your spouse file you own for personal use, all improvements applies separately to each. For example, if two a joint return, you are treated as one individual (such as buildings and ornamental trees and sisters live together in a home they own jointly

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the land containing the improvements) are con- Your watch wasn’t insured. You had pur- 1. Adjusted basis of the entire sidered together. chased it for $250. Its FMV just before the acci- property (cost of land, $152,000 dent was $500. In the same year, you also had Example 1. In June, a tornado destroyed building, and landscaping) ... a $2,000 casualty gain and a separate $5,000 your lakeside cottage, which cost $144,800 (in- 2. FMV of entire property casualty loss attributable to a federally declared cluding $14,500 for the land) several years ago. before hurricane ...... $175,000 disaster. Your adjusted gross income for the (Your land wasn’t damaged.) This was your 3. FMV of entire property after year is $97,000. Your casualty loss deduction is only casualty or theft loss for the year. The FMV hurricane ...... 50,000 zero, figured as follows. of the property immediately before the tornado 4. Decrease in FMV of entire was $180,000 ($145,000 for the cottage and property (line 2 − line 3) $125,000 Car Watch $35,000 for the land). The FMV immediately af- 1. Adjusted basis ter the tornado was $35,000 (value of the land). 5. Loss (smaller of line 1 or (cost) ...... $30,000 $250 You collected $130,000 from the insurance line 4) ...... $125,000 company. Your adjusted gross income for the 6. Subtract insurance ...... 95,000 2. FMV before year the tornado occurred is $80,000. Your de- 7. Loss after reimbursement ... $30,000 accident ...... $17,500 $500 duction for the casualty loss is $6,700, figured 8. Subtract $100 ...... 100 3. FMV after accident .... 180 -0- in the following manner. 9. Loss after $100 rule ...... $29,900 4. Decrease in FMV 10. Subtract 10% of $70,000 (line 2 − line 3) ...... $17,320 $500 1. Adjusted basis of the entire AGI ...... 7,000 property (cost in this 5. Loss (smaller of line 1 11. Casualty loss deduction ... $ 22,900 example) ...... $144,800 or line 4) ...... $17,320 $250 2. FMV of entire property 6. Subtract insurance .... 16,000 -0- before tornado ...... $180,000 Personal property. Personal property is any 7. Loss after 3. FMV of entire property after property that isn’t real property. If your personal reimbursement ...... $1,320 $250 tornado ...... 35,000 property is stolen or is damaged or destroyed 8. Total loss ...... $1,570 4. Decrease in FMV of entire by a casualty, you must figure your loss sepa- 9. Subtract $100 ...... 100 property (line 2 − line 3) ..... $145,000 rately for each item of property. Then combine these separate losses to figure the total loss. 10. Loss not attributable to a 5. Loss (smaller of line 1 or Reduce the total loss by $100 and 10% of your federally declared disaster after ...... line 4) $144,800 adjusted gross income to figure the loss deduc- $100 rule ...... $1,470 ...... 6. Subtract insurance 130,000 tion. 11. Casualty gain ...... $2,000 7. Loss after reimbursement ... $14,800 12. Casualty loss not attributable to a Example 1. In August, a storm that was de- 8. Subtract $100 ...... 100 federally declared disaster ...... 1,470 termined to be a federally declared disaster de- 9. Loss after $100 rule ...... $14,700 stroyed your pleasure boat, which cost 13. Remaining gain after offsetting 10. Subtract 10% of $80,000 $18,500. This was your only casualty or theft the loss not attributable to a AGI ...... 8,000 loss for the year. Its FMV immediately before federally declared disaster 11. Casualty loss deduction ... $ 6,700 the storm was $17,000. You had no insurance, (line 11 – line 12; if zero or less, but were able to salvage the motor of the boat enter -0-) ...... $530 and sell it for $200. Your adjusted gross income 14. Casualty loss attributable to a Example 2. You bought your home a few for the year the casualty occurred is $70,000. federally declared disaster ...... $5,000 years ago. You paid $150,000 ($10,000 for the Although the motor was sold separately, it is 15. Subtract $100 ...... 100 land and $140,000 for the house). You also part of the boat and not a separate item of prop- spent an additional $2,000 for landscaping. 16. Loss after $100 rule ...... $4,900 erty. You figure your casualty loss deduction as This year a hurricane destroyed your home. 17. Subtract remaining gain follows. The hurricane also damaged the shrubbery and (line 13) ...... 530 trees in your yard. The hurricane was your only 1. Adjusted basis (cost in this 18. Loss after subtracting gain ...... $4,370 casualty or theft loss this year. Competent ap- 19. Subtract 10% of $97,000 AGI ... 9,700 example) ...... $18,500 praisers valued the property as a whole at 20. Casualty loss deduction $175,000 before the hurricane, but only 2. FMV before storm ...... $17,000 attributable to a federally $50,000 after the hurricane. Shortly after the 3. FMV after storm ...... 200 $ -0- hurricane, the insurance company paid you declared disaster ...... 4. Decrease in FMV $95,000 for the loss. Your adjusted gross in- (line 2 − line 3) ...... $16,800 come for this year is $70,000. You figure your Both real and personal properties. When a casualty loss deduction as follows. 5. Loss (smaller of line 1 or casualty involves both real and personal prop- line 4) ...... $16,800 erties, you must figure the loss separately for 6. Subtract insurance ...... -0- each type of property. However, you apply a single $100 reduction to the total loss. Then, 7. Loss after reimbursement .... $16,800 you apply the 10% rule to figure the casualty 8. Subtract $100 ...... 100 loss deduction. 9. Loss after $100 rule ...... $16,700 10. Subtract 10% of $70,000 Example. In July, a hurricane, which was a AGI ...... 7,000 federally declared disaster, damaged your 11. Casualty loss deduction ... $ 9,700 home, which cost you $164,000 including land. The FMV of the property (both building and land) immediately before the storm was Example 2. In June, you were involved in $170,000 and its FMV immediately after the an auto accident that totally destroyed your per- storm was $100,000. Your household furnish- sonal car and your antique pocket watch. You ings were also damaged. You separately fig- had bought the car for $30,000. The FMV of the ured the loss on each damaged household item car just before the accident was $17,500. Its and arrived at a total loss of $600. FMV just after the accident was $180 (scrap You collected $50,000 from the insurance value). Your insurance company reimbursed company for the damage to your home, but you $16,000. your household furnishings weren’t insured. Your adjusted gross income for the year the hurricane occurred is $65,000. You figure your

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casualty loss deduction from the hurricane in Business Personal generally exclude the gain from your income as the following manner. if you had sold or exchanged your home. You Part Part may be able to exclude up to $250,000 of the 1. Adjusted basis of real 1. Cost (total gain (up to $500,000 if married filing jointly). To property (cost in this $400,000) ...... $200,000 $200,000 exclude a gain, you must generally have owned example) ...... $164,000 2. Subtract and lived in the property as your main home for 2. FMV of real property before depreciation ..... 24,000 -0- at least 2 years during the 5-year period ending hurricane ...... $170,000 3. Adjusted basis ... $176,000 $200,000 on the date it was destroyed. For information on 3. FMV of real property after 4. FMV before flood this exclusion, see Pub. 523. If your gain is more than the amount you can exclude, but you hurricane ...... 100,000 (total buy replacement property, you may be able to 4. Decrease in FMV of real $380,000) ...... $190,000 $190,000 postpone reporting the excess gain. See Post- $70,000 5. FMV after flood property (line 2 − line 3) .... ponement of Gain, later. 5. Loss on real property (total $320,000) ...... 160,000 160,000 (smaller of line 1 or Reporting a gain. You must generally report 6. Decrease in FMV line 4) ...... $70,000 your gain as income in the year you receive the (line 4 − line 5) ... $30,000 $30,000 6. Subtract insurance ...... 50,000 reimbursement. However, you don’t have to re- 7. Loss (smaller of 7. Loss on real property after port your gain if you meet certain requirements line 3 or line 6) ... $30,000 $30,000 reimbursement ...... $20,000 and choose to postpone reporting the gain ac- 8. Subtract cording to the rules explained under Postpone- 20,000 20,000 8. Loss on furnishings ...... $600 insurance ...... ment of Gain next. 9. Subtract insurance ...... -0- 9. Loss after For information on how to report a gain, see reimbursement ... $10,000 $10,000 10. Loss on furnishings after How To Report Gains and Losses, later. 10. Subtract $100 on reimbursement ...... $600 personal-use If you have a casualty or theft gain on 11. Total loss (line 7 plus property ...... -0- 100 ! personal-use property that you choose line 10) ...... $20,600 11. Loss after $100 CAUTION to postpone reporting (as explained 12. Subtract $100 ...... 100 rule ...... $10,000 $9,900 next) and you also have another casualty or 12. Subtract 10% of theft loss on personal-use property, don’t con- 13. Loss after $100 rule ...... $20,500 $125,000 AGI on sider the gain you are postponing when figuring 14. Subtract 10% of $65,000 personal-use your casualty or theft loss deduction. See 10% AGI ...... 6,500 property ...... -0- 12,500 Rule under Deduction Limits, earlier. 15. Casualty loss deduction .. $14,000 13. Deductible $10,000 business loss .. Postponement of Gain Property used partly for business and 14. Deductible partly for personal purposes. When property personal loss ...... $ -0- is used partly for personal purposes and partly Don’t report a gain if you receive reimburse- for business or income-producing purposes, the ment in the form of property similar or related in casualty or theft loss deduction must be figured service or use to the destroyed or stolen prop- separately for the personal-use portion and for erty. Your basis in the new property is generally the business or income-producing portion. You Figuring a Gain the same as your adjusted basis in the property must figure each loss separately because the it replaces. losses attributed to these two uses are figured If you receive an insurance payment or other re- in two different ways. When figuring each loss, imbursement that is more than your adjusted You must ordinarily report the gain on your allocate the total cost or basis, the FMV before basis in the destroyed, damaged, or stolen stolen or destroyed property if you receive and after the casualty or theft loss, and the in- property, you have a gain from the casualty or money or unlike property as reimbursement. surance or other reimbursement between the theft. Your gain is figured as follows. However, you can choose to postpone report- business and personal use of the property. The • The amount you receive (discussed next), ing the gain if you purchase property that is sim- $100 rule and the 10% rule apply only to the minus ilar or related in service or use to the stolen or casualty or theft loss on the personal-use por- • Your adjusted basis in the property at the destroyed property within a specified replace- tion of the property. time of the casualty or theft. See Adjusted ment period, discussed later. You can also Basis, earlier, for more information. choose to postpone reporting the gain if you Example. You own a building that you con- purchase a controlling interest (at least 80%) in structed on leased land. You use half of the Even if the decrease in FMV of your prop- a corporation owning property that is similar or building for your business and you live in the erty is smaller than the adjusted basis of your related in service or use to the property. See other half. The cost of the building was property, use your adjusted basis to figure the Controlling interest in a corporation, later. $400,000. You made no further improvements gain. or additions to it. If you have a gain on damaged property, In March, a flood that was determined to be Amount you receive. The amount you receive you can postpone reporting the gain if you a federally declared disaster damaged the en- includes any money plus the value of any prop- spend the reimbursement to restore the prop- tire building. The FMV of the building was erty you receive minus any expenses you have erty. $380,000 immediately before the flood and in obtaining reimbursement. It also includes any $320,000 afterwards. Your insurance company reimbursement used to pay off a mortgage or To postpone reporting all the gain, the cost reimbursed you $40,000 for the flood damage. other lien on the damaged, destroyed, or stolen of your replacement property must be at least Depreciation on the business part of the build- property. as much as the reimbursement you receive. If ing before the flood totaled $24,000. Your ad- the cost of the replacement property is less than justed gross income for the year the flood oc- Example. A hurricane destroyed your per- the reimbursement, you must include the gain in curred is $125,000. sonal residence and the insurance company your income up to the amount of the unspent re- You have a deductible business casualty awarded you $145,000. You received $140,000 imbursement. loss of $10,000. You don’t have a deductible in cash. The remaining $5,000 was paid directly personal casualty loss because of the 10% rule. to the holder of a mortgage on the property. The Example. In 1970, you bought an ocean- You figure your loss as follows. amount you received includes the $5,000 reim- front cottage for your personal use at a cost of bursement paid on the mortgage. $18,000. You made no further improvements or additions to it. When a storm destroyed the cot- Main home destroyed. If you have a gain be- tage this January, the cottage was worth cause your main home was destroyed, you can

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$250,000. You received $146,000 from the in- Advance payment. If you pay a contractor in business is treated as similar or related in serv- surance company in March. You had a gain of advance to replace your destroyed or stolen ice or use to the destroyed property. The re- $128,000 ($146,000 − $18,000). property, you aren’t considered to have bought placement property doesn’t have to be located You spent $144,000 to rebuild the cottage. replacement property unless it is finished before in the federally declared disaster area. For more Since this is less than the insurance proceeds the end of the replacement period. See Re- information, see Disaster Area Losses, later. received, you must include $2,000 ($146,000 − placement Period, later. $144,000) in your income. Controlling interest in a corporation. You Similar or related in service or use. Re- can replace property by acquiring a controlling Buying replacement property from a related placement property must be similar or related in interest in a corporation that owns property sim- person. You can’t postpone reporting a gain service or use to the property it replaces. ilar or related in service or use to your dam- from a casualty or theft if you buy the replace- aged, destroyed, or stolen property. You can ment property from a related person (discussed Timber loss. Standing timber (not land) postpone reporting your entire gain if the cost of later). This rule applies to the following taxpay- you bought with the proceeds from the sale of the stock that gives you a controlling interest is ers. timber downed by a casualty (such as high at least as much as the amount received (reim- winds, earthquakes, or volcanic eruptions) bursement) for your property. You have a con- 1. C corporations. qualifies as replacement property. If you bought trolling interest if you own stock having at least 2. Partnerships in which more than 50% of the standing timber within the specified replace- 80% of the combined voting power of all the capital or profits interests is owned by ment period, you can postpone reporting the classes of voting stock and at least 80% of the C corporations. gain. total number of shares of all other classes of stock. 3. All others (including individuals, partner- Owner-user. If you are an owner-user, ships (other than those in (2)), and S cor- “similar or related in service or use” means that Basis adjustment to corporation’s prop- porations) if the total realized gain for the replacement property must function in the same erty. The basis of property held by the corpora- tax year on all destroyed or stolen proper- way as the property it replaces. tion at the time you acquired control must be re- ties on which there are realized gains is duced by the amount of your postponed gain, if more than $100,000. Example. Your home was destroyed by fire any. You aren’t required to reduce the adjusted and you invested the insurance proceeds in a basis of the corporation’s properties below your For casualties and thefts described in (3), grocery store. Your replacement property isn’t adjusted basis in the corporation’s stock (deter- above, gains can’t be offset by any losses when similar or related in service or use to the de- mined after reduction by the amount of your determining whether the total gain is more than stroyed property. To be similar or related in postponed gain). $100,000. If the property is owned by a partner- service or use, your replacement property must Allocate this reduction to the following ship, the $100,000 limit applies to the partner- also be used by you as your home. classes of property in the order shown below. ship and each partner. If the property is owned by an S corporation, the $100,000 limit applies Main home in disaster area. Special rules 1. Property that is similar or related in service to the S corporation and each shareholder. apply to replacement property related to the or use to the destroyed or stolen property. damage or destruction of your main home (or its Exception. This rule doesn’t apply if the re- contents) if located in a federally declared dis- 2. Depreciable property not reduced in (1). lated person acquired the property from an un- aster area. For more information, see Gains Re- 3. All other property. related person within the period of time allowed alized on Homes in Disaster Areas, later. for replacing the destroyed or stolen property. If two or more properties fall in the same class, Owner-investor. If you are an owner-in- allocate the reduction to each property in pro- Related persons. Under this rule, related vestor, “similar or related in service or use” portion to the adjusted bases of all the proper- persons include, for example, a parent and means that any replacement property must ties in that class. The reduced basis of any sin- child, a brother and sister, a corporation and an have a similar relationship of services or uses to gle property can’t be less than zero. individual who owns more than 50% of its out- you as the property it replaces. You decide this standing stock, and two partnerships in which by determining all of the following. Main home replaced. If your gain from the re- the same C corporations own more than 50% of • Whether the properties are of similar serv- imbursement you receive because of the de- the capital or profits interests. For more infor- ice to you. struction of your main home is more than the mation on related persons, see Nondeductible • The nature of the business risks connected amount you can exclude from your income (see Loss under Sales and Exchanges Between Re- with the properties. Main home destroyed under Figuring a Gain, lated Persons in chapter 2 of Pub. 544. • What the properties demand of you in the earlier), you can postpone reporting the excess way of management, service, and relations gain by buying replacement property that is Death of a taxpayer. If a taxpayer dies after to your tenants. similar or related in service or use. To postpone having a gain but before buying replacement reporting all the excess gain, the replacement property, the gain must be reported for the year Example. You owned land and a building property must cost at least as much as the in which the decedent realized the gain. The ex- you rented to a manufacturing company. The amount you received because of the destruc- ecutor of the estate or the person succeeding to building was destroyed by a tornado. During the tion minus the excluded gain. the funds from the casualty or theft can’t post- replacement period, you had a new building Also, if you postpone reporting any part of pone reporting the gain by buying replacement constructed. You rented out the new building for your gain under these rules, you are treated as property. use as a wholesale grocery warehouse. Be- having owned and used the replacement prop- cause the replacement property is also rental erty as your main home for the period you Replacement Property property, the two properties are considered owned and used the destroyed property as your similar or related in service or use if there is a main home. You must buy replacement property for the spe- similarity in all of the following areas. cific purpose of replacing your destroyed or sto- • Your management activities. Basis of replacement property. You must re- len property. Property you acquire as a gift or • The amount and kind of services you pro- duce the basis of your replacement property (its inheritance doesn’t qualify. vide to your tenants. cost) by the amount of postponed gain. In this • The nature of your business risks connec- way, tax on the gain is postponed until you dis- You don’t have to use the same funds you ted with the properties. pose of the replacement property. receive as reimbursement for your old property Business or income-producing property to acquire the replacement property. If you located in a federally declared disaster Example. A fire destroyed your rental spend the money you receive from the insur- area. If your destroyed business or in- home that you never lived in. The insurance ance company for other purposes, and borrow come-producing property was located in a fed- company reimbursed you $67,000 for the prop- money to buy replacement property, you can erally declared disaster area, any tangible re- erty, which had an adjusted basis of $62,000. still postpone reporting the gain if you meet the placement property you acquire for use in any You had a gain of $5,000 from the casualty. If other requirements. you have another rental home constructed for $110,000 within the replacement period, you

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can postpone reporting the gain. You will have your replacement property is being constructed How To Postpone a Gain reinvested all the reimbursement (including and you clearly show that the construction can’t your entire gain) in the new rental home. Your be completed within the replacement period, You postpone reporting your gain from a casu- basis for the new rental home will be $105,000 you may be granted an extension of the period. alty or theft by reporting your choice on your tax ($110,000 cost − $5,000 postponed gain). return for the year you have the gain. You have Gains Realized on Homes in the gain in the year you receive insurance pro- Replacement Period Disaster Areas ceeds or other reimbursements that result in a gain. To postpone reporting your gain, you must buy The following rules apply if your main home was replacement property within a specified period located in an area declared by the President of If a partnership or a corporation owns the of time. This is the replacement period. the United States to warrant federal assistance stolen or destroyed property, only the partner- as the result of a disaster, and the home or any ship or corporation can choose to postpone re- porting the gain. The replacement period begins on the date of its contents were damaged or destroyed due to the disaster. These rules also apply to rent- your property was damaged, destroyed, or sto- Required statement. You should attach a len. ers who receive insurance proceeds for dam- aged or destroyed property in a rented home statement to your return for the year you have that is their main home. the gain. This statement should include the fol- The replacement period ends 2 years after lowing. the close of the first tax year in which any part of 1. No gain is recognized on any insurance • The date and details of the casualty or your gain is realized. proceeds received for unscheduled per- theft. sonal property that was part of the con- • The insurance or other reimbursement you Example. You are a calendar year tax- tents of the home. received from the casualty or theft. payer. While you were on vacation, a valuable How you figured the gain. 2. Any other insurance proceeds you receive • piece of antique furniture that cost $2,200 was for the home or its contents are treated as stolen from your home. You discovered the Replacement property acquired before received for a single item of property, and theft when you returned home on July 7, 2020. return filed. If you acquire replacement prop- any replacement property you purchase Your insurance company investigated the theft erty before you file your return for the year you that is similar or related in service or use to and didn’t settle your claim until January 22, have the gain, your statement should also in- the home or its contents is treated as simi- 2021, when they paid you $3,000. You first real- clude detailed information about all of the fol- lar or related in service or use to that sin- ized a gain from the reimbursement for the theft lowing. gle item of property. Therefore, you can during 2021, so you have until December 31, • The replacement property. choose to recognize gain only to the ex- 2023, to replace the property. • The postponed gain. tent the insurance proceeds treated as re- • The basis adjustment that reflects the Main home in disaster area. For your main ceived for that single item of property ex- postponed gain. home (or its contents) located in a federally de- ceed the cost of the replacement property. • Any gain you are reporting as income. clared disaster area, the replacement period 3. If you choose to postpone any gain from Replacement property acquired after re- generally ends 4 years after the close of the first the receipt of insurance or other reim- turn filed. If you intend to acquire replacement tax year in which any part of your gain is real- bursement for your main home or any of property after you file your return for the year in ized. See Disaster Area Losses, later. its contents, the period in which you must which you have the gain, your statement should purchase replacement property is exten- also state that you are choosing to replace the Example. You are a calendar year tax- ded until 4 years after the end of the first property within the required replacement pe- payer. A hurricane destroyed your home in Sep- tax year in which any part of the gain is re- riod. tember 2020. In December 2020, the insurance alized. You should then attach another statement to company paid you $3,000 more than the adjus- your return for the year in which you acquire the ted basis of your home. The area in which your For details on how to postpone gain, see How replacement property. This statement should home is located isn’t a federally declared disas- To Postpone a Gain, later. contain detailed information on the replacement ter area. You first realized a gain from the reim- property. bursement for the casualty in 2020, so you have Example. Your main home and its contents If you acquire part of your replacement prop- until December 31, 2022, to replace the prop- were completely destroyed in 2020 by a tor- erty in one year and part in another year, you erty. If your home had been in a federally de- nado in a federally declared disaster area. In must make a statement for each year. The clared disaster area, you would have until De- 2020, you received insurance proceeds of statement should contain detailed information cember 31, 2024, to replace the property. $200,000 for the home, $25,000 for unsched- uled personal property in your home, $5,000 for on the replacement property acquired in that year. Extension. You can apply for an extension of jewelry, and $10,000 for a stamp collection. The the replacement period. Send your written ap- jewelry and stamp collection were kept in your Substituting replacement property. Once plication to the Internal Revenue Service Center home and were scheduled property on your in- you have acquired qualified replacement prop- where you file your tax return. See your tax re- surance policy. No gain is recognized on the erty that you designate as replacement property turn instructions or go to Where To File Paper $25,000 you received for the unscheduled per- in a statement attached to your tax return, you Tax Returns With or Without a Payment on sonal property. If you reinvest the remaining can’t later substitute other qualified replace- IRS.gov for the address. Your application must proceeds of $215,000 in a replacement home, ment property. This is true even if you acquire contain all the details about the need for the ex- any type of replacement contents (whether the other property within the replacement pe- tension. You should apply before the end of the scheduled or unscheduled, or both), you can riod. However, if you discover that the original replacement period. elect to postpone any gain on your home, jew- elry, or stamp collection. If you reinvest less replacement property wasn’t qualified replace- However, you can file an application within a ment property, you can (within the replacement reasonable time after the replacement period than $215,000, any gain is recognized only to the extent $215,000 exceeds the amount you period) substitute the new qualified replace- ends if you have a good reason for the delay. ment property. An extension may be granted if you can show reinvest in a replacement home, any type of re- that there is reasonable cause for not making placement contents (whether scheduled or un- scheduled, or both). To postpone gain, you Amended return. You must file an amended the replacement within the replacement period. return (individuals use Form 1040-X) for the tax Ordinarily, requests for extensions aren’t must purchase the replacement property before 2025. Your basis in the replacement property year of the gain in either of the following situa- made or granted until near the end of the re- tions. placement period or the extended replacement equals its cost decreased by the amount of any postponed gain. • You don’t acquire replacement property period. Extensions are usually limited to a pe- within the required replacement period riod of not more than 1 year. The high market plus extensions. On this amended return, value or scarcity of replacement property isn’t sufficient grounds for granting an extension. If

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you must report the gain and pay any addi- certain that it won’t be reimbursed. The later tax However, if you have a casualty loss from a fed- tional tax due. year is when your loss is sustained. erally declared disaster that occurred in an area • You acquire replacement property within warranting public or individual assistance (or the required replacement period plus ex- Loss on deposits. If your loss is a loss on both), you can elect to deduct that loss on your tensions, but at a cost less than the deposits at an insolvent or bankrupt financial in- return or amended return for the tax year imme- amount you receive for the casualty or stitution, see Loss on Deposits, earlier. diately preceding the disaster year. If you make theft. On this amended return, you must re- Lessee’s loss. If you lease property from this election, the loss is treated as having occur- port the portion of the gain that can’t be someone else, you can deduct a loss on the red in the preceding year. A list of areas war- postponed and pay any additional tax due. property in the year your liability for the loss is ranting public or individual assistance (or both) determined. This is true even if the loss occur- is available at the FEMA website at FEMA.gov/ Three-year limit. The period for assessing tax red or the liability was paid in a different year. Disasters. on any gain ends 3 years after the date you no- You aren’t entitled to a deduction until your lia- You must make the election to take your tify the director of the IRS for your area of any of bility under the lease can be determined with casualty loss for the disaster in the preceding the following. reasonable accuracy. Your liability can be de- year on or before the date that is 6 months after • You replaced the property. termined when a claim for recovery is settled, the regular due date for filing your original return • You don’t intend to replace the property. adjudicated, or abandoned. (without extensions) for the disaster year. If you • You didn’t replace the property within the are a calendar year taxpayer, you have until Oc- replacement period. tober 15, 2021, to amend your 2019 tax return Disaster Area Losses to claim a casualty loss that occurred during Changing your mind. You can change your 2020. mind about whether to report or to postpone re- This section discusses the special rules that ap- porting your gain at any time before the end of How to deduct your loss in the preceding ply to federally declared disaster area losses. It the replacement period. year. If you have already filed your return for contains information on when you can deduct the preceding year, you can elect to claim a dis- your loss, how to claim your loss, how to treat Example. Your property was destroyed in aster loss against that year’s income by filing an your home in a disaster area, and what tax 2019 due to a federally declared disaster. Your amended return. Individuals file an amended re- deadlines may be postponed. It also lists Fed- insurance company reimbursed you $10,000, of turn on Form 1040-X. (See How to report the eral Emergency Management Agency (FEMA) which $5,000 was a gain. You reported the loss on Form 1040-X, later.) phone numbers. (See Contacting the Federal $5,000 gain on your return for 2019 (the year To make this election, complete Part I of you realized the gain) and paid the tax due. In Emergency Management Agency (FEMA), later.) Section D on the 2019 Form 4684 and attach it 2020, you bought replacement property. Your to your 2019 return or amended return that replacement property cost $9,000. Because A disaster loss is a loss that occurred in an claims the disaster loss deduction. you reinvested all but $1,000 of your reimburse- area determined by the President of the United You must make an election to deduct the ment, you can now postpone reporting $4,000 States to warrant assistance by the federal gov- loss in the preceding year on or before the date ($5,000 − $1,000) of your gain. ernment under the Stafford Act and that is at- that is 6 months after the regular due date for fil- To postpone reporting your gain, file an tributable to a federally declared disaster. Dis- ing your original return (without extensions) for amended return for 2019 using Form 1040-X. aster areas include areas warranting public or the disaster year. For individual calendar year You should attach an explanation showing that individual assistance (or both). A federally de- taxpayers, the deadline for electing to take a you previously reported the entire gain from the clared disaster includes a major disaster or 2020 disaster loss on your 2019 tax return is casualty but you now want to report only the emergency declaration. October 15, 2021. See the 2019 Instructions for part of the gain ($1,000) equal to the part of the A list of the areas warranting public or Form 4684 for more detailed information on reimbursement not spent for replacement prop- how to claim these losses on your original or erty. TIP individual assistance (or both) under the Stafford Act is available at amended 2019 return. FEMA.gov/Disasters. If you claimed a deduction for a disaster loss on the tax return for the disaster year and you When To Report wish to deduct the loss in the preceding year, FEMA disaster declaration numbers. If you you must file an amended return to remove the Gains and Losses are reporting a casualty or theft loss attributable previously deducted loss on or before the date to a federally declared disaster, check the box you file the return or amended return for the Gains. If you receive an insurance or other re- and enter the DR or EM declaration number as- preceding year that includes the disaster loss imbursement that is more than your adjusted signed by FEMA in the space provided above deduction. basis in the destroyed or stolen property, you line 1 on your 2020 Form 4684. A list of feder- have a gain from the casualty or theft. You must ally declared disasters and FEMA disaster dec- Claiming a qualifying disaster loss on include this gain in your income in the year you laration numbers is available at FEMA.gov/ the previous year’s return may result in receive the reimbursement, unless you choose Disasters. a lower tax for that year, often produc- to postpone reporting the gain, as explained The FEMA disaster declaration number con- ing or increasing a cash refund. earlier. sists of the letters DR and four numbers, or the letters EM and four numbers. For example, en- Revoking the election to deduct the loss Losses. Generally, you can deduct a casualty ter DR-4412 for North Carolina Tropical Storm in the preceding year. Complete Part II of loss that isn’t reimbursable only in the tax year Michael. Section D on the 2019 Form 4684 if you want to in which the casualty occurred. This is true even revoke a 2020 disaster year election to deduct if you don’t repair or replace the damaged prop- Disaster year. The disaster year is the tax a federally declared disaster loss in the preced- erty until a later year. (However, see Disaster year in which you sustained the loss attributable ing tax year. Attach the completed Section D to Area Losses, later, for an exception.) to a federally declared disaster. Generally, a an amended return for the preceding year (that You can deduct theft losses that aren’t reim- disaster loss is sustained in the year the disas- is, to an amended 2019 return for the revoca- bursable only in the year you discover your ter occurred. However, a disaster loss may also tion of a 2020 disaster year election). property was stolen. be sustained in a year after the disaster occur- Your amended return eliminating the elec- If in the year of the casualty there is a claim red. For example, if a claim for reimbursement tion must be filed on or before the date that is for reimbursement with a reasonable prospect exists for which there is a reasonable prospect 90 days after the due date for making the elec- of recovery, the loss isn’t sustained until you of recovery, no part of the loss for which reim- tion and on or before the date you file any re- know with reasonable certainty whether such bursement may be received is sustained until it turn or amended return for the year that in- reimbursement will be received. If you aren’t can be ascertained with reasonable certainty cludes the disaster loss. sure whether part of your casualty or theft loss whether you will be reimbursed. Your amended return (eliminating the previ- will be reimbursed, don’t deduct that part until ous disaster loss election) should refigure your the tax year when you become reasonably When to deduct the loss. You must generally tax liability as a result of revoking the election. deduct a casualty loss in the disaster year.

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You must pay or make arrangements to pay any declarations associated with these disasters Personal-use residential real property. tax and interest due as a result of the revoca- and for more information. Personal-use residential real property is gener- tion. ally real property, including improvements, that Note. You can deduct qualified disaster los- is owned by the individual who suffered a casu- Standard deduction and disaster losses. ses without itemizing other deductions on alty loss and that contains at least one personal You can increase the amount of your standard Schedule A (Form 1040). You can deduct quali- residence. It doesn’t include a personal resi- deduction by your qualified disaster-related per- fied disaster losses without itemizing other de- dence if any part of the personal residence is sonal casualty loss. Also, if you increase your ductions on Schedule A. Moreover, your net used as rental property or contains a home of- standard deduction with your net qualified dis- casualty loss from these qualified disasters fice used in a trade or business or transaction aster loss you will not be subject to the alterna- doesn’t need to exceed 10% of your adjusted entered into for profit. tive minimum tax for that part of your standard gross income (AGI) to qualify for the deduction, For this purpose, a personal residence is a deduction. but the $100 limit per casualty is increased to single-family residence or a single unit within a See Form 4684 and the Instructions for $500. See Increased standard deduction re- townhouse, duplex, or similar group of attached Schedule A (Form 1040) for more information. porting, next, for more information. units. It includes any enclosed structures at- tached to the residence or unit, such as a ga- Disaster loss to inventory. If your inven- Increased standard deduction reporting. If rage. It doesn’t include a deck or screened-in tory loss is from a disaster in an area designa- you have a net qualified disaster loss on Form porch. It also doesn’t include a mobile home, ted by FEMA for public or individual assistance 4684, line 15, and you aren’t itemizing your de- trailer, condominium, or any other buildings in (or both), you may elect to deduct the loss on ductions, you can claim an increased standard which you have less than full ownership in all of your return or amended return for the immedi- deduction using Schedule A (Form 1040) by the structural components, such as the roof, ately preceding year. However, decrease your doing the following. foundation, or exterior walls. opening inventory for the year of the loss so that the loss won’t be reported again in inventories. 1. Enter the amount from Form 4684, line 15, Improvements. The cost indexes safe har- on the dotted line next to line 16 on bor method applies only to three types of im- Main home in disaster area. If your home Schedule A and the description, “Net provements on personal-use residential real is located in a federally declared disaster area, Qualified Disaster Loss.” property. you can postpone reporting the gain if you • A personal residence. spend the reimbursement to repair or replace 2. Also, enter on the dotted line next to line 16, your standard deduction amount • A detached structure of enclosed your home. Special rules apply to replacement wood-frame construction, with some elec- property related to the damage or destruction of and the description, “Standard Deduction Claimed With Qualified Disaster Loss.” trical capabilities, no heating or air condi- your main home (or its contents) if located in tioning, and little or no interior finishing. these areas. For more information, see Gains 3. Combine these two amounts and enter on • A deck. Realized on Homes in Disaster Areas, earlier. line 16 of Schedule A and Form 1040 or 1040-SR, line 12. Damage categories. The cost indexes Qualified disaster losses. A qualified disas- safe harbor method may be used if you suffered ter loss is an individual’s casualty or theft loss of The AMT adjustment for the standard any of the following. personal-use property that is attributable to: ! deduction is made retroactively inappli- • A total loss of a personal residence. • A major disaster declared by the President CAUTION cable to net qualified disaster losses. • A near total loss of a personal residence. under section 401 of the Stafford Act in See Taxpayers who also file the 2020 Form • Interior flooding over 1 foot in a personal 2016; 6251, Alternative Minimum Tax for Individuals, residence. • Hurricane Harvey; in the Instructions for Form 4684 for more infor- • Structural damage from wind, rain, or deb- • Tropical Storm Harvey; mation. ris to a personal residence. • Hurricane Irma; • Roof covering damage from wind, rain, or • Hurricane Maria; Special Procedure—Cost indexes safe har- debris to a personal residence. • The California wildfires in 2017 and Janu- bor method for calculating losses due to • Damage to a detached structure. ary 2018; and the 2017 hurricanes. Revenue Procedure • Damage to decking. • A major disaster that was declared by the 2018-09, 2018-2 I.R.B. 290, available at Revenue Procedure 2018-09 provides ta- President under section 401 of the Stafford IRS.gov/irb/2018-02_IRB#RP-2018-09, pro- bles and calculation methods to determine the Act and that occurred in 2018 and before vides a safe harbor method you may use to cal- decrease in FMV for each category based on December 21, 2019, and continued no culate the amount of your casualty losses for the cost per square foot or percentage of dam- later than January 19, 2020 (except those your personal-use residential real property age, the size of the property, and the geo- attributable to the California wildfires in damaged or destroyed in Texas, Louisiana, graphic location. January 2018 that received prior relief). Florida, Georgia, South Carolina, the Common- A qualified disaster loss is now expanded to wealth of Puerto Rico, or the territory of the U.S. Total loss of a personal residence. You include an individual's casualty and theft loss of Virgin Islands as a result of Hurricane Harvey, had a total loss of a personal residence if, as a personal-use property that is attributable to a Tropical Storm Harvey, Hurricane Maria, or result of one of the 2017 hurricanes, the resi- major disaster that was declared by Presidential Hurricane Irma (2017 hurricanes). dence sustained damage that caused any of Declaration that is dated between January 1, To figure the amount of your casualty los- the following. 2020, and February 25, 2021 (inclusive). How- ses, you must generally determine the de- • The personal residence either collapsed or ever, in order to qualify under this expansion, crease in the FMV of the damaged property became structurally unsound. the major disaster must have an incident period through a competent appraisal or the cost of re- • The state or local government (or a politi- beginning between December 28, 2019, and pairs you actually make. Revenue Procedure cal subdivision of either) has ordered that December 27, 2020 (inclusive). Further, the 2018-09 provides a safe harbor method that al- the personal residence be demolished or major disaster must have an incident period lows you to determine the decrease in FMV of relocated. ending no later than January 26, 2021. This ex- your personal-use residential real property in • You sold the personal residence to an un- pansion does not include those losses attributa- other ways. If you qualify for and use the cost related party for a price that reflects the ble to any major disaster which has been de- indexes safe harbor method described in Reve- FMV solely of the land on which the resi- clared only by reason of COVID-19. nue Procedure 2018-09, the IRS won’t chal- dence sits. A near total loss of the residence and you If you suffered a qualified disaster loss, you lenge your determination. The use of the cost • demolished the residence. are eligible to claim a casualty loss deduction, indexes safe harbor method isn’t mandatory. to elect to claim the loss in the preceding tax Under the cost indexes safe harbor method, Near total loss of a personal residence. year, and to deduct the loss without itemizing you may use one or more cost indexes to figure A near total loss of a personal residence occur- other deductions on Schedule A (Form 1040). the casualty loss to your personal-use residen- red if, as a result of one or more of the 2017 See Qualified disaster loss, earlier. See tial real property. hurricanes, the residence sustained severe IRS.gov/DisasterTaxRelief for date-specific damage requiring you to remove and dispose of

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substantially all interior wall frame coverings (in- Figure your loss in the same way as for Furnish- cluding drywall), floorings, electrical lines, casualty losses of personal-use property. (See House ings ducts, plumbing, and other fixtures. To qualify, Figuring a Loss, earlier.) In determining the de- only the wood frame, rafters, and outside fa- crease in FMV, use the value of your home be- 1. Cost ...... $134,000 $10,000 cade of the personal residence can remain fore you move it or tear it down as its FMV after structurally sound and reusable. the casualty. 2. FMV before disaster ...... $147,500 $8,000 Structural damage from wind, rain, or Unsafe home. Your home will be consid- debris to a personal residence. Structural ered unsafe only if both of the following apply. 3. FMV after 100,000 5,000 damage from wind, rain, or debris occurred if, • Your home is substantially more danger- disaster ...... as a result of one or more of the 2017 hurri- ous after the disaster than it was before the 4. Decrease in FMV canes, a personal residence sustained major disaster. (line 2 − line 3) .... $47,500 $3,000 structural damage to the roof and/or outside • The danger is from a substantially in- 5. Smaller of line 1 or wall(s) from wind or windblown debris that ex- creased risk of future destruction from the line 4 ...... $47,500 $3,000 posed part or all of the residence’s interior to disaster. 6. Subtract estimated rain or debris, requiring substantial renovation insurance ...... -0- -0- of the damaged areas. Substantial renovation Example. Due to a severe storm, the Presi- 7. Loss after requires the removal and replacement of dry- dent declared the county you live in a federal reimbursement .... $47,500 $3,000 wall or other wall frame coverings, replacement disaster area. Although your home has only mi- of trim, and repair and painting of the damaged nor damage from the storm, a month later the 8. Total loss ...... $50,500 interior areas of the personal residence. county issues a demolition order. This order is 9. Subtract $500 ...... 500 based on a finding that your home is unsafe due 10. Loss after $500 rule ...... $50,000 Damage to a detached structure. Dam- to nearby mud slides caused by the storm. The 11. Do not subtract 10% of age to a detached structure occurred if the loss in your home’s value because the mud $71,000 AGI ...... -0- structure sustained damage as a result of one slides made it unsafe is treated as a casualty 12. Amount of casualty loss or more of the 2017 hurricanes that required ei- loss from a disaster. The loss in value is the dif- deduction ...... $50,000 ther complete or major rebuilding. ference between your home’s FMV immediately Increases to safe harbor loss amount. before the disaster and immediately after the The decrease in the FMV determined under the disaster. How to report the loss on Form 1040-X. You should adjust your deductions on Form 1040-X. safe harbor is the full amount of the decrease Figuring the loss deduction. When elect- and can’t be increased by amounts related to The Instructions for Form 1040-X show how to ing to deduct your loss in the preceding year, do this. Explain the reasons for your adjustment items such as landscaping, debris removal, or unless you have a qualified disaster loss, dis- demolition. and attach Form 4684 to show how you figured cussed earlier, you must figure the loss under your loss. See Figuring a Loss, earlier. the usual rules for casualty losses, as if it occur- Decreases to safe harbor loss amount. If the damaged or destroyed property was red in the year preceding the disaster. The loss determined through this method must nonbusiness property and you didn’t itemize be reduced by the value of any repairs provided your deductions on your original return, you Example. A hurricane damaged your main by a third party at no cost (for example, work must first determine whether the casualty loss home and destroyed your furniture in Septem- done by volunteers or via donations) to you. deduction now makes it advantageous for you ber 2020. This was your only casualty loss for Figure the value of a no-cost repair by multiply- to itemize. It is advantageous to itemize if the the year. Your home is located in a federally de- ing the total square footage completely repaired total of the casualty loss deduction and any clared disaster area designated by FEMA in at no cost to you by the same cost index used other itemized deductions is more than your September 2020 for public or individual assis- to determine the decrease in the FMV of the standard deduction. If you itemize, attach tance (or both). The cost of your home and land property. Additionally, reduce your loss by the Schedule A (Form 1040) or Schedule A (Form was $134,000. The FMV immediately before amount of any insurance, reimbursements, or 1040-NR), and Form 4684 to your amended re- the disaster was $147,500 and the FMV imme- other compensation received. turn. Fill out Form 1040-X to refigure your tax to diately afterward was $100,000. You separately find your refund. Reporting requirements on Form 4684. figured the loss on each item of furniture (see Attach a statement to Form 4684 stating that Figuring the Deduction, earlier) and arrived at a Records. You should keep the records that you used Revenue Procedure 2018-09 to deter- total loss for furniture of $3,000. Your insurance support your loss deduction. You don’t have to mine the amount of your casualty loss. Include didn’t cover this type of casualty loss, and you attach them to the amended return. the specific table number used. When complet- expect no reimbursement for either your home ing Form 4684, don’t enter an amount on line 5 or your furniture. If your records were destroyed or lost, you or line 6 for each property. Instead, enter the You elect to amend your 2019 return to may have to reconstruct them. Information decrease in the FMV determined using the safe claim your casualty loss for the disaster. Your about reconstructing records is available at harbor method on line 7. The cost indexes safe adjusted gross income (AGI) on your 2019 re- IRS.gov. Type “reconstructing your records” in harbor method is subject to additional rules and turn was $71,000. Using the rules applicable to the search box, or see Pub. 2194, Disaster exceptions. For more information, see Revenue qualified disaster losses, you figure your casu- Resource Guide. Procedure 2018-09. You may qualify to use alty loss as follows. other safe harbor methods as well. See Reve- Need a copy of your tax return for the nue Procedure 2018-08, 2018-02 I.R.B. 286, preceding year? It will be easier to prepare available at IRS.gov/irb/ Form 1040-X if you have a copy of your tax re- 2018-02_IRB#RP-2018-08, for more informa- turn for the preceding year. If you had your tax tion. return completed by a tax preparer, he or she should be able to provide you with a copy of Home made unsafe by disaster. If your your return. If not, you can get a copy by filing home is located in a federally declared disaster Form 4506 with the IRS. There is a fee for each area, your state or local government may order return requested. However, if your main home, you to tear it down or move it because it is no principal place of business, or tax records are longer safe to live in because of the disaster. If located in a federally declared disaster area, this happens, treat the loss in value as a casu- this fee will be waived. Write the name of the alty loss from a disaster. Your state or local gov- disaster in the top margin of Form 4506 (for ex- ernment must issue the order for you to tear ample, “Florida Hurricane Sally”). down or move the home within 120 days after the area is declared a disaster area. Federal loan canceled. If part of your federal disaster loan was canceled under the Stafford Act, it is considered to be reimbursement for the

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Table 3. When To Deduct a Casualty or Theft Loss a federally declared disaster. The tax deadlines the IRS may postpone include those for filing in- IF you have a loss...* THEN deduct it in the... come, excise, and employment tax returns; paying income, excise, and employment taxes; from a casualty* year the loss occurred. and making contributions to a traditional IRA or in a federally declared disaster area disaster year or the year immediately Roth IRA. before the disaster year. If any tax deadline is postponed, the IRS will from a theft year the theft was discovered. publicize the postponement in your area and on a deposit treated as a casualty year a reasonable estimate can be made. publish a news release and, where necessary, in a revenue ruling, revenue procedure, notice, * If you are an individual, casualty and theft losses of personal-use property are deductible only if the loss is announcement, or other guidance in the Internal attributable to a federally declared disaster. An exception applies where you have personal casualty gains. Revenue Bulletin (IRB). Go to IRS.gov/ DisasterTaxRelief to find out if a tax deadline loss. The cancellation reduces your casualty the disaster by a federal, state, or local govern- has been postponed for your area. loss deduction. ment in connection with a federally declared disaster. These payments must be made from a Who is eligible. If the IRS postpones a tax Federal disaster relief grants. Don’t include governmental fund, be based on individual or deadline, the following taxpayers are eligible for post-disaster relief grants received under the family needs, and not be compensation for the postponement. Stafford Act in your income if the grant pay- services. Payments to businesses generally • Any individual whose main home is located ments are made to help you meet necessary don’t qualify. in a covered disaster area (defined later). expenses or serious needs for medical, dental, Any business entity or sole proprietor Qualified disaster relief payments don’t • housing, personal property, transportation, or whose principal place of business is loca- include: funeral expenses. Don’t deduct casualty losses ! ted in a covered disaster area. CAUTION or medical expenses to the extent they are spe- • Any individual who is a relief worker affili- cifically reimbursed by these disaster relief • Payments for expenses otherwise paid for ated with a recognized government or phil- grants. If the casualty loss was specifically reim- by insurance or other reimbursements; or anthropic organization and who is assisting bursed by the grant and you received the grant • Income replacement payments, such as in a covered disaster area. after the year in which you deducted the casu- payments of lost wages, lost business in- • Any individual, business entity, or sole pro- alty loss, see Reimbursement Received After come, or unemployment compensation. prietorship whose records are needed to Deducting Loss, earlier. Unemployment assis- meet a postponed tax deadline, provided tance payments under the Stafford Act are taxa- those records are maintained in a covered Qualified disaster mitigation payments. ble unemployment compensation. disaster area. The main home or principal Qualified disaster mitigation payments made place of business doesn’t have to be loca- under the Stafford Act or the National Flood In- State disaster relief grants for businesses. ted in the covered disaster area. surance Act (as in effect on April 15, 2005) A grant that a business receives under a state Any estate or trust that has tax records aren’t included in income. These are payments • program to reimburse businesses for losses in- necessary to meet a postponed tax dead- you, as a property owner, receive to reduce the curred for damage or destruction of property line, provided those records are main- risk of future damage to your property. You because of a disaster isn’t excludable from in- tained in a covered disaster area. can’t increase your basis in the property, or take come under the general welfare exclusion, as a The spouse on a joint return with a tax- a deduction or credit, for expenditures made • gift, as a qualified disaster relief payment (ex- payer who is eligible for postponements. with respect to those payments. plained next), or as a contribution to capital. • Any individual, business entity, or sole pro- However, the business can choose to postpone prietorship not located in a covered disas- Sale of property under hazard mitigation reporting gain realized from the grant if it buys ter area, but whose records necessary to program. Generally, if you sell or otherwise qualifying replacement property within a certain meet a postponed tax deadline are located transfer property, you must recognize any gain period of time. See Postponement of Gain, ear- in the covered disaster area. or loss for tax purposes unless the property is lier, for the rules that apply. Any individual visiting the covered disaster your main home. You report the gain or deduct • area who was killed or injured as a result of the loss on your tax return for the year you real- Qualified disaster relief payments. Qualified the disaster. ize it. (You can’t deduct a loss on personal-use disaster relief payments aren’t included in the Any other person determined by the IRS to property unless the loss resulted from a casu- • income of individuals to the extent any expen- be affected by a federally declared disas- alty, as discussed earlier.) However, if you sell ses compensated by these payments aren’t ter. otherwise compensated for by insurance or or otherwise transfer property to the federal other reimbursement. These payments aren’t government, a state or local government, or an Covered disaster area. This is an area of subject to income tax, self-employment tax, or Indian tribal government under a hazard mitiga- a federally declared disaster in which the IRS employment taxes (social security, Medicare, tion program, you can choose to postpone re- has decided to postpone tax deadlines for up to and federal unemployment taxes). No withhold- porting the gain if you buy qualifying replace- 1 year. ing applies to these payments. ment property within a certain period of time. See Postponement of Gain, earlier, for the rules Qualified disaster relief payments include Abatement of interest and penalties. The that apply. payments you receive (regardless of the IRS may abate the interest and penalties on un- source) for the following expenses. derpaid income tax for the length of any post- Gains. Special rules apply if you choose to Reasonable and necessary personal, fam- ponement of tax deadlines. • postpone reporting gain on property damaged ily, living, or funeral expenses incurred as a or destroyed in a federally declared disaster result of a federally declared disaster. area. For these special rules, see the following Contacting the Federal Reasonable and necessary expenses in- • discussions. Emergency Management curred for the repair or rehabilitation of a • Main home in disaster area, earlier, under personal residence due to a federally de- Agency (FEMA) Replacement Property. clared disaster. (A personal residence can • Business or income-producing property lo- be a rented residence or one you own.) You can get information from FEMA by visiting cated in a federally declared disaster area, Reasonable and necessary expenses in- DisasterAssistance.gov, or calling the following • earlier, under Replacement Property. curred for the repair or replacement of the phone numbers. These numbers are only acti- contents of a personal residence due to a vated after a federally declared disaster. federally declared disaster. Postponed Tax Deadlines • 800-621-3362. • 800-462-7585, if you are deaf, hard of Qualified disaster relief payments also in- hearing, or have a speech disability. clude amounts paid to individuals affected by The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by

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more than 1 year, you may have to treat all or • VITA. The Volunteer Income Tax Assis- part of the gain as ordinary income to the extent tance (VITA) program offers free tax help How To Report of depreciation allowed or allowable. You figure to people with low-to-moderate incomes, the ordinary income part of the gain in Part III of persons with disabilities, and limited-Eng- Gains and Losses Form 4797. See Depreciation Recapture in lish-speaking taxpayers who need help chapter 3 of Pub. 544 for more information preparing their own tax returns. Go to How you report gains and losses depends on about the recapture rule. IRS.gov/VITA, download the free IRS2Go whether the property was business, in- app, or call 800-906-9887 for information come-producing, or personal-use property. on free tax return preparation. Adjustments to Basis • TCE. The Tax Counseling for the Elderly Personal-use property. If you have a loss, (TCE) program offers free tax help for all use both of the following. If you have a casualty or theft loss, you must taxpayers, particularly those who are 60 • Form 4684, Casualties and Thefts. decrease your basis in the property by any in- years of age and older. TCE volunteers • Schedule A (Form 1040), Itemized Deduc- surance or other reimbursement you receive specialize in answering questions about tions (or Schedule A (Form 1040-NR), if and by any deductible loss. The result is your pensions and retirement-related issues you are a nonresident alien). adjusted basis in the property. unique to seniors. Go to IRS.gov/TCE, If you have a gain, report it on both of the fol- download the free IRS2Go app, or call If you make either of the basis adjustments 888-227-7669 for information on free tax lowing. described above, amounts you spend on re- • Form 4684, Casualties and Thefts. return preparation. pairs that restore the property to its pre-casualty • MilTax. Members of the U.S. Armed • Schedule D (Form 1040), Capital Gains condition increase your adjusted basis. Don’t and Losses. Forces and qualified veterans may use Mil- increase your basis in the property by any quali- Tax, a free tax service offered by the De- Don’t report on these forms any gain you fied disaster mitigation payments (discussed partment of Defense through Military One- postpone. If you choose to postpone gain, see earlier under Disaster Area Losses). See Adjus- Source. How To Postpone a Gain, earlier. ted Basis in Pub. 551 for more information on Also, the IRS offers Free Fillable adjustments to basis. Forms, which can be completed online and Business and income-producing property. then filed electronically regardless of in- Use Form 4684 to report your gains and losses. If Deductions Are come. You will also have to report the gains and los- More Than Income ses on other forms as explained next. Using online tools to help prepare your re- turn. Go to IRS.gov/Tools for the following. Property held 1 year or less. Individuals If your casualty or theft loss deduction causes The Earned Income Tax Credit Assistant report losses from income-producing property • your deductions for the year to be more than (IRS.gov/EITCAssistant) determines if on Schedule A (Form 1040). Gains from busi- your income for the year, you may have a net you’re eligible for the earned income credit ness and income-producing property are com- operating loss (NOL). You don’t have to be in (EIC). bined with losses from business property and business to have an NOL from a casualty or The Online EIN Application (IRS.gov/EIN) the net gain or loss is reported on Form 4797. If • theft loss. For more information, see Pub. 536, helps you get an employer identification you aren’t otherwise required to file Form 4797, Net Operating Losses (NOLs) for Individuals, number (EIN). only enter the net gain or loss on your tax return Estates, and Trusts. The Tax Withholding Estimator (IRS.gov/ on the line identified as from Form 4797 (for in- • W4app) makes it easier for everyone to dividuals filing Form 1040 or 1040-SR, this pay the correct amount of tax during the would be Schedule 1 (Form 1040), line 4). Next How To Get Tax Help year. The tool is a convenient, online way to that line, enter “Form 4684.” Partnerships to check and tailor your withholding. It’s and S corporations should see the Instructions If you have questions about a tax issue, need more user-friendly for taxpayers, including for Form 4684 to find out where to report these help preparing your tax return, or want to down- retirees and self-employed individuals. The gains and losses. load free publications, forms, or instructions, go features include the following. Property held more than 1 year. If your to IRS.gov and find resources that can help you – Easy to understand language. losses from business and income-producing right away. – The ability to switch between screens, property are more than gains from these types correct previous entries, and skip of property, combine your losses from business Preparing and filing your tax return. After screens that don’t apply. property with total gains from business and in- receiving all your wage and earnings state- – Tips and links to help you determine if come-producing property. Report the net gain ments (Form W-2, W-2G, 1099-R, 1099-MISC, you qualify for tax credits and deduc- or loss as an ordinary gain or loss on Form 1099-NEC, etc.); unemployment compensation tions. 4797. If you aren’t otherwise required to file statements (by mail or in a digital format) or – A progress tracker. Form 4797, only enter the net gain or loss on other government payment statements (Form – A self-employment tax feature. your tax return on the line identified as from 1099-G); and interest, dividend, and retirement – Automatic calculation of taxable social Form 4797 (for individuals filing Form 1040 or statements from banks and investment firms security benefits. (Forms 1099), you have several options to 1040-SR, this would be Schedule 1 (Form The First Time Homebuyer Credit Account choose from to prepare and file your tax return. • 1040), line 4). Next to that line, enter “Form Look-up (IRS.gov/HomeBuyer) tool pro- You can prepare the tax return yourself, see if 4684.” Individuals deduct any loss of in- vides information on your repayments and you qualify for free tax preparation, or hire a tax come-producing property on Schedule A (Form account balance. professional to prepare your return. 1040). Partnerships and S corporations should • The Sales Tax Deduction Calculator see Form 4684 to find out where to report these (IRS.gov/SalesTax) figures the amount you Free options for tax preparation. Go to gains and losses. can claim if you itemize deductions on IRS.gov to see your options for preparing and If losses from business and income-produc- Schedule A (Form 1040). ing property are less than or equal to gains from filing your return online or in your local commun- these types of property, report the net amount ity, if you qualify, which include the following. Getting answers to your tax ques- on Form 4797. You also may have to report the • Free File. This program lets you prepare tions. On IRS.gov, you can get gain on Schedule D (Form 1040) depending on and file your federal individual income tax up-to-date information on current whether you have other transactions. Partner- return for free using brand-name tax-prep- events and changes in tax law. aration-and-filing software or Free File filla- ships and S corporations should see Form 4684 IRS.gov/Help: A variety of tools to help you ble forms. However, state tax preparation • to find out where to report these gains and los- get answers to some of the most common may not be available through Free File. Go ses. tax questions. to IRS.gov/FreeFile to see if you qualify for IRS.gov/ITA: The Interactive Tax Assistant, Depreciable property. If the damaged or free online federal tax preparation, e-filing, • a tool that will ask you questions on a stolen property was depreciable property held and direct deposit or payment options.

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number of tax law topics and provide an- sentations for individuals, small businesses, tax-related identity theft, you can learn swers. and tax professionals. what steps you should take. • IRS.gov/Forms: Find forms, instructions, • Get an Identity Protection PIN (IP PIN). IP and publications. You will find details on Online tax information in other languages. PINs are six-digit numbers assigned to eli- 2020 tax changes and hundreds of interac- You can find information on IRS.gov/ gible taxpayers to help prevent the misuse tive links to help you find answers to your MyLanguage if English isn’t your native lan- of their SSNs on fraudulent federal income questions. guage. tax returns. When you have an IP PIN, it • You may also be able to access tax law in- prevents someone else from filing a tax re- formation in your electronic filing software. Free interpreter service. Multilingual assis- turn with your SSN. To learn more, go to tance, provided by the IRS, is available at Tax- IRS.gov/IPPIN. payer Assistance Centers (TACs) and other Need someone to prepare your tax return? IRS offices. Over-the-phone interpreter service Checking on the status of your refund. There are various types of tax return preparers, is accessible in more than 350 languages. • Go to IRS.gov/Refunds. including tax preparers, enrolled agents, certi- • The IRS can’t issue refunds before fied public accountants (CPAs), attorneys, and Getting tax forms and publications. Go to mid-February 2021 for returns that claimed many others who don’t have professional cre- IRS.gov/Forms to view, download, or print all of the EIC or the additional child tax credit dentials. If you choose to have someone pre- the forms, instructions, and publications you (ACTC). This applies to the entire refund, pare your tax return, choose that preparer may need. You can also download and view not just the portion associated with these wisely. A paid tax preparer is: popular tax publications and instructions (in- credits. • Primarily responsible for the overall sub- cluding the Instructions for Forms 1040 and • Download the official IRS2Go app to your stantive accuracy of your return, 1040-SR) on mobile devices as an eBook at mobile device to check your refund status. • Required to sign the return, and IRS.gov/eBooks. Or you can go to IRS.gov/ • Call the automated refund hotline at • Required to include their preparer tax iden- OrderForms to place an order. 800-829-1954. tification number (PTIN). Access your online account (individual tax- Making a tax payment. The IRS uses the lat- Although the tax preparer always signs the payers only). Go to IRS.gov/Account to se- est encryption technology to ensure your elec- return, you're ultimately responsible for provid- curely access information about your federal tax tronic payments are safe and secure. You can ing all the information required for the preparer account. make electronic payments online, by phone, to accurately prepare your return. Anyone paid • View the amount you owe, pay online, or and from a mobile device using the IRS2Go to prepare tax returns for others should have a set up an online payment agreement. app. Paying electronically is quick, easy, and thorough understanding of tax matters. For • Access your tax records online. faster than mailing in a check or money order. more information on how to choose a tax pre- • Review your payment history. Go to IRS.gov/Payments for information on how parer, go to Tips for Choosing a Tax Preparer • Go to IRS.gov/SecureAccess to review the to make a payment using any of the following on IRS.gov. required identity authentication process. options. IRS Direct Pay: Pay your individual tax bill Coronavirus. Go to IRS.gov/Coronavirus for • Using direct deposit. The fastest way to re- or estimated tax payment directly from links to information on the impact of the corona- ceive a tax refund is to file electronically and your checking or savings account at no virus, as well as tax relief available for individu- choose direct deposit, which securely and elec- cost to you. als and families, small and large businesses, tronically transfers your refund directly into your Debit or Credit Card: Choose an approved and tax-exempt organizations. • financial account. Direct deposit also avoids the payment processor to pay online, by possibility that your check could be lost, stolen, phone, or by mobile device. Tax reform. Tax reform legislation affects indi- or returned undeliverable to the IRS. Eight in 10 Electronic Funds Withdrawal: Offered only viduals, businesses, and tax-exempt and gov- • taxpayers use direct deposit to receive their re- when filing your federal taxes using tax re- ernment entities. Go to IRS.gov/TaxReform for funds. The IRS issues more than 90% of re- turn preparation software or through a tax information and updates on how this legislation funds in less than 21 days. professional. affects your taxes. • Electronic Federal Tax Payment System: Getting a transcript of your return. The Best option for businesses. Enrollment is Employers can register to use Business quickest way to get a copy of your tax transcript required. Services Online. The Social Security Adminis- is to go to IRS.gov/Transcripts. Click on either Check or Money Order: Mail your payment tration (SSA) offers online service at SSA.gov/ • “Get Transcript Online” or “Get Transcript by to the address listed on the notice or in- employer for fast, free, and secure online W-2 Mail” to order a free copy of your transcript. If structions. filing options to CPAs, accountants, enrolled you prefer, you can order your transcript by call- Cash: You may be able to pay your taxes agents, and individuals who process Form W-2, • ing 800-908-9946. with cash at a participating retail store. Wage and Tax Statement, and Form W-2c, Same-Day Wire: You may be able to do Corrected Wage and Tax Statement. • Reporting and resolving your tax-related same-day wire from your financial institu- identity theft issues. tion. Contact your financial institution for IRS social media. Go to IRS.gov/SocialMedia • Tax-related identity theft happens when to see the various social media tools the IRS availability, cost, and cut-off times. someone steals your personal information uses to share the latest information on tax to commit tax fraud. Your taxes can be af- What if I can’t pay now? Go to IRS.gov/ changes, scam alerts, initiatives, products, and fected if your SSN is used to file a fraudu- Payments for more information about your op- services. At the IRS, privacy and security are lent return or to claim a refund or credit. tions. paramount. We use these tools to share public Apply for an online payment agreement information with you. Don’t post your SSN or • The IRS doesn’t initiate contact with tax- • (IRS.gov/OPA) to meet your tax obligation other confidential information on social media payers by email, text messages, telephone in monthly installments if you can’t pay sites. Always protect your identity when using calls, or social media channels to request your taxes in full today. Once you complete any social networking site. personal or financial information. This in- the online process, you will receive imme- The following IRS YouTube channels pro- cludes requests for personal identification diate notification of whether your agree- vide short, informative videos on various tax-re- numbers (PINs), passwords, or similar in- ment has been approved. lated topics in English, Spanish, and ASL. formation for credit cards, banks, or other • Use the Offer in Compromise Pre-Qualifier Youtube.com/irsvideos. financial accounts. • to see if you can settle your tax debt for Youtube.com/irsvideosmultilingua. • Go to IRS.gov/IdentityTheft, the IRS Iden- • less than the full amount you owe. For • Youtube.com/irsvideosASL. tity Theft Central webpage, for information on identity theft and data security protec- more information on the Offer in Compro- mise program, go to IRS.gov/OIC. Watching IRS videos. The IRS Video portal tion for taxpayers, tax professionals, and (IRSVideos.gov) contains video and audio pre- businesses. If your SSN has been lost or stolen or you suspect you’re a victim of

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Filing an amended return. You can now file rights. Their job is to ensure that every taxpayer TAS for Tax Professionals Form 1040-X electronically with tax filing soft- is treated fairly and that you know and under- ware to amend 2019 Forms 1040 and 1040-SR. stand your rights under the Taxpayer Bill of TAS can provide a variety of information for tax To do so, you must have e-filed your original Rights. professionals, including tax law updates and 2019 return. Amended returns for all prior years guidance, TAS programs, and ways to let TAS must be mailed. See Tips for taxpayers who How Can You Learn About Your know about systemic problems you’ve seen in need to file an amended tax return and go to Taxpayer Rights? your practice. IRS.gov/Form1040X for information and up- dates. The Taxpayer Bill of Rights describes 10 basic Low Income Taxpayer rights that all taxpayers have when dealing with Clinics (LITCs) Checking the status of your amended re- the IRS. Go to TaxpayerAdvocate.IRS.gov to turn. Go to IRS.gov/WMAR to track the status help you understand what these rights mean to LITCs are independent from the IRS. LITCs of Form 1040-X amended returns. Please note you and how they apply. These are your rights. represent individuals whose income is below a that it can take up to 3 weeks from the date you Know them. Use them. filed your amended return for it to show up in certain level and need to resolve tax problems our system, and processing it can take up to 16 with the IRS, such as audits, appeals, and tax weeks. What Can TAS Do For You? collection disputes. In addition, clinics can pro- vide information about taxpayer rights and re- Understanding an IRS notice or letter TAS can help you resolve problems that you sponsibilities in different languages for individu- you’ve received. Go to IRS.gov/Notices to can’t resolve with the IRS. And their service is als who speak English as a second language. find additional information about responding to free. If you qualify for their assistance, you will Services are offered for free or a small fee for an IRS notice or letter. be assigned to one advocate who will work with eligible taxpayers. To find a clinic near you, visit you throughout the process and will do every- www.TaxpayerAdvocate.IRS.gov/about-us/ Contacting your local IRS office. Keep in thing possible to resolve your issue. TAS can Low-Income-Taxpayer-Clinics-LITC/ or see IRS mind, many questions can be answered on help you if: Pub. 4134, Low Income Taxpayer Clinic List. IRS.gov without visiting an IRS Taxpayer Assis- • Your problem is causing financial difficulty tance Center (TAC). Go to IRS.gov/LetUsHelp for you, your family, or your business; for the topics people ask about most. If you still • You face (or your business is facing) an need help, IRS TACs provide tax help when a immediate threat of adverse action; or tax issue can’t be handled online or by phone. • You’ve tried repeatedly to contact the IRS All TACs now provide service by appointment, but no one has responded, or the IRS so you’ll know in advance that you can get the hasn’t responded by the date promised. service you need without long wait times. Be- fore you visit, go to IRS.gov/TACLocator to find How Can You Reach TAS? the nearest TAC and to check hours, available services, and appointment options. Or, on the TAS has offices in every state, the District of IRS2Go app, under the Stay Connected tab, Columbia, and Puerto Rico. Your local advo- choose the Contact Us option and click on “Lo- cate’s number is in your local directory and at cal Offices.” TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at 877-777-4778. The Taxpayer Advocate Service (TAS) Is Here To How Else Does TAS Help Help You Taxpayers? What Is TAS? TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of TAS is an independent organization within the these broad issues, please report it to them at IRS that helps taxpayers and protects taxpayer IRS.gov/SAMS.

To help us develop a more useful index, please let us know if you have ideas for index entries. Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Business purposes, property Costs: Deposit losses 5, 19 A used partly for 13 Appraisals 8 Reporting of (Table 1) 6 Abatement of interest and Clean up 7 When to report 16 penalties 19 Incidental expenses 8 Deterioration, Concrete Accidents 3 C Landscaping 7 Foundation 4 Adjusted basis 8 Cars: Photographs taken after loss 8 Disaster area losses 16 Adjustments to basis 14, 20 Accidents 3 Protection 8 Federal loan canceled 18 Amended returns 15 Fair market value of 7 Repair 7 Federally declared disaster 14, Appraisals 7, 8 Cash gifts 9 Replacement 8 16 Assistance (See Tax help) Casualty losses 19 Figuring loss deduction 18 Deductible losses 3 Form 1040-X 18 Definition 3 D Home made unsafe 18 B Deposits, loss on 5 Death of taxpayer: How to deduct loss in preceding Bad debts 6 Nondeductible losses 3 Postponement of gain 14 year 16 Basis: Progressive deterioration 3 Deductible losses 3 Inventory 17 Adjusted 8 Proof of 6 Deduction limits 10 Main home rules 15, 19 Adjustments to 14, 20 When to report 16 $100 rule 10 Qualified disaster mitigation Replacement property 14 Workbooks for listing property 2 10% rule 11 payments 19 Business or income-producing Clean up costs 7 Personal-use property Qualified disaster relief property 6 Condemnation 2 (Table 2) 10 payments 19 Corrosive drywall 4 Records to keep 18

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Tax deadlines postponed 19 Postponement of 13, 15 Personal property: Basis of 14 When to deduct 16 Reimbursements 6 Loss deduction, figuring of 12 Main home 14 Table 3 19 Reporting of 19 Personal-use property: In disaster area 17 Disaster loss 3 When to report 16 Deduction limits (Table 2) 10 Postponement of gain 15 Disaster mitigation payments 19 Reporting gains and losses 20 Reporting gains and losses 13, Disaster relief grants 9 Personal-use real property 6 20 Drywall, corrosive 4 I Photographs: Basis, adjustments to 20 Due dates: Incidental expenses 8 Documentation of loss 8 Business and income-producing Tax deadlines postponed 19 Insurance 8 Ponzi-type investment property 20 Living expenses, payments schemes 5 Deductions exceeding for 9 Postponed tax deadlines 19 income 20 E Interest abatement 19 Postponement of gain 13, 15 Deposits 6 Employer’s emergency disaster Inventory losses 6 Amended return 15 Table 1 6 fund 9 Disaster area losses 17 Changing mind 16 Disaster area losses 18 Replacement property acquired Personal-use property 20 after return filed 15 Timing of 16 F L Replacement property acquired Fair market value (FMV): Landscaping 7 before return filed 15 Decline in value of property in or Leased property 6 Required statement 15 S near casualty area 8 When to report 16 Substituting replacement Sentimental value 8 Measuring decrease in 6 Losses: property 15 State disaster relief grants for Items not to consider 8 Casualty (See Casualty losses) Three-year limit 16 businesses 19 Items to consider 7 Deposits (See Deposit losses) Proof of loss 6 Stolen property (See Theft losses) Federal casualty loss 3 Disaster areas (See Disaster Protection costs 8 Federal disaster relief grants 19 area losses) Publications (See Tax help) Federal Emergency Management Figuring amount (See Figuring T Agency (FEMA), loss) Tables and figures: contacting 19 Proof of 6 Q Deduction limit rules for Federally declared disaster: Records of 6 Qualified disaster loss 3 personal-use property Disaster loss 3 Reporting of 19 (Table 2) 10 Federal casualty loss 3 Theft (See Theft losses) Reporting loss on deposits Qualified disaster loss 3 When to report 16 R (Table 1) 6 Federally declared disasters 3, Table 3 19 Records of loss 6 When to deduct losses 14, 16 Recovered stolen property 6 (Table 3) 19 Figuring gain 13 Reimbursements: Tax help 20 Figuring loss 6, 11 M Cash gifts 9 Theft losses 5 Adjusted basis 8 Married taxpayers: Disaster relief 9 FMV of stolen property 6 Disaster area losses 18 Deduction limits 11 Employer’s emergency disaster Mislaid or lost property 5 Insurance and other Mislaid or lost property 5 fund 9 Proof of 6 reimbursements 8 Missing children, photographs Failure to file a claim 8 When to deduct (Table 3) 19 Form 1040, Schedule A 20 of 2 Received after deducting loss 9 When to report 16 Form 1040, Schedule D 20 Types of 9 Workbooks for listing property 2 Form 1040-X: Related expenses 8 Timber loss 14 Disaster area losses 18 N Related person, replacement Form 4684: Nonbusiness bad debts 6 property bought from 14 Reporting gains and losses on Nondeductible losses 3 Repair costs 7 W personal-use property 20 Replacement cost 8 Workbooks for property lost due Foundation, Concrete 4 Replacement period 15 to casualties and thefts 2 P Extension of 15 Payments for living expenses 9 Replacement property 14 G Penalty abatement 19 Advance payment 14 Gains: Basis adjustment to Figuring 13 corporation’s property 14

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