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2002 Department of the Treasury Internal Revenue Service Instructions for Form 4684 Casualties and Thefts Section references are to the Internal Revenue Code. you may have to pay tax on it, or you For details on how to postpone the General Instructions may be able to postpone the gain. gain, see Pub. 547, Casualties, Disasters, and Thefts. A Change To Note Do not report the gain on damaged, destroyed, or stolen property if you If your main home was located in a An extended replacement period of 5 receive property that is similar or Presidentially declared disaster area, years may apply for postponing gain on related to it in service or use. Your and that home or any of its contents property in the New York Liberty Zone basis in the new property is the same were damaged or destroyed due to the (as defined in section 1400L(h)) that as your basis in the old property. disaster, special rules apply. See Gains was converted because of the Realized on Homes in Disaster Areas September 11, 2001, terrorist attacks. Any tangible replacement property on page 2. See Gains Realized on Property in held for use in a trade or business is If you had property in the New York the New York Liberty Zone on page 2. treated as similar or related in service Liberty Zone (as defined in section or use to property held for use in a 1400L(h)) that was converted because Purpose of Form trade or business or for investment if: of the September 11, 2001, terrorist Use Form 4684 to report gains and • The property you are replacing was attacks, special rules may apply. See losses from casualties and thefts. damaged or destroyed in a disaster and Gains Realized on Property in the Attach Form 4684 to your tax return. • The area in which the property was New York Liberty Zone on page 2. damaged or destroyed was declared by Losses You May Deduct the President of the United States to warrant Federal assistance because of When To Deduct a Loss You may deduct losses from fire, storm, that disaster. Deduct the part of your casualty or theft shipwreck, or other casualty, or theft loss that is not reimbursable in the tax (for example, larceny, embezzlement, Generally, you must recognize the year the casualty occurred or the theft and robbery). gain if you receive unlike property or was discovered. However, a disaster money as reimbursement. But you loss and a loss from deposits in If your property is covered by generally can choose to postpone all or insurance, you must file a timely insolvent or bankrupt financial part of the gain if, within 2 years of the institutions may be treated differently. insurance claim for reimbursement of end of the first tax year in which any your loss. Otherwise, you cannot See Disaster Losses below and part of the gain is realized, you Special Treatment for Losses on deduct the loss as a casualty or theft purchase: Deposits in Insolvent or Bankrupt loss. However, the part of the loss that is not covered by insurance is still • Property similar or related in service Financial Institutions on page 2. or use to the damaged, destroyed, or deductible. stolen property or If you are not sure whether part of your casualty or theft loss will be Related expenses. The related • A controlling interest (at least 80%) in reimbursed, do not deduct that part expenses you have due to a casualty or a corporation owning such property. theft, such as expenses for the until the tax year when you become treatment of personal injuries or for the To postpone all of the gain, the cost reasonably certain that it will not be rental of a car, are not deductible as of the replacement property must be reimbursed. casualty or theft losses. equal to or more than the reimbursement you received for your If you are reimbursed for a loss you Costs for protection against future property. If the cost of the replacement deducted in an earlier year, include the casualties are not deductible but should property is less than the reimbursement reimbursement in your income in the be capitalized as permanent received, you must recognize the gain year you received it, but only to the improvements. An example would be to the extent the reimbursement extent the deduction reduced your tax the cost of a levee to stop flooding. exceeds the cost of the replacement in an earlier year. property. See Pub. 547 for special rules on Losses You May Not If the replacement property or stock when to deduct losses from casualties and thefts to leased property. Deduct is acquired from a related person, gain • Money or property misplaced or lost. generally cannot be postponed by: Disaster Losses • Breakage of china, glassware, • Corporations (other than S furniture, and similar items under corporations); A disaster loss is a loss that occurred in normal conditions. • Partnerships more than 50% owned an area determined by the President of • Progressive damage to property by one or more corporations (other than the United States to warrant Federal (buildings, clothes, trees, etc.) caused S corporations); or disaster assistance. by termites, moths, other insects, or • All other taxpayers, unless the You may elect to deduct a disaster disease. aggregate realized gains on the loss in the tax year immediately prior to involuntarily converted property are the tax year in which the disaster Gain on Reimbursement $100,000 or less for the tax year. (This occurred as long as the loss would If the amount you receive in insurance rule applies to partnerships and S otherwise be allowed as a deduction in or other reimbursement is more than corporations at both the entity and the tax year it occurred. the cost or other basis of the property, partner or shareholder level.) This election must be made by filing you have a gain. If you have a gain, For details, see section 1033(i). your return or amended return for the Cat. No. 12998Z prior year, and claiming your disaster loss on it, by the later of: for that single item of property exceed the cost of the replacement property. Special Treatment for • The due date for filing your original • If you choose to postpone any gain Losses on Deposits in return (without extensions) for the tax from the receipt of insurance or other year in which the disaster actually reimbursement for your main home or Insolvent or Bankrupt occurred or any of its contents, the period in which Financial Institutions • The due date for filing your original you must purchase replacement If you are an individual who incurred a return (including extensions) for the tax property is extended until 4 years after loss from a deposit in a bank, credit year immediately prior to the tax year in the end of the first tax year in which any union, or other financial institution which the disaster actually occurred. part of the gain is realized. However, because it became insolvent or You may revoke your election within the 4-year period is extended to 5 years bankrupt and you can reasonably 90 days after making it by returning to if your main home or any of its contents estimate your loss, you can elect to the IRS any refund or credit you were located in the New York Liberty deduct the loss as: received from the election. If you Zone (as defined in section 1400L(h)) and substantially all of the use of the • A casualty loss to personal use revoke your election before receiving a property on Form 4684 or refund, you must repay the refund replacement property is in the city of New York, New York. • An ordinary loss (miscellaneous within 30 days after receiving it. itemized deduction) on Schedule A On the return on which you claim the Example. Your main home and its (Form 1040), line 22. The maximum disaster loss, specify the date(s) of the contents were completely destroyed in amount you can claim is $20,000 disaster and the city, town, county, and 2002 by a fire in a Presidentially ($10,000 if you are married filing state in which the damaged or declared disaster area. In 2002, you separately). Your deduction is reduced destroyed property was located. received insurance proceeds of by any expected state insurance $200,000 for the home, $25,000 for proceeds and is subject to the 2% limit. Note: To determine the amount to unscheduled personal property in your If you elect, you can wait until the deduct for a disaster loss, you must home, $5,000 for jewelry, and $10,000 year of final determination of the actual take into account as reimbursements for a stamp collection. The jewelry and loss and treat that amount as a any benefits you received from Federal stamp collection were kept in your nonbusiness bad debt. A nonbusiness or state programs to restore your home and were scheduled property on bad debt is deducted on Schedule D property. your insurance policy. No gain is (Form 1040) as a short-term capital If your home was located in a recognized on the $25,000 you loss. disaster area and your state or local received for the unscheduled personal property. If you reinvest the remaining If you are a 1% or more owner or an government ordered you to tear it down officer of the financial institution, or are or move it because it was no longer proceeds of $215,000 in a replacement home, any type of replacement related to any such owner or officer, safe to use as a home, the loss in value you cannot deduct the loss as a because it is no longer safe is treated contents (whether scheduled or unscheduled), or both, you can elect to casualty loss or as an ordinary loss. as a disaster loss. The order for you to See Pub. 550, Investment Income and tear down or move the home must have postpone any gain on your home, jewelry, or stamp collection. If you Expenses, for the definition of “related.” been issued within 120 days after the area was officially declared a disaster reinvest less than $215,000, any gain is You cannot elect the ordinary loss area. recognized only to the extent $215,000 deduction if any part of the deposits exceeds the amount you reinvest in a related to the loss is federally insured. For purposes of figuring the disaster replacement home, any type of replacement contents (whether If you elect to deduct the loss as a loss, use the value of your home before casualty loss or as an ordinary loss and you moved it or tore it down as its fair scheduled or unscheduled), or both. To postpone gain, you must purchase the you have more than one account in the market value (FMV) after the casualty. same financial institution, you must replacement property before 2007. Your basis in the replacement property include all your accounts. Once you Gains Realized on equals its cost decreased by the make the election, you cannot change it without permission from the IRS. Homes in Disaster Areas amount of any postponed gain. To elect to deduct the loss as a The following rules apply if your main For details on how to postpone gain, see Pub. 547. casualty loss, complete Form 4684 as home was located in an area declared follows: On line 1, enter the name of by the President of the United States to the financial institution and write warrant Federal assistance as the Gains Realized on “Insolvent Financial Institution.” Skip result of a disaster, and the home or any of its contents were damaged or Property in the New York lines 2 through 9. Enter the amount of the loss on line 10, and complete the destroyed due to the disaster. These Liberty Zone rest of Section A. rules also apply to renters who receive insurance proceeds for damaged or If you choose to postpone any gain on If, in a later year, you recover an destroyed property in a rented home property located in the New York amount you deducted as a loss, you that is their main home. Liberty Zone (as defined in section may have to include in your income the • No gain is recognized on any 1400L(h)) that was converted because amount recovered for that year. For insurance proceeds received for of the terrorist attacks on September details, see Recoveries in Pub. 525, unscheduled personal property that 11, 2001, the period in which you must Taxable and Nontaxable Income. was part of the contents of the home. purchase replacement property may be • Any other insurance proceeds you extended until 5 years after the end of the first tax year in which any part of receive for the home or its contents is treated as received for a single item of the gain is realized. However, the Specific Instructions property, and any replacement property 5-year period applies only if substantially all of the use of the you purchase that is similar or related replacement property is in the city of Which Sections To in service or use to the home or its contents is treated as similar or related New York, New York. In all other cases, Complete in service or use to that single item of the normal replacement period rules Use Section A to figure casualty or property. Therefore, you can choose to apply. theft gains and losses for property that recognize gain only to the extent the For details on how to postpone gain, is not used in a trade or business or for insurance proceeds treated as received see Pub. 547. income-producing purposes. -2- Nonbusiness casualty or theft losses reimbursed for a casualty or theft loss, casualty or theft and the FMV are deductible only to the extent that but if: immediately after represents the the amount of each separate casualty • Part of a Federal disaster loan under decrease in FMV because of the loss is more than $100 and the total the Disaster Relief Act is forgiven, the casualty or theft. amount of all losses during the year is part you do not have to pay back is The FMV of property after a theft is more than 10% of adjusted gross considered a reimbursement. zero if the property is not recovered. income (line 36 of Form 1040). • The person who leases your property FMV is generally determined by a Use Section B to figure casualty or must make repairs or must repay you for any part of a loss, the repayment competent appraisal. The appraiser’s theft gains and losses for property that knowledge of sales of comparable is used in a trade or business or for and the cost of the repairs are considered reimbursements. property about the same time as the income-producing purposes. If property is used partly in a trade or • A court awards you damages for a casualty or theft, knowledge of your property before and after the casualty or theft loss, the amount you business and partly for personal are able to collect, minus lawyers’ fees occurrence, and the methods of purposes, such as a personal home and other necessary expenses, is a determining FMV are important with a rental unit, figure the personal reimbursement. elements in proving your loss. part in Section A and the business part in Section B. • You accept repairs, restoration, or The appraised value of property cleanup services provided by relief immediately after the casualty must be agencies, it is considered a adjusted (increased) for the effects of Section A—Personal Use reimbursement. any general market decline that may Property • A bonding company pays you for a occur at the same time as the casualty Use a separate column for lines 1 theft loss, the payment is also or theft. For example, the value of all through 9 to show each item lost or considered a reimbursement. nearby property may become damaged from a single casualty or Lump-sum reimbursement. If you depressed because it is in an area theft. If more than four items were lost have a casualty or theft loss of several where such occurrences are or damaged, use additional sheets assets at the same time and you commonplace. This general decline in following the format of lines 1 through receive a lump-sum reimbursement, market value is not part of the 9. you must divide the amount you receive property’s decrease in FMV as a result Use a separate Form 4684 through among the assets according to the of the casualty or theft. line 12 for each casualty or theft FMV of each asset at the time of the Replacement cost or the cost of involving property not used in a trade or loss. repairs is not necessarily FMV. business or for income-producing Grants, gifts, and other payments. However, you may be able to use the purposes. Grants and other payments you receive cost of repairs to the damaged property Do not include any loss previously to help you after a casualty are as evidence of loss in value if: deducted on an estate tax return. considered reimbursements only if they • The repairs are necessary to restore must be used specifically to repair or the property to the condition it was in If you are liable for casualty or theft immediately before the casualty; replace your property. Such payments losses to property you lease from will reduce your casualty loss • The amount spent for repairs is not someone else, see Pub. 547. excessive; deduction. If there are no conditions on Line 2 how you have to use the money you • The repairs only correct the damage Cost or other basis usually means receive, it is not a reimbursement. caused by the casualty; and original cost plus improvements. • The value of the property after the Use and occupancy insurance. If repairs is not, as a result of the repairs, Subtract any postponed gain from the insurance reimburses you for your loss sale of a previous main home. Special more than the value of the property of business income, it does not reduce immediately before the casualty. rules apply to property received as a your casualty or theft loss. The gift or inheritance. See Pub. 551, Basis To figure a casualty loss to real reimbursement is income, and is taxed estate not used in a trade, business, or of Assets, for details. in the same manner as your business for income-producing purposes, Line 3 income. measure the decrease in value of the Enter on this line the amount of Line 4 property as a whole. All improvements, insurance or other reimbursement you such as buildings, trees, and shrubs, If you are entitled to an insurance are considered together as one item. received or expect to receive for each payment or other reimbursement for property. Include your insurance Figure the loss separately for other any part of a casualty or theft loss but items. For example, figure the loss coverage whether or not you are filing a you choose not to file a claim for the claim for reimbursement. For example, separately for each piece of furniture. loss, you cannot realize a gain from your car worth $2,000 is totally that payment or reimbursement. Line 15 destroyed in a collision. You are Therefore, figure the gain on line 4 by insured with a $500 deductible, but If line 14 is more than line 13: decide not to report it to your insurance subtracting your cost or other basis in • Combine your short-term gains with the property (line 2) only from the your short-term losses, and enter the company because you are afraid the amount of reimbursement you actually insurance company will cancel your net short-term gain or loss on Schedule received. Enter the result on line 4, but D (Form 1040), line 4. Estates and policy. In this case, enter $1,500 on this do not enter less than zero. line. trusts enter this amount on Schedule D If you filed a claim for reimbursement (Form 1041), line 2. If you expect to be reimbursed but but did not receive it until after the year • Combine your long-term gains with have not yet received payment, you of the casualty or theft, include the gain your long-term losses and enter the net must still enter the expected in your income in the year you received long-term gain or loss on Schedule D reimbursement from the loss. If, in a the reimbursement. (Form 1040), line 11, column (f). later tax year, you determine with Estates and trusts enter this amount on reasonable certainty that you will not be Lines 5 and 6 Schedule D (Form 1041), line 7, column reimbursed for all or part of the loss, Fair market value (FMV) is the price at (f). you can deduct for that year the which the property would be sold The holding period for long-term amount of the loss that is not between a willing buyer and a willing gains and losses is more than 1 year. reimbursed. seller, each having knowledge of the For short-term gains and losses, it is 1 Types of reimbursements. Insurance relevant facts. The difference between year or less. To figure the holding is the most common way to be the FMV immediately before the period, begin counting on the day after -3- you received the property and include Special rules apply to property received Schedule K, line 11. Electing large the day the casualty or theft occurred. as a gift or inheritance. See Pub. 551 partnerships, enter on Form 1065-B, for details. Part II, line 11. S corporations, enter on Line 17 Form 1120S, Schedule K, line 10. Next Estates and trusts figure adjusted gross Line 21 to that line, write “Form 4684.” income in the same way as individuals, See the instructions for line 3. except that the costs of administration Line 33 are allowed in figuring adjusted gross Line 22 If you had a casualty or theft gain from income. See the instructions for line 4. certain trade, business, or Lines 23 and 24 income-producing property held more Section B—Business and than 1 year, you may have to recapture Income-Producing Property See the instructions for lines 5 and 6 for part or all of the gain as ordinary details on determining FMV. income. See the instructions for Form Use a separate column of Part I, lines Loss on each item figured 19 through 27, to show each item lost 4797, Part III, for more information on separately. Unlike a casualty loss to the types of property subject to or damaged from a single casualty or personal use real estate, in which all theft. If more than four items were lost recapture. If recapture applies, improvements are considered one item, complete Form 4797, Part III, and this or damaged, use additional sheets a casualty loss to business or following the format of Part I, lines 19 line, instead of Form 4684, line 34. income-producing property must be through 27. figured separately for each item. For Line 38a Use a separate Section B, Part I, of example, if casualty damage occurs to Taxpayers, other than partnerships and Form 4684 for each casualty or theft both a building and to trees on the S corporations, if Form 4797 is not involving property used in a trade or same piece of real estate, measure the otherwise required, enter the amount business or for income-producing loss separately for the building and for from this line on page 1 of your tax purposes. Use one Section B, Part II, to the trees. return, on the line identified as from combine all Sections B, Part I. Form 4797. Next to that line, write For details on the treatment of Line 28 “Form 4684.” casualties or thefts to business or If the amount on line 28 includes losses income-producing property, including on property held 1 year or less, and rules on the loss of inventory through losses on property held for more than 1 Paperwork Reduction Act Notice. casualty or theft, see Pub. 547. year, you must allocate the amount We ask for the information on this form between lines 29 and 34 according to to carry out the Internal Revenue laws If you had a casualty or theft loss how long you held each property. Enter of the United States. You are required involving a home you used for business on line 29 all gains and losses on to give us the information. We need it to or rented out, your deductible loss may property held 1 year or less. Enter on ensure that you are complying with be limited. First, complete Form 4684, line 34 all gains and losses on property these laws and to allow us to figure and Section B, lines 19 through 26. If the held more than 1 year, except as collect the right amount of tax. loss involved a home used for a provided in the instructions for line 33. business for which you are filing You are not required to provide the Schedule C (Form 1040), Profit or Part II, Column (a) information requested on a form that is Loss From Business, figure your subject to the Paperwork Reduction Act Use a separate line for each casualty or unless the form displays a valid OMB deductible casualty or theft loss on theft. Form 8829, Expenses for Business control number. Books or records Use of Your Home. Enter on line 27 of Part II, Column (b)(i) relating to a form or its instructions Form 4684 the deductible loss from line must be retained as long as their Enter the part of line 28 from trade, contents may become material in the 33 of Form 8829, and write “See Form business, rental, or royalty property 8829” above line 27. For a home you administration of any Internal Revenue (other than property you used in law. Generally, tax returns and return rented out or used for a business for performing services as an employee). which you are not filing Schedule C information are confidential, as required (Form 1040), see section 280A(c)(5) to Part II, Column (b)(ii) by section 6103. figure your deductible loss. Attach a Enter the part of line 28 from The time needed to complete and statement showing your computation of income-producing property and from file this form will vary depending on the deductible loss, enter that amount property you used in performing individual circumstances. The on line 27, and write “See attached services as an employee. estimated average time is: statement” above line 27. Income-producing property is property Recordkeeping . . . . . . . . 1 hr., 58 min. held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, Learning about the law or Note: A gain or loss from a casualty or and works of art. the form . . . . . . . . . . . . . 26 min. theft of property used in a passive activity is not taken into account in Line 31 Preparing the form . . . . . 1 hr., 4 min. determining the loss from a passive If Form 4797, Sales of Business Copying, assembling, activity unless losses similar in cause Property, is not otherwise required, and sending the form to and severity recur regularly in the enter the amount from this line on page the IRS . . . . . . . . . . . . . . 34 min. activity. See Form 8582, Passive 1 of your tax return, on the line Activity Loss Limitations, and its identified as from Form 4797. Next to If you have comments concerning instructions for details. that line, write “Form 4684.” the accuracy of these time estimates or suggestions for making this form Line 20 Line 32 simpler, we would be happy to hear Cost or adjusted basis usually means Estates and trusts, enter on the “Other from you. See the instructions for the original cost plus improvements, minus deductions” line of your tax return. tax return with which this form is filed. depreciation allowed or allowable Partnerships (except electing large (including any section 179 expense partnerships), enter on Form 1065, deduction), amortization, depletion, etc. -4-
"2002 Instructions for Form 4684"