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2002 Instructions for Form 4684


									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.
   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
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.


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