Instructions for Form 4684 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Which Sections To Complete
Use Section A to figure casualty or theft gains and losses for property that is not used in a trade or business or for income-producing
purposes.
Nonbusiness casualty or theft losses are deductible only to the extent that the amount of the loss from each separate casualty
or theft is more
than $100 and the total amount of all losses (as so reduced) during the year is more than 10% of adjusted gross income (Form
1040, line 38, or Form
1040NR, line 36). However, these limits do not apply to losses that arose in the:
-
Hurricane Katrina disaster area after August 24, 2005,
-
Hurricane Rita disaster area after September 22, 2005, or
-
Hurricane Wilma disaster area after October 22, 2005,
and were caused by that particular hurricane.
Use Section B to figure casualty or theft gains and losses for property that is used in a trade or business or for income-producing
purposes.
If property is used partly in a trade or business and partly for personal purposes, such as a personal home with a rental
unit, figure the personal
part in Section A and the business part in Section B.
Section A—Personal Use Property
Use a separate column for lines 1 through 9 to show each item lost or damaged from a single casualty or theft. If more than
four items were lost or
damaged, use additional sheets following the format of lines 1 through 9.
Use a separate Form 4684 through line 12 for each casualty or theft involving property not used in a trade or business or
for income-producing
purposes.
Do not include any loss previously deducted on an estate tax return.
If you are liable for casualty or theft losses to property you lease from someone else, see Pub. 547.
Cost or other basis usually means original cost plus improvements. Subtract any postponed gain from the sale of a previous
main home. Special rules
apply to property received as a gift or inheritance. See Pub. 551, Basis of Assets, for details.
Enter on this line the amount of insurance or other reimbursement you received or expect to receive for each property. Include
your insurance
coverage whether or not you are filing a claim for reimbursement. For example, your car worth $2,000 is totally destroyed
in a collision. You are
insured with a $500 deductible, but decide not to report it to your insurance company because you are afraid the insurance
company will cancel your
policy. In this case, enter $1,500 on this line.
If you expect to be reimbursed but have not yet received payment, you must still enter the expected reimbursement from the
loss. If, in a later tax
year, you determine with reasonable certainty that you will not be reimbursed for all or part of the loss, you can deduct
for that year the amount of
the loss that is not reimbursed.
Types of reimbursements.
Insurance is the most common way to be reimbursed for a casualty or theft loss, but if:
-
Part of a federal disaster loan is forgiven, the part you do not have to pay back is considered a reimbursement.
-
The person who leases your property must make repairs or must repay you for any part of a loss, the repayment and the cost
of the repairs
are considered reimbursements.
-
A court awards you damages for a casualty or theft loss, the amount you are able to collect, minus lawyers' fees and other
necessary
expenses, is a reimbursement.
-
You accept repairs, restoration, or cleanup services provided by relief agencies, it is considered a reimbursement.
-
A bonding company pays you for a theft loss, the payment is also considered a reimbursement.
Lump-sum reimbursement.
If you have a casualty or theft loss of several assets at the same time and you receive a lump-sum reimbursement,
you must divide the amount you
receive among the assets according to the fair market value of each asset at the time of the loss.
Grants, gifts, and other payments.
Grants and other payments you receive to help you after a casualty are considered reimbursements only if they must
be used specifically to repair
or replace your property. Such payments will reduce your casualty loss deduction. If there are no conditions on how you have
to use the money you
receive, it is not a reimbursement.
Use and occupancy insurance.
If insurance reimburses you for your loss of business income, it does not reduce your casualty or theft loss. The
reimbursement is income, and is
taxed in the same manner as your business income.
If you are entitled to an insurance payment or other reimbursement for any part of a casualty or theft loss but you choose
not to file a claim for
the loss, you cannot realize a gain from that payment or reimbursement. Therefore, figure the gain on line 4 by subtracting
your cost or other basis
in the property (line 2) only from the amount of reimbursement you actually received. Enter the result on line 4, but do not
enter less than zero.
If you filed a claim for reimbursement but did not receive it until after the year of the casualty or theft, include the gain
in your income in the
year you received the reimbursement.
Fair market value (FMV) is the price at which the property would be sold between a willing buyer and a willing seller, each
having knowledge of the
relevant facts. The difference between the FMV immediately before the casualty or theft and the FMV immediately after represents
the decrease in FMV
because of the casualty or theft.
The FMV of property after a theft is zero if the property is not recovered.
FMV is generally determined by a competent appraisal. The appraiser's knowledge of sales of comparable property about the
same time as the casualty
or theft, knowledge of your property before and after the occurrence, and the methods of determining FMV are important elements
in proving your loss.
The appraised value of property immediately after the casualty must be adjusted (increased) for the effects of any general
market decline that may
occur at the same time as the casualty or theft. For example, the value of all nearby property may become depressed because
it is in an area where
such occurrences are commonplace. This general decline in market value is not part of the property's decrease in FMV as a
result of the casualty or
theft.
Replacement cost or the cost of repairs is not necessarily FMV. However, you may be able to use the cost of repairs to the
damaged property as
evidence of loss in value if:
-
The repairs are necessary to restore the property to the condition it was in immediately before the casualty,
-
The amount spent for repairs is not excessive,
-
The repairs only correct the damage caused by the casualty, and
-
The value of the property after the repairs is not, as a result of the repairs, more than the value of the property immediately
before the
casualty.
To figure a casualty loss to real estate not used in a trade, business, or for income-producing purposes, measure the decrease
in value of the
property as a whole. All improvements, such as buildings, trees, and shrubs, are considered together as one item. Figure the
loss separately for other
items. For example, figure the loss separately for each piece of furniture.
If your loss arose in the:
-
Hurricane Katrina disaster area after August 24, 2005,
-
Hurricane Rita disaster area after September 22, 2005, or
-
Hurricane Wilma disaster area after October 22, 2005,
and was caused by that particular hurricane, you do not have to reduce your loss by $100. Enter zero on this line. Qualifying
losses include
losses from flooding or other casualty, and from theft, that arose in these hurricane disaster areas and were caused by these
particular hurricanes.
The Hurricane Katrina disaster area includes the states of Alabama, Florida, Louisiana, and Mississippi. The Hurricane Rita
disaster area includes the states of Louisiana and Texas. The Hurricane Wilma disaster area includes the state of Florida.
If line 14 is more than line 13:
-
Combine your short-term gains with your short-term losses and enter the net short-term gain or (loss) on Schedule D (Form
1040), line 4.
Estates and trusts enter this amount on Schedule D (Form 1041), line 2.
-
Combine your long-term gains with your long-term losses and enter the net long-term gain or (loss) on Schedule D (Form 1040),
line 11.
Estates and trusts enter this amount on Schedule D (Form 1041), line 7.
The holding period for long-term gains and losses is more than 1 year. For short-term gains and losses, it is 1 year or less.
To figure the
holding period, begin counting on the day after you received the property and include the day the casualty or theft occurred.
Estates and trusts figure adjusted gross income in the same way as individuals, except that the costs of administration are
allowed in figuring
adjusted gross income.
Section B—Business and Income-Producing Property
Use a separate column of Part I, lines 22 through 30, to show each item lost or damaged from a single casualty or theft. If
more than four items
were lost or damaged, use additional sheets following the format of Part I, lines 22 through 30.
Use a separate Form 4684, Section B, Part I, for each casualty or theft involving property used in a trade or business or
for income-producing
purposes. Use one Section B, Part II, to combine all Sections B, Part I.
For details on the treatment of casualties or thefts to business or income-producing property, including rules on the loss
of inventory through
casualty or theft, see Pub. 547.
If you had a casualty or theft loss involving a home you used for business or rented out, your deductible loss may be limited.
First, complete Form
4684, Section B, lines 22 through 29. If the loss involved a home used for a business for which you are filing Schedule C
(Form 1040), Profit or Loss
From Business, figure your deductible casualty or theft loss on Form 8829, Expenses for Business Use of Your Home. Enter on
Form 4684, line 30, the
deductible loss from Form 8829, line 33, and “See Form 8829” above line 30. For a home you rented out or used for a business for which you are
not filing Schedule C (Form 1040), see section 280A(c)(5) to figure your deductible loss. Attach a statement showing your
computation of the
deductible loss, enter that amount on line 30 and “See attached statement” above line 30.
Note.
A gain or loss from a casualty or theft of property used in a passive activity is not taken into account in determining the
loss from a passive
activity unless losses similar in cause and severity recur regularly in the activity. See Form 8582, Passive Activity Loss
Limitations, and its
instructions for details.
Section 179 Property of a Partnership or S corporation
Partnerships (other than electing large partnerships) and S corporations that have a casualty or theft involving property
for which the section 179
expense deduction was previously claimed and passed through to the partners or shareholders must not use Form 4684 to report
the transaction. Instead,
see the Instructions for Form 4797 for details on how to report it. Partners and S corporation shareholders who receive a
Schedule K-1 reporting such
a transaction should see the Instructions for Form 4797 for details on how to figure the amount to enter on Form 4684, line
20.
Cost or adjusted basis usually means original cost plus improvements, minus depreciation allowed or allowable (including any
section 179 expense
deduction), amortization, depletion, etc. Special rules apply to property received as a gift or inheritance. See Pub. 551
for details.
See the instructions for line 3.
See the instructions for line 4.
See the instructions for lines 5 and 6 for details on determining FMV.
Loss on each item figured separately.
Unlike a casualty loss to personal use real estate, in which all improvements are considered one item, a casualty
loss to business or
income-producing property must be figured separately for each item. For example, if casualty damage occurs to both a building
and to trees on the same
piece of real estate, measure the loss separately for the building and for the trees.
If the amount on line 31 includes losses on property held 1 year or less, and losses on property held for more than 1 year,
you must allocate the
amount between lines 32 and 37 according to how long you held each property. Enter on line 32 all gains and losses on property
held 1 year or less.
Enter on line 37 all gains and losses on property held more than 1 year, except as provided in the instructions for line 36.
Use a separate line for each casualty or theft.
Enter the part of line 31 from trade, business, rental, or royalty property (other than property you used in performing services
as an employee).
Enter the part of line 31 from income-producing property and from property you used in performing services as an employee.
Income-producing
property is property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art.
If Form 4797, Sales of Business Property, is not otherwise required, enter the amount from this line on page 1 of your tax
return, on the line
identified as from Form 4797. Next to that line, enter “Form 4684.”
Estates and trusts, enter on the “Other deductions” line of your tax return. Partnerships (except electing large partnerships), enter on Form
1065, Schedule K, line 13d. Electing large partnerships, enter on Form 1065-B, Part II, line 11. S corporations, enter on
Form 1120S, Schedule K, line
12d. Next to that line, enter “Form 4684.”
If you had a casualty or theft gain from certain trade, business, or income-producing property held more than 1 year, you
may have to recapture
part or all of the gain as ordinary income. See the instructions for Form 4797, Part III, for more information on the types
of property subject to
recapture. If recapture applies, complete Form 4797, Part III, and this line, instead of Form 4684, line 37.
Taxpayers, other than partnerships and S corporations, if Form 4797 is not otherwise required, enter the amount from this
line on page 1 of your
tax return, on the line identified as from Form 4797. Next to that line, enter “Form 4684.”
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