Table of Contents
- Future Developments
- Purpose of Form
- Losses You Can Deduct
- Losses You Cannot Deduct
- Gain on Reimbursement
- When To Deduct a Loss
- Disaster Losses
- Gains Realized on Homes in Disaster Areas
- Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions
- Damage From Corrosive Drywall
For the latest information about developments related to Form 4684 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/form4684.
Use Form 4684 to report gains and losses from casualties and thefts. Attach Form 4684 to your tax return.
You can deduct losses of property from fire, storm, shipwreck, or other casualty, or theft (for example, larceny, embezzlement, robbery, and Ponzi-type investment schemes). See Pub. 547, Casualties, Disasters, and Thefts, for more examples.
If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Otherwise, you cannot deduct the loss as a casualty or theft loss. However, the part of the loss that is not covered by insurance is still deductible.
Money or property misplaced or lost may not be deducted as a theft loss.
Breakage of china, glassware, furniture, and similar items under normal conditions.
Progressive damage to property (buildings, clothes, trees, etc.) caused by termites, moths, other insects, or disease.
A decline in market value of stock, caused by disclosure of accounting or other illegal misconduct by the officers or directors of the corporation that issues the stock, that was acquired on the open market for investment. You may be able to deduct it as a capital loss on Schedule D (Form 1040) if the stock is sold or exchanged or becomes completely worthless. See chapter 4 of Pub. 550, Investment Income and Expenses.
Victims of fraudulent investment schemes can claim a theft loss deduction if certain conditions apply. See Losses From Ponzi-Type Investment Schemes, later, for more information.
If the amount you receive in insurance or other reimbursement is more than the cost or other basis of the property, you have a gain. If you have a gain, you may have to pay tax on it, or you may be able to postpone the gain.
Do not report the gain on damaged, destroyed, or stolen property if you receive property that is similar or related to it in service or use. Your basis in the new property is the same as your basis in the old property.
Any tangible replacement property held for use in a trade or business is treated as similar or related in service or use to property held for use in a trade or business or for investment if:
The property you are replacing was damaged or destroyed in a disaster, and
The area in which the property was damaged or destroyed was declared by the President of the United States to warrant federal assistance because of that disaster.
Generally, you must recognize the gain if you receive unlike property or money as reimbursement. But you generally can choose to postpone all or part of the gain if, within 2 years of the end of the first tax year in which any part of the gain is realized, you purchase:
Property similar or related in service or use to the damaged, destroyed, or stolen property, or
A controlling interest (at least 80%) in a corporation owning such property.
The replacement period is 5 years, instead of 2 years, if the property was located in the Midwestern disaster areas (as defined in Pub. 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas).(For details, see Replacement Period under Figuring a Gain in Pub. 547.)
To postpone all of the gain, the cost of the replacement property must be equal to or more than the reimbursement you received for your property. If the cost of the replacement property is less than the reimbursement received, you must recognize the gain to the extent the reimbursement exceeds the cost of the replacement property.
If the replacement property or stock is acquired from a related person, gain generally cannot be postponed by:
Corporations (other than S corporations),
Partnerships in which more than 50% of the capital or profits interest is owned by corporations (other than S corporations), or
All other taxpayers, unless the aggregate realized gains on the involuntarily converted property are $100,000 or less for the tax year. This rule applies to partnerships and S corporations at both the entity and partner or shareholder level.
For details on how to postpone the gain, see Postponement of Gain under Figuring a Gain in Pub. 547.
If your main home was located in a disaster area and that home or any of its contents were damaged or destroyed due to the disaster, special rules apply. See Gains Realized on Homes in Disaster Areas, later.
Deduct the part of your casualty or theft loss that is not reimbursable in the tax year the casualty occurred or the theft was discovered. However, a disaster loss and a loss from deposits in insolvent or bankrupt financial institutions may be treated differently. See Disaster Losses and Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions, later.
If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed.
If you are reimbursed for a loss you deducted in an earlier year, include the reimbursement in your income in the year you received it, but only to the extent the deduction reduced your tax in an earlier year.
SeeLessee's loss in Pub. 547 for special rules on when to deduct losses from casualties and thefts to leased property.
A disaster loss is a loss that occurred in an area determined by the President of the United States to warrant federal disaster assistance. It includes a major disaster or emergency declaration. A list of areas warranting public or individual assistance (or both) is available at the Federal Emergency Management Agency (FEMA) website at www.fema.gov.
If you have a casualty loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can elect to deduct the loss in the tax year immediately before the tax year in which the disaster occurred as long as the loss would otherwise be allowed as a deduction in the tax year it occurred.
This election must be made by filing your return or amended return for the earlier year, and claiming your disaster loss on it, by the later of:
The due date for filing your original return (without extensions) for the tax year in which the disaster actually occurred, or
The due date for filing your original return (including extensions) for the tax year immediately before the tax year in which the disaster actually occurred.
If you make this election, include a statement that you are making this election. The statement can be made on the return or on an attachment filed with the return.
You can revoke your election within 90 days after making it by returning to the IRS any refund or credit you received from the election. If you revoke your election before receiving a refund, you must repay the refund within 30 days after receiving it.
On line 1 of the Form 4684 on which you claim the disaster loss (or on an attachment), specify the date(s) of the disaster and the city, town, county or parish, and state in which the damaged or destroyed property was located.
To determine the amount to deduct for a disaster loss, you must take into account as reimbursements any benefits you received or which you have a reasonable possibility of receiving from federal or state programs to restore your property.
The following rules apply if your main home was located in an area declared by the President of the United States to warrant federal assistance as the result of a disaster, and the home or any of its contents were damaged or destroyed due to the disaster. These rules also apply to renters who receive insurance proceeds for damaged or destroyed property in a rented home that is their main home.
No gain is recognized on any insurance proceeds received for unscheduled personal property that was part of the contents of the home.
Any other insurance proceeds you receive for the home or its contents are treated as received for a single item of property, and any replacement property you purchase that is similar or related in service or use to the home or its contents is treated as similar or related in service or use to that single item of property. Therefore, you can choose to recognize gain only to the extent the insurance proceeds treated as received for that single item of property exceed the cost of the replacement property.
If you choose to postpone any gain from the receipt of insurance or other reimbursement for your main home or any of its contents, the period in which you must purchase replacement property is extended until 4 years after the end of the first tax year in which any part of the gain is realized. However, the 4-year period is extended to 5 years if your main home or any of its contents were located in the Midwestern disaster areas (as defined in Pub. 4492-B).(For details, see Replacement Period under Figuring a Gain in Pub. 547.)
For details on how to postpone gain, see Postponement of Gain under Figuring a Gain in Pub. 547.
Your main home and its contents were completely destroyed in 2014 by a tornado in a federally declared disaster area. In 2014, you received insurance proceeds of $200,000 for the home, $25,000 for unscheduled personal property in your home, $5,000 for jewelry, and $10,000 for a stamp collection. The jewelry and stamp collection were kept in your home and were scheduled property on your insurance policy. No gain is recognized on the $25,000 you received for the unscheduled personal property. If you reinvest the remaining proceeds of $215,000 in a replacement home, any type of replacement contents (whether scheduled or unscheduled), or both, you can elect to postpone any gain on your home, jewelry, or stamp collection. If you reinvest less than $215,000, any gain is recognized only to the extent $215,000 exceeds the amount you reinvest in a replacement home, any type of replacement contents (whether scheduled or unscheduled), or both. To postpone gain, you must purchase the replacement property before 2019. Your basis in the replacement property equals its cost decreased by the amount of any postponed gain.
If you are an individual who incurred a loss from a deposit in a bank, credit union, or other financial institution because of the bankruptcy or insolvency of that institution and you can reasonably estimate your loss, you can elect to deduct the loss as:
A casualty loss to personal use property on Form 4684, or
An ordinary loss (miscellaneous itemized deduction) on Schedule A (Form 1040), Itemized Deductions, line 23, or Form 1040NR, Schedule A, Itemized Deductions, line 9. You cannot elect the ordinary loss deduction if any part of the deposits related to the loss is federally insured. The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately). Your deduction is reduced by any expected state insurance proceeds and is subject to the 2%-of-adjusted-gross-income (AGI) limit.
If you elect to deduct the estimated loss as a casualty loss or as an ordinary loss, you cannot claim the same loss as a nonbusiness bad debt. If the estimated loss deducted is less than the actual loss, you can claim the difference as a nonbusiness bad debt for the year in which the final determination of the loss occurs. A nonbusiness bad debt is deducted on Schedule D (Form 1040), Capital Gains and Losses, as a short-term capital loss.
If you are a 1% or more owner or an officer of the financial institution, or are related to any such owner or officer, you cannot deduct the loss as a casualty loss or as an ordinary loss. See chapter 4 of Pub. 550 for the definition of “related.”
If you elect to deduct the loss as a casualty loss or as an ordinary loss and you have more than one account in the same financial institution, you must include all your accounts. Once you make the election, you cannot change it without permission from the IRS. See Notice 89-28, 1989-1 C.B. 667, for more details.
To elect to deduct the loss as a casualty loss, complete Form 4684 as follows: On line 1, enter the name of the financial institution and “Insolvent Financial Institution.” Skip lines 2 through 9. Enter the amount of the loss on line 10, and complete the rest of Section A.
If, in a later year, you recover an amount you deducted as a loss, you may have to include in your income the amount recovered for that year. For details, see Recoveries in Pub. 525, Taxable and Nontaxable Income.
Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. For details, see Special Procedure for Damage From Corrosive Drywall under Casualty in Pub. 547.
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