How you report gains and losses depends on whether the property was
business, income-producing, or personal-use property.
Personal-use property.
If you have a loss, use both of the following.
- Form 4684
- Schedule A (Form 1040), Itemized
Deductions
If you have a gain, report it on both of the following.
- Form 4684
- Schedule D (Form 1040), Capital Gains and
Losses
Business and income-producing property.
Use Form 4684 to report your gains and losses. You will also have
to report the gains and losses on other forms as explained next.
Property held 1 year or less.
Individuals report losses from income-producing property and
property used in performing services as an employee on Schedule A
(Form 1040). Gains from business and income-producing property are
combined with losses from business property (other than property used
in performing services as an employee) and the net gain or loss is
reported on Form 4797. If you are not otherwise required to file Form
4797, only enter the net gain or loss on your tax return on the line
identified as from Form 4797. Next to that line, write "Form 4684."
Partnerships and S corporations should see the Form 4684 instructions
to find out where to report these gains and losses.
Property held more than 1 year.
If your losses from business and income-producing property are
more than gains from these types of property, combine your
losses from business property (other than property used in performing
services as an employee) with total gains from business and
income-producing property. Report the net gain or loss as an ordinary
gain or loss on Form 4797, Sales of Business Property. If
you are not otherwise required to file Form 4797, only enter the net
gain or loss on your tax return on the line identified as from Form
4797. Next to that line, write "Form 4684." Individuals deduct
any loss of income-producing property and property used in performing
services as an employee on Schedule A (Form 1040). Partnerships and S
corporations should see Form 4684 to find out where to report these
gains and losses.
If losses from business and income-producing property are less
than or equal to gains from these types of property, report the
net amount on Form 4797. You may also have to report the gain on
Schedule D depending on whether you have other transactions.
Partnerships and S corporations should see Form 4684 to find out where
to report these gains and losses.
Depreciable property.
If the damaged or stolen property was depreciable property held
more than 1 year, you may have to treat all or part of the gain as
ordinary income to the extent of depreciation allowed or allowable.
You figure the ordinary income part of the gain in Part III of Form
4797. See Like-Kind Exchanges and Involuntary
Conversions in chapter 3 in Publication 544
for more information
about the recapture rule.
Adjustments to Basis
If you have a casualty or theft loss, you must decrease your basis
in the property by any insurance or other reimbursement you receive
and by any deductible loss. The result is your adjusted basis in the
property.
You must increase your basis in the property by the amount you
spend on repairs that substantially prolong the life of the property,
increase its value, or adapt it to a different use. To make this
determination, compare the repaired property to the property before
the casualty. See Adjusted Basis in Publication 551
for
more information on adjustments to basis.
If Deductions Are
More Than Income
If your casualty or theft loss deduction causes your deductions for
the year to be more than your income for the year, you may have a
net operating loss (NOL). You can use an NOL to lower your
tax in an earlier year, allowing you to get a refund for tax you
already paid. Or, you can use it to lower your tax in a later year.
You do not have to be in business to have an NOL from a casualty or
theft loss. For more information, see Publication 536,
Net
Operating Losses (NOLs) for Individuals, Estates, and Trusts.
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