Instructions For Form 4684 - Casualties And Thefts

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Department of the Treasury

Internal Revenue Service

Instructions for Form 4684

(Rev. January 2006)

Casualties and Thefts

the replacement property is in that

General Instructions

Losses You Cannot

disaster area.

Deduct

Section references are to the Internal

To postpone all of the gain, the cost of

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Revenue Code.

the replacement property must be equal

Money or property misplaced or lost.

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to or more than the reimbursement you

Breakage of china, glassware,

What’s New

received for your property. If the cost of

furniture, and similar items under normal

the replacement property is less than the

conditions.

1. To the extent your personal loss

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reimbursement received, you must

Progressive damage to property

arose in the:

recognize the gain to the extent the

(buildings, clothes, trees, etc.) caused by

a. Hurricane Katrina disaster area

reimbursement exceeds the cost of the

termites, moths, other insects, or disease.

after August 24, 2005,

replacement property.

b. Hurricane Rita disaster area after

Gain on Reimbursement

If the replacement property or stock is

September 22, 2005, or

acquired from a related person, gain

If the amount you receive in insurance or

c. Hurricane Wilma disaster area after

generally cannot be postponed by:

other reimbursement is more than the

October 22, 2005,

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Corporations (other than S

cost or other basis of the property, you

and was caused by that particular

corporations),

have a gain. If you have a gain, you may

hurricane, your deduction is figured

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Partnerships more than 50% owned by

have to pay tax on it, or you may be able

without regard to the reduction of $100

one or more corporations (other than S

to postpone the gain.

per casualty or theft and the additional

corporations), or

reduction of the aggregate net loss by

Do not report the gain on damaged,

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All other taxpayers, unless the

10% of adjusted gross income. See the

destroyed, or stolen property if you

aggregate realized gains on the

instructions for line 11.

receive property that is similar or related

involuntarily converted property are

2. The replacement period for

to it in service or use. Your basis in the

$100,000 or less for the tax year. This

postponing gain on property located in the

new property is the same as your basis in

rule applies to partnerships and S

Hurricane Katrina disaster area that was

the old property.

corporations at both the entity and partner

converted after August 24, 2005, as a

Any tangible replacement property

or shareholder level.

result of Hurricane Katrina, is extended to

held for use in a trade or business is

5 years after the end of the first tax year

For details, see section 1033(i).

treated as similar or related in service or

in which any part of the gain on the

use to property held for use in a trade or

For details on how to postpone the

conversion is realized, but only if

business or for investment if:

gain, see Pub. 547, Casualties, Disasters,

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substantially all of the use of the

and Thefts.

The property you are replacing was

replacement property is in that disaster

damaged or destroyed in a disaster, and

If your main home was located in a

area.

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The area in which the property was

Presidentially declared disaster area, and

damaged or destroyed was declared by

that home or any of its contents were

the President of the United States to

Purpose of Form

damaged or destroyed due to the

warrant federal assistance because of

disaster, special rules apply. See Gains

Use Form 4684 to report gains and losses

that disaster.

Realized on Homes in Disaster Areas on

from casualties and thefts. Attach Form

Generally, you must recognize the

page 2.

4684 to your tax return.

gain if you receive unlike property or

When To Deduct a Loss

money as reimbursement. But you

Losses You Can Deduct

generally can choose to postpone all or

Deduct the part of your casualty or theft

part of the gain if, within 2 years of the

You can deduct losses from fire, storm,

loss that is not reimbursable in the tax

end of the first tax year in which any part

shipwreck, or other casualty, or theft (for

year the casualty occurred or the theft

of the gain is realized, you purchase:

example, larceny, embezzlement, and

was discovered. However, a disaster loss

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Property similar or related in service or

robbery).

and a loss from deposits in insolvent or

use to the damaged, destroyed, or stolen

bankrupt financial institutions may be

If your property is covered by

property, or

treated differently. See Disaster Losses

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insurance, you must file a timely

A controlling interest (at least 80%) in a

and Special Treatment for Losses on

insurance claim for reimbursement of

corporation owning such property.

Deposits in Insolvent or Bankrupt

your loss. Otherwise, you cannot deduct

The replacement period is 5 years,

Financial Institutions on page 2.

the loss as a casualty or theft loss.

instead of 2 years, if the property was

If you are not sure whether part of your

However, the part of the loss that is not

located in the:

casualty or theft loss will be reimbursed,

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covered by insurance is still deductible.

New York Liberty Zone (as defined in

do not deduct that part until the tax year

section 1400L(h)) and that property was

Related expenses. The related

when you become reasonably certain that

converted as a result of the terrorist

expenses you have due to a casualty or

it will not be reimbursed.

attacks on September 11, 2001, in the

theft, such as expenses for the treatment

If you are reimbursed for a loss you

New York Liberty Zone, but only if

of personal injuries or for the rental of a

deducted in an earlier year, include the

substantially all of the use of the

car, are not deductible as casualty or theft

reimbursement in your income in the year

replacement property is in the city of New

losses.

you received it, but only to the extent the

York, New York.

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deduction reduced your tax in an earlier

Costs for protection against future

Hurricane Katrina disaster area (as

year.

casualties are not deductible but should

defined in the instructions for line 11) and

be capitalized as permanent

that property was converted after August

See Pub. 547 for special rules on

improvements. An example would be the

24, 2005, as a result of Hurricane Katrina,

when to deduct losses from casualties

cost of a levee to stop flooding.

but only if substantially all of the use of

and thefts to leased property.

Cat. No. 12998Z

Instructions For Form 4684 - Casualties And Thefts - 2005

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