Publication 547 - Casualties,disasters,and Thefts - 2002 Page 5

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property damaged as a result of a casualty are
take that money into consideration in computing
Example. As a result of a fire, you vacated
not a part of the loss. They are expenses in
the casualty loss deduction. Take into consider-
your apartment for a month and moved to a
determining your tax liability. You can claim
ation only the amount you used to replace your
motel. You normally pay $525 a month for rent.
these costs as a miscellaneous itemized deduc-
destroyed or damaged property.
None was charged for the month the apartment
tion subject to the 2%-of-adjusted-gross-income
was vacated. Your motel rent for this month was
limit on Schedule A (Form 1040).
Example. Your home was extensively dam-
$1,200. You normally pay $200 a month for
aged by a tornado. Your loss after reimburse-
food. Your food expenses for the month you
Adjusted Basis
ment from your insurance company was
lived in the motel were $400. You received
$10,000. Your employer set up a disaster relief
$1,100 from your insurance company to cover
fund for its employees. Employees receiving
your living expenses. You determine the pay-
The measure of your investment in the property
money from the fund had to use it to rehabilitate
ment you must include in income as follows.
you own is its basis. For property you buy, your
or replace their damaged or destroyed property.
basis is usually its cost to you. For property you
1) Insurance payment for living
You received $4,000 from the fund and spent
acquire in some other way, such as inheriting it,
expenses . . . . . . . . . . . . . . . . . . $1,100
the entire amount on repairs to your home. In
receiving it as a gift, or getting it in a nontaxable
2) Actual expenses during the
figuring your casualty loss, you must reduce
exchange, you must figure your basis in another
month you are unable to use
your unreimbursed loss ($10,000) by the $4,000
way, as explained in Publication 551.
your home because of the fire $1,600
you received from your employer’s fund. Your
3) Normal living expenses . . . .
725
Adjustments to basis.
While you own the
casualty loss before applying the deduction lim-
4) Temporary increase in
property, various events may take place that
its (discussed later) is $6,000.
living expenses: Subtract line 3
change your basis. Some events, such as addi-
from line 2 . . . . . . . . . . . . . . . . . .
875
tions or permanent improvements to the prop-
Cash gifts. If you receive excludable cash
5) Amount of payment includible in
erty, increase basis. Others, such as earlier
gifts as a disaster victim and there are no limits
income: Subtract line 4 from line 1 . .
$225
casualty losses and depreciation deductions,
on how you can use the money, you do not
decrease basis. When you add the increases to
reduce your casualty loss by these excludable
Tax year of inclusion. You include the tax-
the basis and subtract the decreases from the
cash gifts. This applies even if you use the
able part of the insurance payment in income for
basis, the result is your adjusted basis. See
money to pay for repairs to property damaged in
the year you regain the use of your main home
Publication 551 for more information on figuring
the disaster.
or, if later, for the year you receive the taxable
the basis of your property.
part of the insurance payment.
Example. Your home was damaged by a
Insurance and
hurricane. Relatives and neighbors made cash
Example. Your main home was destroyed
gifts to you that were excludable from your in-
Other Reimbursements
by a tornado in August 2000. You regained use
come. You used part of the cash gifts to pay for
of your home in November 2001. The insurance
repairs to your home. There were no limits or
If you receive an insurance or other type of
payments you received in 2000 and 2001 were
restrictions on how you could use the cash gifts.
reimbursement, you must subtract the reim-
$1,500 more than the temporary increase in
It was an excludable gift, so the money you
bursement when you figure your loss. You do
your living expenses during those years. You
received and used to pay for repairs to your
not have a casualty or theft loss to the extent you
include this amount in income on your 2001
home does not reduce your casualty loss on the
are reimbursed.
Form 1040. If, in 2002, you receive further pay-
damaged home.
If you expect to be reimbursed for part or all
ments to cover the living expenses you had in
of your loss, you must subtract the expected
2000 and 2001, you must include those pay-
Insurance payments for living expenses.
reimbursement when you figure your loss. You
ments in income on your 2002 Form 1040.
You do not reduce your casualty loss by insur-
must reduce your loss even if you do not receive
ance payments you receive to cover living ex-
Disaster relief. Food, medical supplies, and
payment until a later tax year. See Reimburse-
penses in either of the following situations.
other forms of assistance you receive do not
ment Received After Deducting Loss, later.
reduce your casualty loss, unless they are
You lose the use of your main home be-
Failure to file a claim for reimbursement. If
replacements for lost or destroyed property.
cause of a casualty.
your property is covered by insurance, you must
They also are not taxable income to you.
file a timely insurance claim for reimbursement
Government authorities do not allow you
Disaster unemployment assistance pay-
of your loss. Otherwise, you cannot deduct this
access to your main home because of a
ments are unemployment benefits that are taxa-
loss as a casualty or theft.
casualty or threat of one.
ble.
The portion of the loss usually not covered by
Qualified disaster relief payments you
insurance (for example, a deductible) is not sub-
Inclusion in income. If these insurance
TIP
receive in tax years ending after Sep-
ject to this rule.
payments are more than the temporary increase
tember 10, 2001, for expenses you in-
in your living expenses, you must include the
curred as a result of a Presidentially declared
Example. You have a car insurance policy
excess in your income. Report this amount on
disaster, are not taxable income to you. For
with a $500 deductible. Because your insurance
line 21 of Form 1040.
information on qualified disaster relief pay-
did not cover the first $500 of an auto collision,
A temporary increase in your living expenses
ments, see Qualified disaster relief payments
the $500 would be deductible (subject to the
is the difference between the actual living ex-
under Disaster Area Losses, later.
$100 and 10% rules, discussed later). This is
penses you and your family incurred during the
true, even if you do not file an insurance claim,
period you could not use your home and your
because your insurance policy would never
normal living expenses for that period. Actual
Reimbursement Received After
have reimbursed you for the deductible.
living expenses are the reasonable and neces-
Deducting Loss
sary expenses incurred because of the loss of
your main home. Generally, these expenses in-
Types of Reimbursements
If you figured your casualty or theft loss using
clude the amounts you pay for the following.
the amount of your expected reimbursement,
The most common type of reimbursement is an
Renting suitable housing.
you may have to adjust your tax return for the tax
insurance payment for your stolen or damaged
year in which you get your actual reimburse-
Transportation.
property. Other types of reimbursements are
ment. This section explains the adjustment you
discussed next. Also see the Instructions for
Food.
may have to make.
Form 4684.
Utilities.
Actual reimbursement less than expected.
Employer’s emergency disaster fund. If you
If you later receive less reimbursement than you
Miscellaneous services.
receive money from your employer’s emergency
expected, include that difference as a loss with
disaster fund and you must use that money to
Normal living expenses consist of these same
your other losses (if any) on your return for the
rehabilitate or replace property on which you are
expenses that you would have incurred but did
year in which you can reasonably expect no
claiming a casualty loss deduction, you must
not because of the casualty or the threat of one.
more reimbursement.
Page 5

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