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Www State Nm Us Tax

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Www State Nm Us Tax

Www state nm us tax Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. Www state nm us tax S. Www state nm us tax Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. Www state nm us tax You must meet all seven rules to qualify for the earned income credit. Www state nm us tax If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. Www state nm us tax If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. Www state nm us tax Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Www state nm us tax Adjusted gross income (AGI). Www state nm us tax   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. Www state nm us tax   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Www state nm us tax You do not need to read the rest of this publication. Www state nm us tax Example—AGI is more than limit. Www state nm us tax Your AGI is $38,550, you are single, and you have one qualifying child. Www state nm us tax You cannot claim the EIC because your AGI is not less than $37,870. Www state nm us tax However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. Www state nm us tax Community property. Www state nm us tax   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. Www state nm us tax This is different from the community property rules that apply under Rule 7. Www state nm us tax Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Www state nm us tax Any qualifying child listed on Schedule EIC also must have a valid SSN. Www state nm us tax (See Rule 8 if you have a qualifying child. Www state nm us tax ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Www state nm us tax An example of a federally funded benefit is Medicaid. Www state nm us tax If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. Www state nm us tax S. Www state nm us tax citizen or permanent resident, ask the SSA for a new social security card without the legend. Www state nm us tax If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. Www state nm us tax S. Www state nm us tax Individual Income Tax Return, to claim the EIC. Www state nm us tax U. Www state nm us tax S. Www state nm us tax citizen. Www state nm us tax   If you were a U. Www state nm us tax S. Www state nm us tax citizen when you received your SSN, you have a valid SSN. Www state nm us tax Valid for work only with INS authorization or DHS authorization. Www state nm us tax   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. Www state nm us tax SSN missing or incorrect. Www state nm us tax   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. Www state nm us tax Other taxpayer identification number. Www state nm us tax   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). Www state nm us tax ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. Www state nm us tax No SSN. Www state nm us tax   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Www state nm us tax You cannot claim the EIC. Www state nm us tax Getting an SSN. Www state nm us tax   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. Www state nm us tax You can get Form SS-5 online at www. Www state nm us tax socialsecurity. Www state nm us tax gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. Www state nm us tax Filing deadline approaching and still no SSN. Www state nm us tax   If the filing deadline is approaching and you still do not have an SSN, you have two choices. Www state nm us tax Request an automatic 6-month extension of time to file your return. Www state nm us tax You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Www state nm us tax S. Www state nm us tax Individual Income Tax Return. Www state nm us tax For more information, see the instructions for Form 4868. Www state nm us tax File the return on time without claiming the EIC. Www state nm us tax After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. Www state nm us tax Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. Www state nm us tax Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. Www state nm us tax Your filing status cannot be “Married filing separately. Www state nm us tax ” Spouse did not live with you. Www state nm us tax   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. Www state nm us tax In that case, you may be able to claim the EIC. Www state nm us tax For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Www state nm us tax Rule 4—You Must Be a U. Www state nm us tax S. Www state nm us tax Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. Www state nm us tax You can use that filing status only if one spouse is a U. Www state nm us tax S. Www state nm us tax citizen or resident alien and you choose to treat the nonresident spouse as a U. Www state nm us tax S. Www state nm us tax resident. Www state nm us tax If you make this choice, you and your spouse are taxed on your worldwide income. Www state nm us tax If you need more information on making this choice, get Publication 519, U. Www state nm us tax S. Www state nm us tax Tax Guide for Aliens. Www state nm us tax If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). Www state nm us tax Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Www state nm us tax You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. Www state nm us tax U. Www state nm us tax S. Www state nm us tax possessions are not foreign countries. Www state nm us tax See Publication 54, Tax Guide for U. Www state nm us tax S. Www state nm us tax Citizens and Resident Aliens Abroad, for more detailed information. Www state nm us tax Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. Www state nm us tax If your investment income is more than $3,300, you cannot claim the credit. Www state nm us tax Form 1040EZ. Www state nm us tax   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Www state nm us tax Form 1040A. Www state nm us tax   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. Www state nm us tax Form 1040. Www state nm us tax   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. Www state nm us tax    Worksheet 1. Www state nm us tax Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. Www state nm us tax Interest and Dividends         1. Www state nm us tax Enter any amount from Form 1040, line 8a 1. Www state nm us tax   2. Www state nm us tax Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. Www state nm us tax   3. Www state nm us tax Enter any amount from Form 1040, line 9a 3. Www state nm us tax   4. Www state nm us tax Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. Www state nm us tax (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. Www state nm us tax ) 4. Www state nm us tax   Capital Gain Net Income         5. Www state nm us tax Enter the amount from Form 1040, line 13. Www state nm us tax If the amount on that line is a loss, enter -0- 5. Www state nm us tax       6. Www state nm us tax Enter any gain from Form 4797, Sales of Business Property, line 7. Www state nm us tax If the amount on that line is a loss, enter -0-. Www state nm us tax (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. Www state nm us tax ) 6. Www state nm us tax       7. Www state nm us tax Substract line 6 of this worksheet from line 5 of this worksheet. Www state nm us tax (If the result is less than zero, enter -0-. Www state nm us tax ) 7. Www state nm us tax   Royalties and Rental Income From Personal Property         8. Www state nm us tax Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. Www state nm us tax       9. Www state nm us tax Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. Www state nm us tax       10. Www state nm us tax Subtract the amount on line 9 of this worksheet from the amount on line 8. Www state nm us tax (If the result is less than zero, enter -0-. Www state nm us tax ) 10. Www state nm us tax   Passive Activities         11. Www state nm us tax Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. Www state nm us tax (g)), 34a (col. Www state nm us tax (d)), or 40). Www state nm us tax (See instructions below for lines 11 and 12. Www state nm us tax ) 11. Www state nm us tax       12. Www state nm us tax Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. Www state nm us tax (f)), 34b (col. Www state nm us tax (c)), or 40). Www state nm us tax (See instructions below for lines 11 and 12. Www state nm us tax ) 12. Www state nm us tax       13. Www state nm us tax Combine the amounts on lines 11 and 12 of this worksheet. Www state nm us tax (If the result is less than zero, enter -0-. Www state nm us tax ) 13. Www state nm us tax   14. Www state nm us tax Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Www state nm us tax Enter the total. Www state nm us tax This is your investment income 14. Www state nm us tax   15. Www state nm us tax Is the amount on line 14 more than $3,300? ❑ Yes. Www state nm us tax You cannot take the credit. Www state nm us tax  ❑ No. Www state nm us tax Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). Www state nm us tax       Instructions for lines 11 and 12. Www state nm us tax In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. Www state nm us tax To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. Www state nm us tax If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. Www state nm us tax Worksheet 2. Www state nm us tax Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. Www state nm us tax Note. Www state nm us tax Fill out a separate Worksheet 2 for each Form 8814. Www state nm us tax     1. Www state nm us tax Enter the amount from Form 8814, line 2a 1. Www state nm us tax   2. Www state nm us tax Enter the amount from Form 8814, line 2b 2. Www state nm us tax   3. Www state nm us tax Subtract line 2 from line 1 3. Www state nm us tax   4. Www state nm us tax Enter the amount from Form 8814, line 1a 4. Www state nm us tax   5. Www state nm us tax Add lines 3 and 4 5. Www state nm us tax   6. Www state nm us tax Enter the amount of the child's Alaska Permanent Fund dividend 6. Www state nm us tax   7. Www state nm us tax Divide line 6 by line 5. Www state nm us tax Enter the result as a decimal (rounded to at least three places) 7. Www state nm us tax   8. Www state nm us tax Enter the amount from Form 8814, line 12 8. Www state nm us tax   9. Www state nm us tax Multiply line 7 by line 8 9. Www state nm us tax   10. Www state nm us tax Subtract line 9 from line 8. Www state nm us tax Enter the result on line 4 of Worksheet 1 10. Www state nm us tax     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. Www state nm us tax )     Example—completing Worksheet 2. Www state nm us tax Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. Www state nm us tax You choose to report this income on your return. Www state nm us tax You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. Www state nm us tax After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. Www state nm us tax On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. Www state nm us tax 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. Www state nm us tax You then enter $200 on line 4 of Worksheet 1. Www state nm us tax Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. Www state nm us tax If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. Www state nm us tax If you are an employee, earned income includes all the taxable income you get from your employer. Www state nm us tax Rule 15 has information that will help you figure the amount of your earned income. Www state nm us tax If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. Www state nm us tax Earned Income Earned income includes all of the following types of income. Www state nm us tax Wages, salaries, tips, and other taxable employee pay. Www state nm us tax Employee pay is earned income only if it is taxable. Www state nm us tax Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Www state nm us tax But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. Www state nm us tax Net earnings from self-employment. Www state nm us tax Gross income received as a statutory employee. Www state nm us tax Wages, salaries, and tips. Www state nm us tax    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. Www state nm us tax You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). Www state nm us tax Nontaxable combat pay election. Www state nm us tax   You can elect to include your nontaxable combat pay in earned income for the earned income credit. Www state nm us tax The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Www state nm us tax Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Www state nm us tax For details, see Nontaxable combat pay in chapter 4. Www state nm us tax Net earnings from self-employment. Www state nm us tax   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. Www state nm us tax Minister's housing. Www state nm us tax   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. Www state nm us tax For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). Www state nm us tax Statutory employee. Www state nm us tax   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. Www state nm us tax You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). Www state nm us tax Strike benefits. Www state nm us tax   Strike benefits paid by a union to its members are earned income. Www state nm us tax Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Www state nm us tax Each approved form exempts certain income from social security taxes. Www state nm us tax Each form is discussed here in terms of what is or is not earned income for the EIC. Www state nm us tax Form 4361. Www state nm us tax   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. Www state nm us tax This includes wages, salaries, tips, and other taxable employee compensation. Www state nm us tax A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. Www state nm us tax Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Www state nm us tax Examples include fees for performing marriages and honoraria for delivering speeches. Www state nm us tax Form 4029. Www state nm us tax   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. Www state nm us tax However, amounts you received as a self-employed individual do not count as earned income. Www state nm us tax Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. Www state nm us tax Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Www state nm us tax Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Www state nm us tax You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. Www state nm us tax Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Www state nm us tax Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. Www state nm us tax Disability insurance payments. Www state nm us tax   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Www state nm us tax It does not matter whether you have reached minimum retirement age. Www state nm us tax If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. Www state nm us tax ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Www state nm us tax Do not include any of these items in your earned income. Www state nm us tax Earnings while an inmate. Www state nm us tax   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. Www state nm us tax This includes amounts for work performed while in a work release program or while in a halfway house. Www state nm us tax Workfare payments. Www state nm us tax   Nontaxable workfare payments are not earned income for the EIC. Www state nm us tax These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. Www state nm us tax Community property. Www state nm us tax   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. Www state nm us tax That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Www state nm us tax Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Www state nm us tax Nevada, Washington, and California domestic partners. Www state nm us tax   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Www state nm us tax Your earned income for the EIC does not include any amount earned by your partner. Www state nm us tax Your earned income includes the entire amount you earned. Www state nm us tax For details, see Publication 555. Www state nm us tax Conservation Reserve Program (CRP) payments. Www state nm us tax   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. Www state nm us tax Nontaxable military pay. Www state nm us tax   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Www state nm us tax Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). Www state nm us tax See Publication 3, Armed Forces' Tax Guide, for more information. Www state nm us tax    Combat pay. Www state nm us tax You can elect to include your nontaxable combat pay in earned income for the EIC. Www state nm us tax See Nontaxable combat pay in chapter 4. Www state nm us tax Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. Www state nm us tax This chapter discusses Rules 8 through 10. Www state nm us tax You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. Www state nm us tax You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. Www state nm us tax (You cannot file Form 1040EZ. Www state nm us tax ) You also must complete Schedule EIC and attach it to your return. Www state nm us tax If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Www state nm us tax No qualifying child. Www state nm us tax   If you do not meet Rule 8, you do not have a qualifying child. Www state nm us tax Read chapter 3 to find out if you can get the earned income credit without a qualifying child. Www state nm us tax Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. Www state nm us tax The fours tests are: Relationship, Age, Residency, and Joint return. Www state nm us tax The four tests are illustrated in Figure 1. Www state nm us tax The paragraphs that follow contain more information about each test. Www state nm us tax Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). Www state nm us tax The following definitions clarify the relationship test. Www state nm us tax Adopted child. Www state nm us tax   An adopted child is always treated as your own child. Www state nm us tax The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Www state nm us tax Foster child. Www state nm us tax   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Www state nm us tax (An authorized placement agency includes a state or local government agency. Www state nm us tax It also includes a tax-exempt organization licensed by a state. Www state nm us tax In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. Www state nm us tax ) Example. Www state nm us tax Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Www state nm us tax Debbie is your foster child. Www state nm us tax Figure 1. Www state nm us tax Tests for Qualifying Child Please click here for the text description of the image. Www state nm us tax Conditions for Qualifying Child Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. Www state nm us tax The following examples and definitions clarify the age test. Www state nm us tax Example 1—child not under age 19. Www state nm us tax Your son turned 19 on December 10. Www state nm us tax Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. Www state nm us tax Example 2—child not younger than you or your spouse. Www state nm us tax Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. Www state nm us tax He is not disabled. Www state nm us tax Both you and your spouse are 21 years old, and you file a joint return. Www state nm us tax Your brother is not your qualifying child because he is not younger than you or your spouse. Www state nm us tax Example 3—child younger than your spouse but not younger than you. Www state nm us tax The facts are the same as in Example 2 except that your spouse is 25 years old. Www state nm us tax Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. Www state nm us tax Student defined. Www state nm us tax   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. Www state nm us tax   The 5 calendar months need not be consecutive. Www state nm us tax   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Www state nm us tax School defined. Www state nm us tax   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Www state nm us tax However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. Www state nm us tax Vocational high school students. Www state nm us tax   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Www state nm us tax Permanently and totally disabled. Www state nm us tax   Your child is permanently and totally disabled if both of the following apply. Www state nm us tax He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Www state nm us tax A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Www state nm us tax Residency Test Your child must have lived with you in the United States for more than half of 2013. Www state nm us tax The following definitions clarify the residency test. Www state nm us tax United States. Www state nm us tax   This means the 50 states and the District of Columbia. Www state nm us tax It does not include Puerto Rico or U. Www state nm us tax S. Www state nm us tax possessions such as Guam. Www state nm us tax Homeless shelter. Www state nm us tax   Your home can be any location where you regularly live. Www state nm us tax You do not need a traditional home. Www state nm us tax For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. Www state nm us tax Military personnel stationed outside the United States. Www state nm us tax   U. Www state nm us tax S. Www state nm us tax military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Www state nm us tax Extended active duty. Www state nm us tax   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Www state nm us tax Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Www state nm us tax Birth or death of child. Www state nm us tax    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. Www state nm us tax Temporary absences. Www state nm us tax   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Www state nm us tax Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. Www state nm us tax Kidnapped child. Www state nm us tax   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. Www state nm us tax The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Www state nm us tax This treatment applies for all years until the child is returned. Www state nm us tax However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. Www state nm us tax   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. Www state nm us tax Joint Return Test To meet this test, the child cannot file a joint return for the year. Www state nm us tax Exception. Www state nm us tax   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Www state nm us tax Example 1—child files joint return. Www state nm us tax You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Www state nm us tax He earned $25,000 for the year. Www state nm us tax The couple files a joint return. Www state nm us tax Because your daughter and her husband file a joint return, she is not your qualifying child. Www state nm us tax Example 2—child files joint return to get refund of tax withheld. Www state nm us tax Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Www state nm us tax They do not have a child. Www state nm us tax Neither is required to file a tax return. Www state nm us tax Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. Www state nm us tax The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Www state nm us tax Example 3—child files joint return to claim American opportunity credit. Www state nm us tax The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Www state nm us tax He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Www state nm us tax Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. Www state nm us tax The exception to the joint return test does not apply, so your son is not your qualifying child. Www state nm us tax Married child. Www state nm us tax   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. Www state nm us tax    Social security number. Www state nm us tax Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. Www state nm us tax You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. Www state nm us tax   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. Www state nm us tax For more information about SSNs, see Rule 2. Www state nm us tax Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. Www state nm us tax However, only one of these persons can actually treat the child as a qualifying child. Www state nm us tax Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Www state nm us tax The exemption for the child. Www state nm us tax The child tax credit. Www state nm us tax Head of household filing status. Www state nm us tax The credit for child and dependent care expenses. Www state nm us tax The exclusion for dependent care benefits. Www state nm us tax The EIC. Www state nm us tax The other person cannot take any of these benefits based on this qualifying child. Www state nm us tax In other words, you and the other person cannot agree to divide these tax benefits between you. Www state nm us tax The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Www state nm us tax The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. Www state nm us tax However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. Www state nm us tax Tiebreaker rules. Www state nm us tax   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. Www state nm us tax If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Www state nm us tax If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Www state nm us tax If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Www state nm us tax If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Www state nm us tax If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Www state nm us tax If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Www state nm us tax If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. Www state nm us tax See Example 8. Www state nm us tax   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Www state nm us tax See Examples 1 through 13. Www state nm us tax   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. Www state nm us tax If the other person cannot claim the EIC. Www state nm us tax   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. Www state nm us tax See Examples 6 and 7. Www state nm us tax But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. Www state nm us tax Examples. Www state nm us tax    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. Www state nm us tax Example 1—child lived with parent and grandparent. Www state nm us tax You and your 2-year-old son Jimmy lived with your mother all year. Www state nm us tax You are 25 years old, unmarried, and your AGI is $9,000. Www state nm us tax Your only income was $9,000 from a part-time job. Www state nm us tax Your mother's only income was $20,000 from her job, and her AGI is $20,000. Www state nm us tax Jimmy's father did not live with you or Jimmy. Www state nm us tax The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. Www state nm us tax Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. Www state nm us tax However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). Www state nm us tax He is not a qualifying child of anyone else, including his father. Www state nm us tax If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). Www state nm us tax Example 2—parent has higher AGI than grandparent. Www state nm us tax The facts are the same as in Example 1 except your AGI is $25,000. Www state nm us tax Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. Www state nm us tax Only you can claim him. Www state nm us tax Example 3—two persons claim same child. Www state nm us tax The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. Www state nm us tax In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. Www state nm us tax The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. Www state nm us tax Example 4—qualifying children split between two persons. Www state nm us tax The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Www state nm us tax Only one of you can claim each child. Www state nm us tax However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Www state nm us tax For example, if you claim one child, your mother can claim the other two. Www state nm us tax Example 5—taxpayer who is a qualifying child. Www state nm us tax The facts are the same as in Example 1 except that you are only 18 years old. Www state nm us tax This means you are a qualifying child of your mother. Www state nm us tax Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. Www state nm us tax Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. Www state nm us tax If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. Www state nm us tax Example 6—grandparent with too much earned income to claim EIC. Www state nm us tax The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Www state nm us tax Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. Www state nm us tax Example 7—parent with too much earned income to claim EIC. Www state nm us tax The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Www state nm us tax Your earned income is too high for you to claim the EIC. Www state nm us tax But your mother cannot claim the EIC either, because her AGI is not higher than yours. Www state nm us tax Example 8—child lived with both parents and grandparent. Www state nm us tax The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. Www state nm us tax If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. Www state nm us tax Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. Www state nm us tax In other words, each parent's AGI can be treated as $15,000. Www state nm us tax Example 9—separated parents. Www state nm us tax You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. Www state nm us tax In August and September, Joey lived with you. Www state nm us tax For the rest of the year, Joey lived with your husband, who is Joey's father. Www state nm us tax Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. Www state nm us tax At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. Www state nm us tax You and your husband will file separate returns. Www state nm us tax Your husband agrees to let you treat Joey as a qualifying child. Www state nm us tax This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. Www state nm us tax However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. Www state nm us tax See Rule 3. Www state nm us tax Example 10—separated parents claim same child. Www state nm us tax The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. Www state nm us tax In this case, only your husband will be allowed to treat Joey as a qualifying child. Www state nm us tax This is because, during 2013, the boy lived with him longer than with you. Www state nm us tax You cannot claim the EIC (either with or without a qualifying child). Www state nm us tax However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. Www state nm us tax See Rule 3. Www state nm us tax Example 11—unmarried parents. Www state nm us tax You, your 5-year-old son, and your son's father lived together all year. Www state nm us tax You and your son's father are not married. Www state nm us tax Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Www state nm us tax Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Www state nm us tax Neither of you had any other income. Www state nm us tax Your son's father agrees to let you treat the child as a qualifying child. Www state nm us tax This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. Www state nm us tax Example 12—unmarried parents claim same child. Www state nm us tax The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. Www state nm us tax In this case, only your son's father will be allowed to treat your son as a qualifying child. Www state nm us tax This is because his AGI, $14,000, is more than your AGI, $12,000. Www state nm us tax You cannot claim the EIC (either with or without a qualifying child). Www state nm us tax Example 13—child did not live with a parent. Www state nm us tax You and your 7-year-old niece, your sister's child, lived with your mother all year. Www state nm us tax You are 25 years old, and your AGI is $9,300. Www state nm us tax Your only income was from a part-time job. Www state nm us tax Your mother's AGI is $15,000. Www state nm us tax Her only income was from her job. Www state nm us tax Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Www state nm us tax Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. Www state nm us tax However, only your mother can treat her as a qualifying child. Www state nm us tax This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Www state nm us tax Special rule for divorced or separated parents (or parents who live apart). Www state nm us tax   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. Www state nm us tax The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. Www state nm us tax The child received over half of his or her support for the year from the parents. Www state nm us tax The child is in the custody of one or both parents for more than half of 2013. Www state nm us tax Either of the following statements is true. Www state nm us tax The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. Www state nm us tax If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Www state nm us tax A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. Www state nm us tax For details, see Publication 501. Www state nm us tax Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. Www state nm us tax Applying Rule 9 to divorced or separated parents (or parents who live apart). Www state nm us tax   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Www state nm us tax However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. Www state nm us tax If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. Www state nm us tax Example 1. Www state nm us tax You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Www state nm us tax Your AGI is $10,000. Www state nm us tax Your mother’s AGI is $25,000. Www state nm us tax Your son's father did not live with you or your son. Www state nm us tax Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. Www state nm us tax However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. Www state nm us tax You and your mother did not have any child care expenses or dependent care benefits. Www state nm us tax If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. Www state nm us tax Example 2. Www state nm us tax The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Www state nm us tax Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Www state nm us tax Example 3. Www state nm us tax The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. Www state nm us tax Your mother also claims him as a qualifying child for head of household filing status. Www state nm us tax You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. Www state nm us tax The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. Www state nm us tax Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Www state nm us tax ) if all of the following statements are true. Www state nm us tax You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Www state nm us tax Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Www state nm us tax You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Www state nm us tax You lived with that person in the United States for more than half of the year. Www state nm us tax You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Www state nm us tax For more details about the tests to be a qualifying child, see Rule 8. Www state nm us tax If you are a qualifying child of another taxpayer, you cannot claim the EIC. Www state nm us tax This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Www state nm us tax Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). Www state nm us tax Example. Www state nm us tax You and your daughter lived with your mother all year. Www state nm us tax You are 22 years old, unmarried, and attended a trade school full time. Www state nm us tax You had a part-time job and earned $5,700. Www state nm us tax You had no other income. Www state nm us tax Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. Www state nm us tax She can claim the EIC if she meets all the other requirements. Www state nm us tax Because you are your mother's qualifying child, you cannot claim the EIC. Www state nm us tax This is so even if your mother cannot or does not claim the EIC. Www state nm us tax Child of person not required to file a return. Www state nm us tax   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Www state nm us tax Example 1—return not required. Www state nm us tax The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Www state nm us tax As a result, you are not your mother's qualifying child. Www state nm us tax You can claim the EIC if you meet all the other requirements to do so. Www state nm us tax Example 2—return filed to get refund of tax withheld. Www state nm us tax The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. Www state nm us tax She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Www state nm us tax As a result, you are not your mother's qualifying child. Www state nm us tax You can claim the EIC if you meet all the other requirements to do so. Www state nm us tax Example 3—return filed to get EIC. Www state nm us tax The facts are the same as in Example 2 except your mother claimed the EIC on her return. Www state nm us tax Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. Www state nm us tax As a result, you are your mother's qualifying child. Www state nm us tax You cannot claim the EIC. Www state nm us tax Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. Www state nm us tax This chapter discusses Rules 11 through 14. Www state nm us tax You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. Www state nm us tax You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. Www state nm us tax If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Www state nm us tax If you have a qualifying child. Www state nm us tax   If you meet Rule 8, you have a qualifying child. Www state nm us tax If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. Www state nm us tax Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. Www state nm us tax If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. Www state nm us tax It does not matter which spouse meets the age test, as long as one of the spouses does. Www state nm us tax You meet the age test if you were born after December 31, 1948, and before January 2, 1989. Www state nm us tax If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. Www state nm us tax If neither you nor your spouse meets the age test, you cannot claim the EIC. Www state nm us tax Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Www state nm us tax Death of spouse. Www state nm us tax   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. Www state nm us tax Example 1. Www state nm us tax You are age 28 and unmarried. Www state nm us tax You meet the age test. Www state nm us tax Example 2—spouse meets age test. Www state nm us tax You are married and filing a joint return. Www state nm us tax You are age 23 and your spouse is age 27. Www state nm us tax You meet the age test because your spouse is at least age 25 but under age 65. Www state nm us tax Example 3—spouse dies in 2013. Www state nm us tax You are married and filing a joint return with your spouse who died in August 2013. Www state nm us tax You are age 67. Www state nm us tax Your spouse would have become age 65 in November 2013. Www state nm us tax Because your spouse was under age 65 when she died, you meet the age test. Www state nm us tax Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. Www state nm us tax If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. Www state nm us tax If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. Www state nm us tax If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. Www state nm us tax Example 1. Www state nm us tax In 2013, you were age 25, single, and living at home with your parents. Www state nm us tax You worked and were not a student. Www state nm us tax You earned $7,500. Www state nm us tax Your parents cannot claim you as a dependent. Www state nm us tax When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. Www state nm us tax You meet this rule. Www state nm us tax You can claim the EIC if you meet all the other requirements. Www state nm us tax Example 2. Www state nm us tax The facts are the same as in Example 1, except that you earned $2,000. Www state nm us tax Your parents can claim you as a dependent but decide not to. Www state nm us tax You do not meet this rule. Www state nm us tax You cannot claim the credit because your parents could have claimed you as a dependent. Www state nm us tax Joint returns. Www state nm us tax   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. Www state nm us tax   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Www state nm us tax But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. Www state nm us tax Example 1—return filed to get refund of tax withheld. Www state nm us tax You are 26 years old. Www state nm us tax You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Www state nm us tax Neither you nor your wife is required to file a tax return. Www state nm us tax You do not have a child. Www state nm us tax Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. Www state nm us tax Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. Www state nm us tax They can claim exemptions for you and your wife if all the other tests to do so are met. Www state nm us tax Example 2—return filed to get EIC. Www state nm us tax The facts are the same as in Example 1except no taxes were taken out of your pay. Www state nm us tax Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. Www state nm us tax Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. Www state nm us tax Your parents cannot claim an exemption for either you or your wife. Www state nm us tax Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Www state nm us tax ) if all of the following statements are true. Www state nm us tax You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Www state nm us tax Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Www state nm us tax You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Www state nm us tax You lived with that person in the United States for more than half of the year. Www state nm us tax You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Www state nm us tax For more details about the tests to be a qualifying child, see Rule 8. Www state nm us tax If you are a qualifying child of another taxpayer, you cannot claim the EIC. Www state nm us tax This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Www state nm us tax Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Www state nm us tax Example. Www state nm us tax You lived with your mother all year. Www state nm us tax You are age 26, unmarried, and permanently and totally disabled. Www state nm us tax Your only income was from a community center where you went three days a week to answer telephones. Www state nm us tax You earned $5,000 for the year and provided more than half of your own support. Www state nm us tax Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. Www state nm us tax She can claim the EIC if she meets all the other requirements. Www state nm us tax Because you are a qualifying child of your mother, you cannot claim the EIC. Www state nm us tax This is so even if your mother cannot or does not claim the EIC. Www state nm us tax Joint returns. Www state nm us tax   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. Www state nm us tax   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Www state nm us tax But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. Www state nm us tax Child of person not required to file a return. Www state nm us tax   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Www state nm us tax Example 1—return not required. Www state nm us tax You lived all year with your father. Www state nm us tax You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. Www state nm us tax You have no other income, no children, and provided more than half of your own support. Www state nm us tax Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Www state nm us tax As a result, you are not your father's qualifying child. Www state nm us tax You can claim the EIC if you meet all the other requirements to do so. Www state nm us tax Example 2—return filed to get refund of tax withheld. Www state nm us tax The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. Www state nm us tax He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Www state nm us tax As a result, you are not your father's qualifying child. Www state nm us tax You can claim the EIC if you meet all the other requirements to do so. Www state nm us tax Example 3—return filed to get EIC. Www state nm us tax The facts are the same as in Example 2 except your father claimed the EIC on his return. Www state nm us tax Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. Www state nm us tax As a result, you are your father's qualifying child. Www state nm us tax You cannot claim the EIC. Www state nm us tax Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. Www state nm us tax If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Www state nm us tax United States. Www state nm us tax   This means the 50 states and the District of Columbia. Www state nm us tax It does not include Puerto Rico or U. Www state nm us tax S. Www state nm us tax possessions such as Guam. Www state nm us tax Homeless shelter. Www state nm us tax   Your home can be any location where you regularly live. Www state nm us tax You do not need a traditional home. Www state nm us tax If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. Www state nm us tax Military personnel stationed outside the United States. Www state nm us tax   U. Www state nm us tax S. Www state nm us tax military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. Www state nm us tax Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. Www state nm us tax You need to know the amount of your earned income to see if you meet the rule in this chapter. Www state nm us tax You also need to know that amount to figure your EIC. Www state nm us tax Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Www state nm us tax Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Www state nm us tax Employee pay is earned income only if it is taxable. Www state nm us tax Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Www state nm us tax But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Www state nm us tax Earned income is explained in detail in Rule 7 in chapter 1. Www state nm us tax Figuring earned income. Www state nm us tax   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. Www state nm us tax   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. Www state nm us tax   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Www state nm us tax You will then reduce that amount by any amount included on that line and described in the following list. Www state nm us tax Scholarship or fellowship grants not reported on a Form W-2. Www state nm us tax A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. Www state nm us tax Inmate's income. Www state nm us tax Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. Www state nm us tax This includes amounts received for work performed while in a work release program or while in a halfway house. Www state nm us tax If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Www state nm us tax Pension or annuity from deferred compensation plans. Www state nm us tax A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. Www state nm us tax If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Www state nm us tax This amount may be reported in box 11 of your Form W-2. Www state nm us tax If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. Www state nm us tax Clergy. Www state nm us tax   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re
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The Www State Nm Us Tax

Www state nm us tax Publication 547 - Main Content Table of Contents CasualtyFamily pet. Www state nm us tax Progressive deterioration. Www state nm us tax Special Procedure for Damage From Corrosive Drywall Theft Loss on Deposits Proof of Loss Figuring a LossGain from reimbursement. Www state nm us tax Business or income-producing property. Www state nm us tax Loss of inventory. Www state nm us tax Leased property. Www state nm us tax Exception for personal-use real property. Www state nm us tax Decrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Deduction Limits2% Rule $100 Rule 10% Rule Figuring the Deduction Figuring a GainPostponement of Gain When To Report Gains and LossesLoss on deposits. Www state nm us tax Lessee's loss. Www state nm us tax Disaster Area LossesDisaster loss to inventory. Www state nm us tax Main home in disaster area. Www state nm us tax Unsafe home. Www state nm us tax Time limit for making choice. Www state nm us tax Revoking your choice. Www state nm us tax Figuring the loss deduction. Www state nm us tax How to report the loss on Form 1040X. Www state nm us tax Records. Www state nm us tax Need a copy of your tax return for the preceding year? Postponed Tax Deadlines Contacting the Federal Emergency Management Agency (FEMA) How To Report Gains and LossesProperty held 1 year or less. Www state nm us tax Property held more than 1 year. Www state nm us tax Depreciable property. Www state nm us tax Adjustments to Basis If Deductions Are More Than Income How To Get Tax HelpLow Income Taxpayer Clinics Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Www state nm us tax A sudden event is one that is swift, not gradual or progressive. Www state nm us tax An unexpected event is one that is ordinarily unanticipated and unintended. Www state nm us tax An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Www state nm us tax Generally, casualty losses are deductible during the taxable year that the loss occurred. Www state nm us tax See Table 3, later. Www state nm us tax Deductible losses. Www state nm us tax   Deductible casualty losses can result from a number of different causes, including the following. Www state nm us tax Car accidents (but see Nondeductible losses , next, for exceptions). Www state nm us tax Earthquakes. Www state nm us tax Fires (but see Nondeductible losses , next, for exceptions). Www state nm us tax Floods. Www state nm us tax Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses , later. Www state nm us tax Mine cave-ins. Www state nm us tax Shipwrecks. Www state nm us tax Sonic booms. Www state nm us tax Storms, including hurricanes and tornadoes. Www state nm us tax Terrorist attacks. Www state nm us tax Vandalism. Www state nm us tax Volcanic eruptions. Www state nm us tax Nondeductible losses. Www state nm us tax   A casualty loss is not deductible if the damage or destruction is caused by the following. Www state nm us tax Accidentally breaking articles such as glassware or china under normal conditions. Www state nm us tax A family pet (explained below). Www state nm us tax A fire if you willfully set it, or pay someone else to set it. Www state nm us tax A car accident if your willful negligence or willful act caused it. Www state nm us tax The same is true if the willful act or willful negligence of someone acting for you caused the accident. Www state nm us tax Progressive deterioration (explained below). Www state nm us tax However, see Special Procedure for Damage From Corrosive Drywall , later. Www state nm us tax Family pet. Www state nm us tax   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. Www state nm us tax Example. Www state nm us tax Your antique oriental rug was damaged by your new puppy before it was housebroken. Www state nm us tax Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Www state nm us tax Progressive deterioration. Www state nm us tax   Loss of property due to progressive deterioration is not deductible as a casualty loss. Www state nm us tax This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Www state nm us tax The following are examples of damage due to progressive deterioration. Www state nm us tax The steady weakening of a building due to normal wind and weather conditions. Www state nm us tax The deterioration and damage to a water heater that bursts. Www state nm us tax However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Www state nm us tax Most losses of property caused by droughts. Www state nm us tax To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Www state nm us tax Termite or moth damage. Www state nm us tax The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Www state nm us tax However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Www state nm us tax Special Procedure for Damage From Corrosive Drywall Under a special procedure, you can deduct the amounts you paid to repair damage to your home and household appliances due to corrosive drywall. Www state nm us tax Under this procedure, you treat the amounts paid for repairs as a casualty loss in the year of payment. Www state nm us tax For example, amounts you paid for repairs in 2013 are deductible on your 2013 tax return and amounts you paid for repairs in 2012 are deductible on your 2012 tax return. Www state nm us tax Note. Www state nm us tax If you paid for any repairs before 2013 and you choose to follow this special procedure, you can amend your return for the earlier year by filing Form 1040X, Amended U. Www state nm us tax S. Www state nm us tax Individual Income Tax Return, and attaching a completed Form 4684 for the appropriate year. Www state nm us tax Form 4684 for the appropriate year can be found at IRS. Www state nm us tax gov. Www state nm us tax Generally, Form 1040X must be filed within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Www state nm us tax Corrosive drywall. Www state nm us tax   For purposes of this special procedure, “corrosive drywall” means drywall that is identified as problem drywall under the two-step identification method published by the Consumer Product Safety Commission (CPSC) and the Department of Housing and Urban Development (HUD) in their interim guidance dated January 28, 2010, as revised by the CPSC and HUD. Www state nm us tax The revised identification guidance and remediation guidelines are available at www. Www state nm us tax cpsc. Www state nm us tax gov/Safety-Education/Safety-Education-Centers/Drywall. Www state nm us tax Special instructions for completing Form 4684. Www state nm us tax   If you choose to follow this special procedure, complete Form 4684, Section A, according to the instructions below. Www state nm us tax The IRS will not challenge your treatment of damage resulting from corrosive drywall as a casualty loss if you determine and report the loss as explained below. Www state nm us tax Top margin of Form 4684. Www state nm us tax   Enter “Revenue Procedure 2010-36”. Www state nm us tax Line 1. Www state nm us tax   Enter the information required by the line 1 instructions. Www state nm us tax Line 2. Www state nm us tax   Skip this line. Www state nm us tax Line 3. Www state nm us tax   Enter the amount of insurance or other reimbursements you received (including through litigation). Www state nm us tax If none, enter -0-. Www state nm us tax Lines 4–7. Www state nm us tax   Skip these lines. Www state nm us tax Line 8. Www state nm us tax   Enter the amount you paid to repair the damage to your home and household appliances due to corrosive drywall. Www state nm us tax Enter only the amounts you paid to restore your home to the condition existing immediately before the damage. Www state nm us tax Do not enter any amounts you paid for improvements or additions that increased the value of your home above its pre-loss value. Www state nm us tax If you replaced a household appliance instead of repairing it, enter the lesser of: The current cost to replace the original appliance, or The basis of the original appliance (generally its cost). Www state nm us tax Line 9. Www state nm us tax   If line 8 is more than line 3, do one of the following. Www state nm us tax If you have a pending claim for reimbursement (or you intend to pursue reimbursement), enter 75% of the difference between lines 3 and 8. Www state nm us tax If item (1) does not apply to you, enter the full amount of the difference between lines 3 and 8. Www state nm us tax If line 8 is less than or equal to line 3, you cannot claim a casualty loss deduction using this special procedure. Www state nm us tax    If you have a pending claim for reimbursement (or you intend to pursue reimbursement), you may have income or an additional deduction in a later tax year depending on the actual amount of reimbursement received. Www state nm us tax See Reimbursement Received After Deducting Loss, later. Www state nm us tax Lines 10–18. Www state nm us tax   Complete these lines according to the Instructions for Form 4684. Www state nm us tax Choosing not to follow this special procedure. Www state nm us tax   If you choose not to follow this special procedure, you are subject to all of the provisions that apply to the deductibility of casualty losses, and you must complete lines 1–9 according to the Instructions for Form 4684. Www state nm us tax This means, for example, that you must establish that the damage, destruction, or loss of property resulted from an identifiable event as defined earlier under Casualty . Www state nm us tax Furthermore, you must have proof that shows the following. Www state nm us tax The loss is properly deductible in the tax year you claimed it and not in some other year. Www state nm us tax See When To Report Gains and Losses , later. Www state nm us tax The amount of the claimed loss. Www state nm us tax See Proof of Loss , later. Www state nm us tax No claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery. Www state nm us tax See When To Report Gains and Losses , later. Www state nm us tax Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Www state nm us tax The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. Www state nm us tax You do not need to show a conviction for theft. Www state nm us tax Theft includes the taking of money or property by the following means. Www state nm us tax Blackmail. Www state nm us tax Burglary. Www state nm us tax Embezzlement. Www state nm us tax Extortion. Www state nm us tax Kidnapping for ransom. Www state nm us tax Larceny. Www state nm us tax Robbery. Www state nm us tax The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Www state nm us tax Decline in market value of stock. Www state nm us tax   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Www state nm us tax However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Www state nm us tax You report a capital loss on Schedule D (Form 1040). Www state nm us tax For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Www state nm us tax Mislaid or lost property. Www state nm us tax    The simple disappearance of money or property is not a theft. Www state nm us tax However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Www state nm us tax Sudden, unexpected, and unusual events were defined earlier under Casualty . Www state nm us tax Example. Www state nm us tax A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Www state nm us tax The diamond falls from the ring and is never found. Www state nm us tax The loss of the diamond is a casualty. Www state nm us tax Losses from Ponzi-type investment schemes. Www state nm us tax   The IRS has issued the following guidance to assist taxpayers who are victims of losses from Ponzi-type investment schemes: Revenue Ruling 2009-9, 2009-14 I. Www state nm us tax R. Www state nm us tax B. Www state nm us tax 735 (available at www. Www state nm us tax irs. Www state nm us tax gov/irb/2009-14_IRB/ar07. Www state nm us tax html). Www state nm us tax Revenue Procedure 2009-20, 2009-14 I. Www state nm us tax R. Www state nm us tax B. Www state nm us tax 749 (available at www. Www state nm us tax irs. Www state nm us tax gov/irb/2009-14_IRB/ar11. Www state nm us tax html). Www state nm us tax Revenue Procedure 2011-58, 2011-50 I. Www state nm us tax R. Www state nm us tax B. Www state nm us tax 847 (available at www. Www state nm us tax irs. Www state nm us tax gov/irb/2011-50_IRB/ar11. Www state nm us tax html). Www state nm us tax If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Www state nm us tax Skip lines 19 to 27, but you must fill out Section B, lines 29 to 39, as appropriate. Www state nm us tax Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Www state nm us tax You do not need to complete Appendix A. Www state nm us tax For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Www state nm us tax   If you choose not to use the procedures in Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Www state nm us tax Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Www state nm us tax If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Www state nm us tax As a casualty loss. Www state nm us tax As an ordinary loss. Www state nm us tax As a nonbusiness bad debt. Www state nm us tax Casualty loss or ordinary loss. Www state nm us tax   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. Www state nm us tax The choice generally is made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Www state nm us tax If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. Www state nm us tax However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Www state nm us tax Once you make the choice, you cannot change it without permission from the Internal Revenue Service. Www state nm us tax   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Www state nm us tax The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Www state nm us tax Your loss is subject to the 2%-of-adjusted-gross-income limit. Www state nm us tax You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Www state nm us tax Nonbusiness bad debt. Www state nm us tax   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. Www state nm us tax How to report. Www state nm us tax   The kind of deduction you choose for your loss on deposits determines how you report your loss. Www state nm us tax See Table 1. Www state nm us tax More information. Www state nm us tax   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684. Www state nm us tax Deducted loss recovered. Www state nm us tax   If you recover an amount you deducted as a loss in an earlier year, you may have to include the amount recovered in your income for the year of recovery. Www state nm us tax If any part of the original deduction did not reduce your tax in the earlier year, you do not have to include that part of the recovery in your income. Www state nm us tax For more information, see Recoveries in Publication 525. Www state nm us tax Proof of Loss To deduct a casualty or theft loss, you must be able to show that there was a casualty or theft. Www state nm us tax You also must be able to support the amount you take as a deduction. Www state nm us tax Casualty loss proof. Www state nm us tax   For a casualty loss, you should be able to show all of the following. Www state nm us tax The type of casualty (car accident, fire, storm, etc. Www state nm us tax ) and when it occurred. Www state nm us tax That the loss was a direct result of the casualty. Www state nm us tax That you were the owner of the property, or if you leased the property from someone else, that you were contractually liable to the owner for the damage. Www state nm us tax Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Www state nm us tax Theft loss proof. Www state nm us tax   For a theft loss, you should be able to show all of the following. Www state nm us tax When you discovered that your property was missing. Www state nm us tax That your property was stolen. Www state nm us tax That you were the owner of the property. Www state nm us tax Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Www state nm us tax    It is important that you have records that will prove your deduction. Www state nm us tax If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Www state nm us tax Figuring a Loss To determine your deduction for a casualty or theft loss, you must first figure your loss. Www state nm us tax Table 1. Www state nm us tax Reporting Loss on Deposits IF you choose to report the loss as a(n). Www state nm us tax . Www state nm us tax . Www state nm us tax   THEN report it on. Www state nm us tax . Www state nm us tax . Www state nm us tax casualty loss   Form 4684 and Schedule A  (Form 1040). Www state nm us tax ordinary loss   Schedule A (Form 1040). Www state nm us tax nonbusiness bad debt   Form 8949 and Schedule D (Form 1040). Www state nm us tax Amount of loss. Www state nm us tax   Figure the amount of your loss using the following steps. Www state nm us tax Determine your adjusted basis in the property before the casualty or theft. Www state nm us tax Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. Www state nm us tax From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Www state nm us tax For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. Www state nm us tax Gain from reimbursement. Www state nm us tax   If your reimbursement is more than your adjusted basis in the property, you have a gain. Www state nm us tax This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Www state nm us tax If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Www state nm us tax See Figuring a Gain , later. Www state nm us tax Business or income-producing property. Www state nm us tax   If you have business or income-producing property, such as rental property, and it is stolen or completely destroyed, the decrease in FMV is not considered. Www state nm us tax Your loss is figured as follows:   Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive   Loss of inventory. Www state nm us tax   There are two ways you can deduct a casualty or theft loss of inventory, including items you hold for sale to customers. Www state nm us tax   One way is to deduct the loss through the increase in the cost of goods sold by properly reporting your opening and closing inventories. Www state nm us tax Do not claim this loss again as a casualty or theft loss. Www state nm us tax If you take the loss through the increase in the cost of goods sold, include any insurance or other reimbursement you receive for the loss in gross income. Www state nm us tax   The other way is to deduct the loss separately. Www state nm us tax If you deduct it separately, eliminate the affected inventory items from the cost of goods sold by making a downward adjustment to opening inventory or purchases. Www state nm us tax Reduce the loss by the reimbursement you received. Www state nm us tax Do not include the reimbursement in gross income. Www state nm us tax If you do not receive the reimbursement by the end of the year, you may not claim a loss to the extent you have a reasonable prospect of recovery. Www state nm us tax Leased property. Www state nm us tax   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. Www state nm us tax Separate computations. Www state nm us tax   Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Www state nm us tax Then combine the losses to determine the total loss from that casualty or theft. Www state nm us tax Exception for personal-use real property. Www state nm us tax   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Www state nm us tax Figure the loss using the smaller of the following. Www state nm us tax The decrease in FMV of the entire property. Www state nm us tax The adjusted basis of the entire property. Www state nm us tax   See Real property under Figuring the Deduction, later. Www state nm us tax Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. Www state nm us tax The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. Www state nm us tax FMV of stolen property. Www state nm us tax   The FMV of property immediately after a theft is considered to be zero because you no longer have the property. Www state nm us tax Example. Www state nm us tax Several years ago, you purchased silver dollars at face value for $150. Www state nm us tax This is your adjusted basis in the property. Www state nm us tax Your silver dollars were stolen this year. Www state nm us tax The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Www state nm us tax Your theft loss is $150. Www state nm us tax Recovered stolen property. Www state nm us tax   Recovered stolen property is your property that was stolen and later returned to you. Www state nm us tax If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Www state nm us tax Use this amount to refigure your total loss for the year in which the loss was deducted. Www state nm us tax   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Www state nm us tax But report the difference only up to the amount of the loss that reduced your tax. Www state nm us tax For more information on the amount to report, see Recoveries in Publication 525. Www state nm us tax Figuring Decrease in FMV — Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Www state nm us tax However, other measures also can be used to establish certain decreases. Www state nm us tax See Appraisal and Cost of cleaning up or making repairs , next. Www state nm us tax Appraisal. Www state nm us tax   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterwards should be made by a competent appraiser. Www state nm us tax The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Www state nm us tax This information is needed to limit any deduction to the actual loss resulting from damage to the property. Www state nm us tax   Several factors are important in evaluating the accuracy of an appraisal, including the following. Www state nm us tax The appraiser's familiarity with your property before and after the casualty or theft. Www state nm us tax The appraiser's knowledge of sales of comparable property in the area. Www state nm us tax The appraiser's knowledge of conditions in the area of the casualty. Www state nm us tax The appraiser's method of appraisal. Www state nm us tax You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. Www state nm us tax For more information on disasters, see Disaster Area Losses, later. Www state nm us tax Cost of cleaning up or making repairs. Www state nm us tax   The cost of repairing damaged property is not part of a casualty loss. Www state nm us tax Neither is the cost of cleaning up after a casualty. Www state nm us tax But you can use the cost of cleaning up or of making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Www state nm us tax The repairs are actually made. Www state nm us tax The repairs are necessary to bring the property back to its condition before the casualty. Www state nm us tax The amount spent for repairs is not excessive. Www state nm us tax The repairs take care of the damage only. Www state nm us tax The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Www state nm us tax Landscaping. Www state nm us tax   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Www state nm us tax You may be able to measure your loss by what you spend on the following. Www state nm us tax Removing destroyed or damaged trees and shrubs, minus any salvage you receive. Www state nm us tax Pruning and other measures taken to preserve damaged trees and shrubs. Www state nm us tax Replanting necessary to restore the property to its approximate value before the casualty. Www state nm us tax Car value. Www state nm us tax   Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Www state nm us tax You can use the books' retail values and modify them by factors such as the mileage and condition of your car to figure its value. Www state nm us tax The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. Www state nm us tax If your car is not listed in the books, determine its value from other sources. Www state nm us tax A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Www state nm us tax Figuring Decrease in FMV — Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. Www state nm us tax Cost of protection. Www state nm us tax   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Www state nm us tax The amount you spend on insurance or to board up your house against a storm is not part of your loss. Www state nm us tax If the property is business property, these expenses are deductible as business expenses. Www state nm us tax   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. Www state nm us tax An example would be the cost of a dike to prevent flooding. Www state nm us tax Exception. Www state nm us tax   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments (discussed later under Disaster Area Losses ). Www state nm us tax Related expenses. Www state nm us tax   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Www state nm us tax However, they may be deductible as business expenses if the damaged or stolen property is business property. Www state nm us tax Replacement cost. Www state nm us tax   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Www state nm us tax Example. Www state nm us tax You bought a new chair 4 years ago for $300. Www state nm us tax In April, a fire destroyed the chair. Www state nm us tax You estimate that it would cost $500 to replace it. Www state nm us tax If you had sold the chair before the fire, you estimate that you could have received only $100 for it because it was 4 years old. Www state nm us tax The chair was not insured. Www state nm us tax Your loss is $100, the FMV of the chair before the fire. Www state nm us tax It is not $500, the replacement cost. Www state nm us tax Sentimental value. Www state nm us tax   Do not consider sentimental value when determining your loss. Www state nm us tax If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. Www state nm us tax Decline in market value of property in or near casualty area. Www state nm us tax   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. Www state nm us tax You have a loss only for actual casualty damage to your property. Www state nm us tax However, if your home is in a federally declared disaster area, see Disaster Area Losses , later. Www state nm us tax Costs of photographs and appraisals. Www state nm us tax   Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Www state nm us tax Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Www state nm us tax   Appraisals are used to figure the decrease in FMV because of a casualty or theft. Www state nm us tax See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Www state nm us tax   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. Www state nm us tax They are expenses in determining your tax liability. Www state nm us tax You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Www state nm us tax Adjusted Basis The measure of your investment in the property you own is its basis. Www state nm us tax For property you buy, your basis is usually its cost to you. Www state nm us tax For property you acquire in some other way, such as inheriting it, receiving it as a gift, or getting it in a nontaxable exchange, you must figure your basis in another way, as explained in Publication 551. Www state nm us tax If you inherited the property from someone who died in 2010 and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Www state nm us tax Adjustments to basis. Www state nm us tax    While you own the property, various events may take place that change your basis. Www state nm us tax Some events, such as additions or permanent improvements to the property, increase basis. Www state nm us tax Others, such as earlier casualty losses and depreciation deductions, decrease basis. Www state nm us tax When you add the increases to the basis and subtract the decreases from the basis, the result is your adjusted basis. Www state nm us tax See Publication 551 for more information on figuring the basis of your property. Www state nm us tax Insurance and Other Reimbursements If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Www state nm us tax You do not have a casualty or theft loss to the extent you are reimbursed. Www state nm us tax If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Www state nm us tax You must reduce your loss even if you do not receive payment until a later tax year. Www state nm us tax See Reimbursement Received After Deducting Loss , later. Www state nm us tax Failure to file a claim for reimbursement. Www state nm us tax   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Www state nm us tax Otherwise, you cannot deduct this loss as a casualty or theft. Www state nm us tax The portion of the loss usually not covered by insurance (for example, a deductible) is not subject to this rule. Www state nm us tax Example. Www state nm us tax You have a car insurance policy with a $1,000 deductible. Www state nm us tax Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the $100 and 10% rules, discussed later). Www state nm us tax This is true, even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Www state nm us tax Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Www state nm us tax Other types of reimbursements are discussed next. Www state nm us tax Also see the Instructions for Form 4684. Www state nm us tax Employer's emergency disaster fund. Www state nm us tax   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Www state nm us tax Take into consideration only the amount you used to replace your destroyed or damaged property. Www state nm us tax Example. Www state nm us tax Your home was extensively damaged by a tornado. Www state nm us tax Your loss after reimbursement from your insurance company was $10,000. Www state nm us tax Your employer set up a disaster relief fund for its employees. Www state nm us tax Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Www state nm us tax You received $4,000 from the fund and spent the entire amount on repairs to your home. Www state nm us tax In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Www state nm us tax Your casualty loss before applying the deduction limits (discussed later) is $6,000. Www state nm us tax Cash gifts. Www state nm us tax   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. Www state nm us tax This applies even if you use the money to pay for repairs to property damaged in the disaster. Www state nm us tax Example. Www state nm us tax Your home was damaged by a hurricane. Www state nm us tax Relatives and neighbors made cash gifts to you that were excludable from your income. Www state nm us tax You used part of the cash gifts to pay for repairs to your home. Www state nm us tax There were no limits or restrictions on how you could use the cash gifts. Www state nm us tax It was an excludable gift, so the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Www state nm us tax Insurance payments for living expenses. Www state nm us tax   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Www state nm us tax You lose the use of your main home because of a casualty. Www state nm us tax Government authorities do not allow you access to your main home because of a casualty or threat of one. Www state nm us tax Inclusion in income. Www state nm us tax   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Www state nm us tax Report this amount on Form 1040, line 21. Www state nm us tax However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Www state nm us tax See Qualified disaster relief payments , later, under Disaster Area Losses. Www state nm us tax   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Www state nm us tax Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Www state nm us tax Generally, these expenses include the amounts you pay for the following. Www state nm us tax Renting suitable housing. Www state nm us tax Transportation. Www state nm us tax Food. Www state nm us tax Utilities. Www state nm us tax Miscellaneous services. Www state nm us tax Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. Www state nm us tax Example. Www state nm us tax As a result of a fire, you vacated your apartment for a month and moved to a motel. Www state nm us tax You normally pay $525 a month for rent. Www state nm us tax None was charged for the month the apartment was vacated. Www state nm us tax Your motel rent for this month was $1,200. Www state nm us tax You normally pay $200 a month for food. Www state nm us tax Your food expenses for the month you lived in the motel were $400. Www state nm us tax You received $1,100 from your insurance company to cover your living expenses. Www state nm us tax You determine the payment you must include in income as follows. Www state nm us tax 1. Www state nm us tax Insurance payment for living expenses $1,100 2. Www state nm us tax Actual expenses during the month you are unable to use your home because of the fire $1,600   3. Www state nm us tax Normal living expenses 725   4. Www state nm us tax Temporary increase in living expenses: Subtract line 3  from line 2 875 5. Www state nm us tax Amount of payment includible in income: Subtract line 4 from line 1 $ 225 Tax year of inclusion. Www state nm us tax   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. Www state nm us tax Example. Www state nm us tax Your main home was destroyed by a tornado in August 2011. Www state nm us tax You regained use of your home in November 2012. Www state nm us tax The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Www state nm us tax You include this amount in income on your 2012 Form 1040. Www state nm us tax If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. Www state nm us tax Disaster relief. Www state nm us tax   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. Www state nm us tax Table 2. Www state nm us tax Deduction Limit Rules for Personal-Use and Employee Property       $100 Rule 10% Rule 2% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Www state nm us tax Apply this rule to personal-use property after you have figured the amount of your loss. Www state nm us tax You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Www state nm us tax Apply this rule to personal-use property after you reduce each loss by $100 (the $100 rule). Www state nm us tax You must reduce your total casualty or theft loss by 2% of your adjusted gross income. Www state nm us tax Apply this rule to property you used in performing services as an employee after you have figured the amount of your loss and added it to your job expenses and most other miscellaneous itemized deductions. Www state nm us tax Single Event Apply this rule only once, even if many pieces of property are affected. Www state nm us tax Apply this rule only once, even if many pieces of property are affected. Www state nm us tax Apply this rule only once, even if many pieces of property are affected. Www state nm us tax More Than One Event Apply to the loss from each event. Www state nm us tax Apply to the total of all your losses from all events. Www state nm us tax Apply to the total of all your losses from all events. Www state nm us tax More Than One Person— With Loss From the   Same Event  (other than a married couple  filing jointly) Apply separately to each person. Www state nm us tax Apply separately to each person. Www state nm us tax Apply separately to each person. Www state nm us tax Married Couple—  With Loss From the  Same Event Filing Joint Return Apply as if you were one person. Www state nm us tax Apply as if you were one person. Www state nm us tax Apply as if you were one person. Www state nm us tax Filing Separate Return Apply separately to each spouse. Www state nm us tax Apply separately to each spouse. Www state nm us tax Apply separately to each spouse. Www state nm us tax More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Www state nm us tax Apply separately to each owner of jointly owned property. Www state nm us tax Apply separately to each owner of jointly owned property. Www state nm us tax    Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster, are not taxable income to you. Www state nm us tax For more information, see Qualified disaster relief payments under Disaster Area Losses, later. Www state nm us tax   Disaster unemployment assistance payments are unemployment benefits that are taxable. Www state nm us tax   Generally, disaster relief grants received under the Robert T. Www state nm us tax Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Www state nm us tax See Federal disaster relief grants , later, under Disaster Area Losses. Www state nm us tax Loan proceeds. Www state nm us tax   Do not reduce your casualty loss by loan proceeds you use to rehabilitate or replace property on which you are claiming a casualty loss deduction. Www state nm us tax If you have a federal loan that is canceled (forgiven), see Federal loan canceled , later, under Disaster Area Losses. Www state nm us tax Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using the amount of your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Www state nm us tax This section explains the adjustment you may have to make. Www state nm us tax Actual reimbursement less than expected. Www state nm us tax   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Www state nm us tax Example. Www state nm us tax Your personal car had a FMV of $2,000 when it was destroyed in a collision with another car in 2012. Www state nm us tax The accident was due to the negligence of the other driver. Www state nm us tax At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Www state nm us tax You did not have a deductible loss in 2012. Www state nm us tax In January 2013, the court awards you a judgment of $2,000. Www state nm us tax However, in July it becomes apparent that you will be unable to collect any amount from the other driver. Www state nm us tax Since this is your only casualty or theft loss, you can deduct the loss in 2013 that is figured by applying the Deduction Limits (discussed later). Www state nm us tax Actual reimbursement more than expected. Www state nm us tax   If you later receive more reimbursement than you expected, after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Www state nm us tax However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Www state nm us tax You do not refigure your tax for the year you claimed the deduction. Www state nm us tax See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Www state nm us tax Example. Www state nm us tax In 2012, a hurricane destroyed your motorboat. Www state nm us tax Your loss was $3,000, and you estimated that your insurance would cover $2,500 of it. Www state nm us tax You did not itemize deductions on your 2012 return, so you could not deduct the loss. Www state nm us tax When the insurance company reimburses you for the loss, you do not report any of the reimbursement as income. Www state nm us tax This is true even if it is for the full $3,000 because you did not deduct the loss on your 2012 return. Www state nm us tax The loss did not reduce your tax. Www state nm us tax    If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Www state nm us tax If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Www state nm us tax Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Www state nm us tax You may be able to postpone reporting any remaining gain as explained under Postponement of Gain, later. Www state nm us tax Actual reimbursement same as expected. Www state nm us tax   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Www state nm us tax Example. Www state nm us tax In December 2013, you had a collision while driving your personal car. Www state nm us tax Repairs to the car cost $950. Www state nm us tax You had $100 deductible collision insurance. Www state nm us tax Your insurance company agreed to reimburse you for the rest of the damage. Www state nm us tax Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Www state nm us tax Due to the $100 rule, you cannot deduct the $100 you paid as the deductible. Www state nm us tax When you receive the $850 from the insurance company in 2014, do not report it as income. Www state nm us tax Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Www state nm us tax The deduction for casualty and theft losses of employee property and personal-use property is limited. Www state nm us tax A loss on employee property is subject to the 2% rule, discussed next. Www state nm us tax With certain exceptions, a loss on property you own for your personal use is subject to the $100 and 10% rules, discussed later. Www state nm us tax The 2%, $100, and 10% rules are also summarized in Table 2 . Www state nm us tax Losses on business property (other than employee property) and income-producing property are not subject to these rules. Www state nm us tax However, if your casualty or theft loss involved a home you used for business or rented out, your deductible loss may be limited. Www state nm us tax See the Instructions for Form 4684, Section B. Www state nm us tax If the casualty or theft loss involved property used in a passive activity, see Form 8582, Passive Activity Loss Limitations, and its instructions. Www state nm us tax 2% Rule The casualty and theft loss deduction for employee property, when added to your job expenses and most other miscellaneous itemized deductions on Schedule A (Form 1040) or Form 1040NR, Schedule A, must be reduced by 2% of your adjusted gross income. Www state nm us tax Employee property is property used in performing services as an employee. Www state nm us tax $100 Rule After you have figured your casualty or theft loss on personal-use property, as discussed earlier, you must reduce that loss by $100. Www state nm us tax This reduction applies to each total casualty or theft loss. Www state nm us tax It does not matter how many pieces of property are involved in an event. Www state nm us tax Only a single $100 reduction applies. Www state nm us tax Example. Www state nm us tax You have $750 deductible collision insurance on your car. Www state nm us tax The car is damaged in a collision. Www state nm us tax The insurance company pays you for the damage minus the $750 deductible. Www state nm us tax The amount of the casualty loss is based solely on the deductible. Www state nm us tax The casualty loss is $650 ($750 − $100) because the first $100 of a casualty loss on personal-use property is not deductible. Www state nm us tax Single event. Www state nm us tax   Generally, events closely related in origin cause a single casualty. Www state nm us tax It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. Www state nm us tax A single casualty may also damage two or more pieces of property, such as a hailstorm that damages both your home and your car parked in your driveway. Www state nm us tax Example 1. Www state nm us tax A thunderstorm destroyed your pleasure boat. Www state nm us tax You also lost some boating equipment in the storm. Www state nm us tax Your loss was $5,000 on the boat and $1,200 on the equipment. Www state nm us tax Your insurance company reimbursed you $4,500 for the damage to your boat. Www state nm us tax You had no insurance coverage on the equipment. Www state nm us tax Your casualty loss is from a single event and the $100 rule applies once. Www state nm us tax Figure your loss before applying the 10% rule (discussed later) as follows. Www state nm us tax     Boat Equipment 1. Www state nm us tax Loss $5,000 $1,200 2. Www state nm us tax Subtract insurance 4,500 -0- 3. Www state nm us tax Loss after reimbursement $ 500 $1,200 4. Www state nm us tax Total loss $1,700 5. Www state nm us tax Subtract $100 100 6. Www state nm us tax Loss before 10% rule $1,600 Example 2. Www state nm us tax Thieves broke into your home in January and stole a ring and a fur coat. Www state nm us tax You had a loss of $200 on the ring and $700 on the coat. Www state nm us tax This is a single theft. Www state nm us tax The $100 rule applies to the total $900 loss. Www state nm us tax Example 3. Www state nm us tax In September, hurricane winds blew the roof off your home. Www state nm us tax Flood waters caused by the hurricane further damaged your home and destroyed your furniture and personal car. Www state nm us tax This is considered a single casualty. Www state nm us tax The $100 rule is applied to your total loss from the flood waters and the wind. Www state nm us tax More than one loss. Www state nm us tax   If you have more than one casualty or theft loss during your tax year, you must reduce each loss by $100. Www state nm us tax Example. Www state nm us tax Your family car was damaged in an accident in January. Www state nm us tax Your loss after the insurance reimbursement was $75. Www state nm us tax In February, your car was damaged in another accident. Www state nm us tax This time your loss after the insurance reimbursement was $90. Www state nm us tax Apply the $100 rule to each separate casualty loss. Www state nm us tax Since neither accident resulted in a loss of over $100, you are not entitled to any deduction for these accidents. Www state nm us tax More than one person. Www state nm us tax   If two or more individuals (other than a husband and wife filing a joint return) have losses from the same casualty or theft, the $100 rule applies separately to each individual. Www state nm us tax Example. Www state nm us tax A fire damaged your house and also damaged the personal property of your house guest. Www state nm us tax You must reduce your loss by $100. Www state nm us tax Your house guest must reduce his or her loss by $100. Www state nm us tax Married taxpayers. Www state nm us tax   If you and your spouse file a joint return, you are treated as one individual in applying the $100 rule. Www state nm us tax It does not matter whether you own the property jointly or separately. Www state nm us tax   If you and your spouse have a casualty or theft loss and you file separate returns, each of you must reduce your loss by $100. Www state nm us tax This is true even if you own the property jointly. Www state nm us tax If one spouse owns the property, only that spouse can figure a loss deduction on a separate return. Www state nm us tax   If the casualty or theft loss is on property you own as tenants by the entirety, each of you can figure your deduction on only one-half of the loss on separate returns. Www state nm us tax Neither of you can figure your deduction on the entire loss on a separate return. Www state nm us tax Each of you must reduce the loss by $100. Www state nm us tax More than one owner. Www state nm us tax   If two or more individuals (other than a husband and wife filing a joint return) have a loss on property jointly owned, the $100 rule applies separately to each. Www state nm us tax For example, if two sisters live together in a home they own jointly and they have a casualty loss on the home, the $100 rule applies separately to each sister. Www state nm us tax 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Www state nm us tax Apply this rule after you reduce each loss by $100. Www state nm us tax For more information, see the Form 4684 instructions. Www state nm us tax If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Www state nm us tax Example. Www state nm us tax In June, you discovered that your house had been burglarized. Www state nm us tax Your loss after insurance reimbursement was $2,000. Www state nm us tax Your adjusted gross income for the year you discovered the theft is $29,500. Www state nm us tax Figure your theft loss as follows. Www state nm us tax 1. Www state nm us tax Loss after insurance $2,000 2. Www state nm us tax Subtract $100 100 3. Www state nm us tax Loss after $100 rule $1,900 4. Www state nm us tax Subtract 10% of $29,500 AGI $2,950 5. Www state nm us tax Theft loss deduction $-0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($2,950). Www state nm us tax More than one loss. Www state nm us tax   If you have more than one casualty or theft loss during your tax year, reduce each loss by any reimbursement and by $100. Www state nm us tax Then you must reduce the total of all your losses by 10% of your adjusted gross income. Www state nm us tax Example. Www state nm us tax In March, you had a car accident that totally destroyed your car. Www state nm us tax You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Www state nm us tax Your loss on the car was $1,800. Www state nm us tax In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items you had stored there. Www state nm us tax Your loss on the basement items after reimbursement was $2,100. Www state nm us tax Your adjusted gross income for the year that the accident and fire occurred is $25,000. Www state nm us tax You figure your casualty loss deduction as follows. Www state nm us tax     Car Basement 1. Www state nm us tax Loss $1,800 $2,100 2. Www state nm us tax Subtract $100 per incident 100 100 3. Www state nm us tax Loss after $100 rule $1,700 $2,000 4. Www state nm us tax Total loss $3,700 5. Www state nm us tax Subtract 10% of $25,000 AGI 2,500 6. Www state nm us tax Casualty loss deduction $1,200 Married taxpayers. Www state nm us tax   If you and your spouse file a joint return, you are treated as one individual in applying the 10% rule. Www state nm us tax It does not matter if you own the property jointly or separately. Www state nm us tax   If you file separate returns, the 10% rule applies to each return on which a loss is claimed. Www state nm us tax More than one owner. Www state nm us tax   If two or more individuals (other than husband and wife filing a joint return) have a loss on property that is owned jointly, the 10% rule applies separately to each. Www state nm us tax Gains and losses. Www state nm us tax   If you have casualty or theft gains as well as losses to personal-use property, you must compare your total gains to your total losses. Www state nm us tax Do this after you have reduced each loss by any reimbursements and by $100 but before you have reduced the losses by 10% of your adjusted gross income. Www state nm us tax Casualty or theft gains do not include gains you choose to postpone. Www state nm us tax See Postponement of Gain, later. Www state nm us tax Losses more than gains. Www state nm us tax   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. Www state nm us tax The rest, if any, is your deductible loss from personal-use property. Www state nm us tax Example. Www state nm us tax Your theft loss after reducing it by reimbursements and by $100 is $2,700. Www state nm us tax Your casualty gain is $700. Www state nm us tax Your loss is more than your gain, so you must reduce your $2,000 net loss ($2,700 − $700) by 10% of your adjusted gross income. Www state nm us tax Gains more than losses. Www state nm us tax   If your recognized gains are more than your losses, subtract your losses from your gains. Www state nm us tax The difference is treated as a capital gain and must be reported on Schedule D (Form 1040). Www state nm us tax The 10% rule does not apply to your gains. Www state nm us tax Example. Www state nm us tax Your theft loss is $600 after reducing it by reimbursements and by $100. Www state nm us tax Your casualty gain is $1,600. Www state nm us tax Because your gain is more than your loss, you must report the $1,000 net gain ($1,600 − $600) on Schedule D (Form 1040). Www state nm us tax More information. Www state nm us tax   For information on how to figure recognized gains, see Figuring a Gain , later. Www state nm us tax Figuring the Deduction Generally, you must figure your loss separately for each item stolen, damaged, or destroyed. Www state nm us tax However, a special rule applies to real property you own for personal use. Www state nm us tax Real property. Www state nm us tax   In figuring a loss to real estate you own for personal use, all improvements (such as buildings and ornamental trees and the land containing the improvements) are considered together. Www state nm us tax Example 1. Www state nm us tax In June, a fire destroyed your lakeside cottage, which cost $144,800 (including $14,500 for the land) several years ago. Www state nm us tax (Your land was not damaged. Www state nm us tax ) This was your only casualty or theft loss for the year. Www state nm us tax The FMV of the property immediately before the fire was $180,000 ($145,000 for the cottage and $35,000 for the land). Www state nm us tax The FMV immediately after the fire was $35,000 (value of the land). Www state nm us tax You collected $130,000 from the insurance company. Www state nm us tax Your adjusted gross income for the year the fire occurred is $80,000. Www state nm us tax Your deduction for the casualty loss is $6,700, figured in the following manner. Www state nm us tax 1. Www state nm us tax Adjusted basis of the entire property (cost in this example) $144,800 2. Www state nm us tax FMV of entire property  before fire $180,000 3. Www state nm us tax FMV of entire property after fire 35,000 4. Www state nm us tax Decrease in FMV of entire property (line 2 − line 3) $145,000 5. Www state nm us tax Loss (smaller of line 1 or line 4) $144,800 6. Www state nm us tax Subtract insurance 130,000 7. Www state nm us tax Loss after reimbursement $14,800 8. Www state nm us tax Subtract $100 100 9. Www state nm us tax Loss after $100 rule $14,700 10. Www state nm us tax Subtract 10% of $80,000 AGI 8,000 11. Www state nm us tax Casualty loss deduction $ 6,700 Example 2. Www state nm us tax You bought your home a few years ago. Www state nm us tax You paid $150,000 ($10,000 for the land and $140,000 for the house). Www state nm us tax You also spent an additional $2,000 for landscaping. Www state nm us tax This year a fire destroyed your home. Www state nm us tax The fire also damaged the shrubbery and trees in your yard. Www state nm us tax The fire was your only casualty or theft loss this year. Www state nm us tax Competent appraisers valued the property as a whole at $175,000 before the fire, but only $50,000 after the fire. Www state nm us tax Shortly after the fire, the insurance company paid you $95,000 for the loss. Www state nm us tax Your adjusted gross income for this year is $70,000. Www state nm us tax You figure your casualty loss deduction as follows. Www state nm us tax 1. Www state nm us tax Adjusted basis of the entire property (cost of land, building, and landscaping) $152,000 2. Www state nm us tax FMV of entire property  before fire $175,000 3. Www state nm us tax FMV of entire property after fire 50,000 4. Www state nm us tax Decrease in FMV of entire property (line 2 − line 3) $125,000 5. Www state nm us tax Loss (smaller of line 1 or line 4) $125,000 6. Www state nm us tax Subtract insurance 95,000 7. Www state nm us tax Loss after reimbursement $30,000 8. Www state nm us tax Subtract $100 100 9. Www state nm us tax Loss after $100 rule $29,900 10. Www state nm us tax Subtract 10% of $70,000 AGI 7,000 11. Www state nm us tax Casualty loss deduction $ 22,900 Personal property. Www state nm us tax   Personal property is any property that is not real property. Www state nm us tax If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. Www state nm us tax Then combine these separate losses to figure the total loss. Www state nm us tax Reduce the total loss by $100 and 10% of your adjusted gross income to figure the loss deduction. Www state nm us tax Example 1. Www state nm us tax In August, a storm destroyed your pleasure boat, which cost $18,500. Www state nm us tax This was your only casualty or theft loss for the year. Www state nm us tax Its FMV immediately before the storm was $17,000. Www state nm us tax You had no insurance, but were able to salvage the motor of the boat and sell it for $200. Www state nm us tax Your adjusted gross income for the year the casualty occurred is $70,000. Www state nm us tax Although the motor was sold separately, it is part of the boat and not a separate item of property. Www state nm us tax You figure your casualty loss deduction as follows. Www state nm us tax 1. Www state nm us tax Adjusted basis (cost in this example) $18,500 2. Www state nm us tax FMV before storm $17,000 3. Www state nm us tax FMV after storm 200 4. Www state nm us tax Decrease in FMV  (line 2 − line 3) $16,800 5. Www state nm us tax Loss (smaller of line 1 or line 4) $16,800 6. Www state nm us tax Subtract insurance -0- 7. Www state nm us tax Loss after reimbursement $16,800 8. Www state nm us tax Subtract $100 100 9. Www state nm us tax Loss after $100 rule $16,700 10. Www state nm us tax Subtract 10% of $70,000 AGI 7,000 11. Www state nm us tax Casualty loss deduction $ 9,700 Example 2. Www state nm us tax In June, you were involved in an auto accident that totally destroyed your personal car and your antique pocket watch. Www state nm us tax You had bought the car for $30,000. Www state nm us tax The FMV of the car just before the accident was $17,500. Www state nm us tax Its FMV just after the accident was $180 (scrap value). Www state nm us tax Your insurance company reimbursed you $16,000. Www state nm us tax Your watch was not insured. Www state nm us tax You had purchased it for $250. Www state nm us tax Its FMV just before the accident was $500. Www state nm us tax Your adjusted gross income for the year the accident occurred is $97,000. Www state nm us tax Your casualty loss deduction is zero, figured as follows. Www state nm us tax     Car Watch 1. Www state nm us tax Adjusted basis (cost) $30,000 $250 2. Www state nm us tax FMV before accident $17,500 $500 3. Www state nm us tax FMV after accident 180 -0- 4. Www state nm us tax Decrease in FMV (line 2 − line 3) $17,320 $500 5. Www state nm us tax Loss (smaller of line 1 or line 4) $17,320 $250 6. Www state nm us tax Subtract insurance 16,000 -0- 7. Www state nm us tax Loss after reimbursement $1,320 $250 8. Www state nm us tax Total loss $1,570 9. Www state nm us tax Subtract $100 100 10. Www state nm us tax Loss after $100 rule $1,470 11. Www state nm us tax Subtract 10% of $97,000 AGI 9,700 12. Www state nm us tax Casualty loss deduction $ -0- Both real and personal properties. Www state nm us tax   When a casualty involves both real and personal properties, you must figure the loss separately for each type of property. Www state nm us tax However, you apply a single $100 reduction to the total loss. Www state nm us tax Then, you apply the 10% rule to figure the casualty loss deduction. Www state nm us tax Example. Www state nm us tax In July, a hurricane damaged your home, which cost you $164,000 including land. Www state nm us tax The FMV of the property (both building and land) immediately before the storm was $170,000 and its FMV immediately after the storm was $100,000. Www state nm us tax Your household furnishings were also damaged. Www state nm us tax You separately figured the loss on each damaged household item and arrived at a total loss of $600. Www state nm us tax You collected $50,000 from the insurance company for the damage to your home, but your household furnishings were not insured. Www state nm us tax Your adjusted gross income for the year the hurricane occurred is $65,000. Www state nm us tax You figure your casualty loss deduction from the hurricane in the following manner. Www state nm us tax 1. Www state nm us tax Adjusted basis of real property (cost in this example) $164,000 2. Www state nm us tax FMV of real property before hurricane $170,000 3. Www state nm us tax FMV of real property after hurricane 100,000 4. Www state nm us tax Decrease in FMV of real property (line 2 − line 3) $70,000 5. Www state nm us tax Loss on real property (smaller of line 1 or line 4) $70,000 6. Www state nm us tax Subtract insurance 50,000 7. Www state nm us tax Loss on real property after reimbursement $20,000 8. Www state nm us tax Loss on furnishings $600 9. Www state nm us tax Subtract insurance -0- 10. Www state nm us tax Loss on furnishings after reimbursement $600 11. Www state nm us tax Total loss (line 7 plus line 10) $20,600 12. Www state nm us tax Subtract $100 100 13. Www state nm us tax Loss after $100 rule $20,500 14. Www state nm us tax Subtract 10% of $65,000 AGI 6,500 15. Www state nm us tax Casualty loss deduction $14,000 Property used partly for business and partly for personal purposes. Www state nm us tax   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use portion and for the business or income-producing portion. Www state nm us tax You must figure each loss separately because the losses attributed to these two uses are figured in two different ways. Www state nm us tax When figuring each loss, allocate the total cost or basis, the FMV before and after the casualty or theft loss, and the insurance or other reimbursement between the business and personal use of the property. Www state nm us tax The $100 rule and the 10% rule apply only to the casualty or theft loss on the personal-use portion of the property. Www state nm us tax Example. Www state nm us tax You own a building that you constructed on leased land. Www state nm us tax You use half of the building for your business and you live in the other half. Www state nm us tax The cost of the building was $400,000. Www state nm us tax You made no further improvements or additions to it. Www state nm us tax A flood in March damaged the entire building. Www state nm us tax The FMV of the building was $380,000 immediately before the flood and $320,000 afterwards. Www state nm us tax Your insurance company reimbursed you $40,000 for the flood damage. Www state nm us tax Depreciation on the business part of the building before the flood totaled $24,000. Www state nm us tax Your adjusted gross income for the year the flood occurred is $125,000. Www state nm us tax You have a deductible business casualty loss of $10,000. Www state nm us tax You do not have a deductible personal casualty loss because of the 10% rule. Www state nm us tax You figure your loss as follows. Www state nm us tax     Business   Personal     Part   Part 1. Www state nm us tax Cost (total $400,000) $200,000   $200,000 2. Www state nm us tax Subtract depreciation 24,000   -0- 3. Www state nm us tax Adjusted basis $176,000   $200,000 4. Www state nm us tax FMV before flood (total $380,000) $190,000   $190,000 5. Www state nm us tax FMV after flood (total $320,000) 160,000   160,000 6. Www state nm us tax Decrease in FMV  (line 4 − line 5) $30,000   $30,000 7. Www state nm us tax Loss (smaller of line 3 or line 6) $30,000   $30,000 8. Www state nm us tax Subtract insurance 20,000   20,000 9. Www state nm us tax Loss after reimbursement $10,000   $10,000 10. Www state nm us tax Subtract $100 on personal-use property -0-   100 11. Www state nm us tax Loss after $100 rule $10,000   $9,900 12. Www state nm us tax Subtract 10% of $125,000 AGI on personal-use property -0-   12,500 13. Www state nm us tax Deductible business loss $10,000     14. Www state nm us tax Deductible personal loss $-0- Figuring a Gain If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. Www state nm us tax Your gain is figured as follows. Www state nm us tax The amount you receive (discussed next), minus Your adjusted basis in the property at the time of the casualty or theft. Www state nm us tax See Adjusted Basis , earlier, for information on adjusted basis. Www state nm us tax Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. Www state nm us tax Amount you receive. Www state nm us tax   The amount you receive includes any money plus the value of any property you receive minus any expenses you have in obtaining reimbursement. Www state nm us tax It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Www state nm us tax Example. Www state nm us tax A hurricane destroyed your personal residence and the insurance company awarded you $145,000. Www state nm us tax You received $140,000 in cash. Www state nm us tax The remaining $5,000 was paid directly to the holder of a mortgage on the property. Www state nm us tax The amount you received includes the $5,000 reimbursement paid on the mortgage. Www state nm us tax Main home destroyed. Www state nm us tax   If you have a gain because your main home was destroyed, you generally can exclude the gain from your income as if you had sold or exchanged your home. Www state nm us tax You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Www state nm us tax To exclude a gain, you generally must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date it was destroyed. Www state nm us tax For information on this exclusion, see Publication 523. Www state nm us tax If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. Www state nm us tax See Postponement of Gain , later. Www state nm us tax Reporting a gain. Www state nm us tax   You generally must report your gain as income in the year you receive the reimbursement. Www state nm us tax However, you do not have to report your gain if you meet certain requirements and choose to postpone reporting the gain according to the rules explained under Postponement of Gain, next. Www state nm us tax   For information on how to report a gain, see How To Report Gains and Losses , later. Www state nm us tax    If you have a casualty or theft gain on personal-use property that you choose to postpone reporting (as explained next) and you also have another casualty or theft loss on personal-use property, do not consider the gain you are postponing when figuring your casualty or theft loss deduction. Www state nm us tax See 10% Rule under Deduction Limits, earlier. Www state nm us tax Postponement of Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed or stolen property. Www state nm us tax Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Www state nm us tax You must ordinarily report the gain on your stolen or destroyed property if you receive money or unlike property as reimbursement. Www state nm us tax However, you can choose to postpone reporting the gain if you purchase property that is similar or related in service or use to the stolen or destroyed property within a specified replacement period, discussed later. Www state nm us tax You also can choose to postpone reporting the gain if you purchase a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the property. Www state nm us tax See Controlling interest in a corporation , later. Www state nm us tax If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Www state nm us tax To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Www state nm us tax If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. Www state nm us tax Example. Www state nm us tax In 1970, you bought an oceanfront cottage for your personal use at a cost of $18,000. Www state nm us tax You made no further improvements or additions to it. Www state nm us tax When a storm destroyed the cottage this January, the cottage was worth $250,000. Www state nm us tax You received $146,000 from the insurance company in March. Www state nm us tax You had a gain of $128,000 ($146,000 − $18,000). Www state nm us tax You spent $144,000 to rebuild the cottage. Www state nm us tax Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Www state nm us tax Buying replacement property from a related person. Www state nm us tax   You cannot postpone reporting a gain from a casualty or theft if you buy the replacement property from a related person (discussed later). Www state nm us tax This rule applies to the following taxpayers. Www state nm us tax C corporations. Www state nm us tax Partnerships in which more than 50% of the capital or profits interests is owned by C corporations. Www state nm us tax All others (including individuals, partnerships — other than those in (2) — and S corporations) if the total realized gain for the tax year on all destroyed or stolen properties on which there are realized gains is more than $100,000. Www state nm us tax For casualties and thefts described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Www state nm us tax If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Www state nm us tax If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Www state nm us tax Exception. Www state nm us tax   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the destroyed or stolen property. Www state nm us tax Related persons. Www state nm us tax   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. Www state nm us tax For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Www state nm us tax Death of a taxpayer. Www state nm us tax   If a taxpayer dies after having a gain but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. Www state nm us tax The executor of the estate or the person succeeding to the funds from the casualty or theft cannot postpone reporting the gain by buying replacement property. Www state nm us tax Replacement Property You must buy replacement property for the specific purpose of replacing your destroyed or stolen property. Www state nm us tax Property you acquire as a gift or inheritance does not qualify. Www state nm us tax You do not have to use the same funds you receive as