Publication 547 - Casualties,disasters,and Thefts

Area defined. The New York Liberty Zone

You should then attach another statement to

the gain ($1,000) equal to the part of the reim-

is the area located on or south of Canal Street,

bursement not spent for replacement property.

your return for the year in which you acquire the

East Broadway (east of its intersection with Ca-

replacement property. This statement should

nal Street), or Grand Street (east of its intersec-

contain detailed information on the replacement

tion with East Broadway) in the Borough of

property.

When To Report

Manhattan in the City of New York, New York.

If you acquire part of your replacement prop-

erty in one year and part in another year, you

Extension. You may get an extension of the

Gains and Losses

must make a statement for each year. The state-

replacement period if you apply to the director of

ment should contain detailed information on the

the Internal Revenue Service for your area. Your

If you receive an insurance or other reimburse-

replacement property bought in that year.

application must contain all the details about the

ment that is more than your adjusted basis in the

need for the extension. You should make the

destroyed or stolen property, you have a gain

Substituting replacement property. Once

application before the end of the replacement

from the casualty or theft. You must include this

you have acquired qualified replacement prop-

period.

gain in your income in the year you receive the

erty that you designate as replacement property

However, you can file an application within a

reimbursement, unless you choose to postpone

in a statement attached to your tax return, you

reasonable time after the replacement period

reporting the gain as explained earlier.

cannot later substitute other qualified replace-

ends if you have a good reason for the delay. An

ment property. This is true even if you acquire

extension may be granted if you can show that

Casualty loss. Generally, you can deduct a

the other property within the replacement pe-

there is reasonable cause for not making the

casualty loss only in the tax year in which the

riod. However, if you discover that the original

replacement within the regular period.

casualty occurred. This is true even if you do not

replacement property was not qualified replace-

Ordinarily, requests for extensions are not

repair or replace the damaged property until a

ment property, you can (within the replacement

made or granted until near the end of the re-

later year. (However, see Disaster Area Losses,

period) substitute the new qualified replacement

placement period or the extended replacement

later, for an exception.)

property.

period. Extensions are usually limited to a period

of not more than 1 year. The high market value

Theft loss. You generally can deduct theft

Amended return. You must file an amended

or scarcity of replacement property is not suffi-

losses only in the year you discover your prop-

return (individuals use Form 1040X) for the tax

cient grounds for granting an extension. If your

erty was stolen. You must be able to show there

year of the gain in either of the following situa-

replacement property is being constructed and

was a theft, but you do not have to know when

tions.

you clearly show that the construction cannot be

the theft occurred. However, you should show

•

completed within the replacement period, you

when you discovered that your property was

You do not acquire replacement property

may be granted an extension of the period.

missing.

within the required replacement period

plus extensions. On this amended return,

Loss on deposits. If your loss is a loss on

you must report the gain and pay any ad-

How To Postpone a Gain

deposits at an insolvent or bankrupt financial

ditional tax due.

institution, see Loss on Deposits, earlier.

•

You postpone reporting your gain from a casu-

You acquire replacement property within

Lessee’s loss. If you lease property from

alty or theft by reporting your choice on your tax

the required replacement period plus ex-

someone else, you can deduct a loss on the

return for the year you have the gain. You have

tensions, but at a cost less than the

property in the year your liability for the loss is

the gain in the year you receive insurance pro-

amount you receive for the casualty or

fixed. This is true even if the loss occurred or the

ceeds or other reimbursements that result in a

theft. On this amended return, you must

liability was paid in a different year. You are not

gain.

report the portion of the gain that cannot

entitled to a deduction until your liability under

If a partnership or a corporation owns the

be postponed and pay any additional tax

the lease can be determined with reasonable

stolen or destroyed property, only the partner-

due.

accuracy. Your liability can be determined when

ship or corporation can choose to postpone re-

a claim for recovery is settled, adjudicated, or

porting the gain.

Three-year limit. The period for assessing tax

abandoned.

Required statement. You should attach a

on any gain ends 3 years after the date you

statement to your return for the year you have

notify the director of the Internal Revenue Serv-

the gain. This statement should include the fol-

ice for your area of any of the following.

lowing.

Disaster Area Losses

•

You replaced the property.

•

The date and details of the casualty or

•

You do not intend to replace the property.

theft.

This section discusses the special rules that

•

apply to Presidentially declared disaster area

You did not replace the property within the

The insurance or other reimbursement you

losses. It contains information on when you can

replacement period.

received from the casualty or theft.

deduct your loss, how to claim your loss, how to

•

How you figured the gain.

treat your home in a disaster area, and what tax

Changing your mind. You can change your

deadlines may be postponed. It also lists Fed-

mind about whether to report or to postpone

Replacement property acquired before re-

eral Emergency Management Agency (FEMA)

reporting your gain at any time before the end of

turn filed. If you acquire replacement property

phone numbers. (See Contacting the Federal

the replacement period.

before you file your return for the year you have

Emergency Management Agency (FEMA),

the gain, your statement should also include

later.)

Example. Your property was stolen last

detailed information about all of the following.

A Presidentially declared disaster is a dis-

year. Your insurance company reimbursed you

•

aster that occurred in an area declared by the

The replacement property.

$10,000, of which $5,000 was a gain. You re-

President to be eligible for federal assistance

•

ported the $5,000 gain on your return for last

The postponed gain.

under the Disaster Relief and Emergency Assis-

year (the year you realized the gain) and paid

•

tance Act.

The basis adjustment that reflects the

the tax due. This year you bought replacement

postponed gain.

property. Your replacement property cost

When to deduct the loss. If you have a casu-

•

$9,000. Since you reinvested all but $1,000 of

alty loss from a disaster that occurred in a Pre-

Any gain you are reporting as income.

your reimbursement, you can now postpone re-

sidentially declared disaster area, you can

porting $4,000 ($5,000 − $1,000) of your gain.

Replacement property acquired after re-

choose to deduct that loss on your return or

To postpone reporting your gain, file an

turn filed. If you intend to acquire replacement

amended return for the tax year immediately

amended return for last year using Form 1040X.

property after you file your return for the year in

preceding the tax year in which the disaster

You should attach an explanation showing that

which you have the gain, your statement should

happened. If you make this choice, the loss is

you previously reported the entire gain from the

also state that you are choosing to replace the

treated as having occurred in the preceding

property within the required replacement period.

theft but you now want to report only the part of

year.

Page 11

Publication 547 - Casualties,disasters,and Thefts - 2002 Page 11

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