Reporting a Casualty Loss
If you have a loss to personal-use property, you must fill out Section A of Form 4684, Casualties and Thefts. Each item is reported in a separate column on this form (if a large number of items were lost or damaged, you can use reasonable categories such as "clothing," "jewelry," "furniture," etc.).
Separate copies of Form 4684 must be used if you suffered more than one casualty during the year; transfer the amounts from Line 13 of all the forms you used to Line 14 on one of the forms and use that as the "master" for the remainder of the questions. Ultimately, you will transfer the loss amount to Schedule A as an itemized casualty loss deduction.
If you have a taxable gain as a result of a casualty to personal-use property, use Section A of Form 4684, and transfer the gain amount to Schedule D, Capital Gains and Losses, on your individual income tax return (Form 1040). The gain will be treated as short-term or long-term, depending on whether you held the property for one year or less, or for more than one year. If you elect to defer gain by purchasing qualified replacement property, you won't have to transfer the gain to Schedule D, but you must attach a statement to your tax return explaining the date and details of the casualty or theft, the amount of insurance, how you figured the gain, and that you are choosing to postpone gain by purchasing replacement property.
If you've already done the replacing, include information about the property, the postponed gain, the basis adjustment that reflects the postponed gain, and any remaining (unpostponed gain) you are reporting on Schedule D. If you make the replacement in a later year, attach a statement including this information about the replacement property to the tax return for that later year. If you expected to replace property but then didn't, or replaced at less than the full amount, you'll have to go back and amend your tax return for the year you claimed the loss.
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If you are in a position to realize a potential gain on property located in the New York Liberty Zone (essentially southern Manhattan) due to the terrorist attacks of September 11, 2001, the period in which you must purchase replacement property may be extended until five years after the end of the first tax year in which any part of the gain is realized. The five-year period only applies, though, if substantially all of the use of the replacement property occurs in the city of New York. Otherwise, the usual two-year replacement period for trade or business property applies.
Similar treatment applies to the Hurricane Katrina disaster area replacement property.
For more details on how to postpone gain in this situation, see IRS Publication 547, Casualties, Disasters, and Thefts.
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