Form 4684 is a critical document for taxpayers to report gains or losses from casualties and thefts, making it possible to claim deductions if specific conditions are met. Losses can arise from various unfortunate events, including natural disasters, and generally are deductible in the year they occur. In the case of theft, deductions apply to the year the loss is discovered.
Key Takeaways
-
Purpose of Form 4684: This form is used to report gains or losses from casualties and thefts resulting from federally declared disasters. Taxpayers in these areas may qualify for deductions even without itemizing.
-
Residency in Disaster Zones: Individuals living in federally declared disaster areas can file Form 4684 without itemizing deductions.
-
Definition of Casualty Loss: Such losses result from destruction or damage caused by sudden and unexpected events, including natural disasters like hurricanes, earthquakes, and floods.
Who Can File Form 4684?
Homeowners and taxpayers who experience property damage or loss due to a federally declared disaster should file Form 4684. If a disaster forces you to demolish or relocate your property, this form helps claim the difference between the pre- and post-event property values. Notably, the building authority must notify you within 120 days of the disaster declaration.
Personal property casualties linked to federally declared disasters are deductible. However, individuals with personal casualty gains can use non-disaster losses to offset these gains. Keep in mind, Form 4684 does not cover personal injuries-related expenses.
Special Considerations When Filing Form 4684
-
Non-Reimbursed Losses: This form allows deductions for non-reimbursed losses from specific sudden events during federally declared disasters, including natural disasters, vandalism, car accidents, and shipwrecks.
-
Bankrupt or Insolvent Financial Institutions: In some cases, deposit losses at such institutions may count as casualty losses.
-
Ponzi Schemes: Section C of Form 4684 details the process for deducting financial losses resulting from fraud or Ponzi schemes.
Be cautious, as not every damage qualifies for casualty loss deductions. For instance, ongoing issues like termite damage or mold growth are not eligible. Eligibility for theft losses requires that the incident qualifies as a crime in the state where it occurred.
Form 4684 and Federal Disaster Areas
Section D of Form 4684 focuses on federally declared disaster-related losses. Such losses can also be reported for the preceding tax year, offering tax relief benefits. To qualify, the event needs to occur within formally recognized disaster areas.
For the tax year 2021, the IRS stipulates that losses attributable to significant disasters declared between January 1, 2020, and February 25, 2021, qualify, provided the disaster period starts between December 28, 2019, and December 27, 2020. This excludes losses strictly associated with COVID-19.
Related Terms: Form 4684 instructions, casualty loss deduction, theft loss deduction, disaster area tax relief.
References
- Internal Revenue Service. “Instructions for Form 4684: Casualties and Thefts”, Page 3.
- IRS. “Form 4684”.
- Internal Revenue Service. “Publication 547”, Pages 3-4.
- Internal Revenue Service. “Publication 547”, Page 3.
- Internal Revenue Service. “Publication 547”, Page 5.
- Internal Revenue Service. “Publication 547”, Page 16.
- IRS. “Instructions for Form 4684”, Page 3.
