How To Report  
Gains and Losses(p15)

How you report gains and losses depends on whether the property was business, income-producing, or personal-use property.

If you have a loss, use both of the following.

• Form 4684.
• Schedule A (Form 1040), Itemized Deductions (or Form 1040NR, Schedule A, if you are a nonresident alien).

Note. Use Schedule L (Form 1040A or 1040) instead of Schedule A (Form 1040) if you are deducting as part of your standard deduction a net disaster loss from a disaster declared a federal disaster in tax years beginning after 2007 that occurred before 2010. Such a loss is deductible in 2010 if you were not sure whether part of the loss would be reimbursed in the year it occurred and you became reasonably certain in 2010 that that part will not be reimbursed.

If you have a gain, report it on both of the following.

• Form 4684.
• Schedule D (Form 1040), Capital Gains and Losses.

Do not report on these forms any gain you postpone. If you choose to postpone gain, see How To Postpone a Gain earlier.

Use Form 4684 to report your gains and losses. You will also have to report the gains and losses on other forms as explained next.

Individuals report losses from income-producing property and property used in performing services as an employee on Schedule A (Form 1040). Gains from business and income-producing property are combined with losses from business property (other than property used in performing services as an employee) and the net gain or loss is reported on Form 4797. If you are not otherwise required to file Form 4797, only enter the net gain or loss on your tax return on the line identified as from Form 4797. Next to that line, enter "Form 4684." Partnerships and S corporations should see the Form 4684 instructions to find out where to report these gains and losses.

If your losses from business and income-producing property are more than gains from these types of property, combine your losses from business property (other than property used in performing services as an employee) with total gains from business and income-producing property. Report the net gain or loss as an ordinary gain or loss on Form 4797. If you are not otherwise required to file Form 4797, only enter the net gain or loss on your tax return on the line identified as from Form 4797. Next to that line, enter "Form 4684." Individuals deduct any loss of income-producing property and property used in performing services as an employee on Schedule A (Form 1040). Partnerships and S corporations should see Form 4684 to find out where to report these gains and losses.

If losses from business and income-producing property are less than or equal to gains from these types of property, report the net amount on Form 4797. You may also have to report the gain on Schedule D depending on whether you have other transactions. Partnerships and S corporations should see Form 4684 to find out where to report these gains and losses.

If the damaged or stolen property was depreciable property held more than 1 year, you may have to treat all or part of the gain as ordinary income to the extent of depreciation allowed or allowable. You figure the ordinary income part of the gain in Part III of Form 4797. See Depreciation Recapture in chapter 3 of Publication 544 for more information about the recapture rule.

If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. The result is your adjusted basis in the property.

You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Do not increase your basis in the property by any qualified disaster mitigation payments (discussed earlier under Disaster Area Losses). See Adjusted Basis in Publication 551 for more information on adjustments to basis.

If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have a net operating loss (NOL). You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you already paid. Or, you can use it to lower your tax in a later year. You do not have to be in business to have an NOL from a casualty or theft loss. For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.