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PDtax, Master's Degree
Category: Business and Finance Homework
Satisfied Customers: 4678
Experience:  MBA/CPA, Former college instructor and tutor.
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To report the recovery of a casualty loss amount previously

Customer Question

To report the recovery of a casualty loss amount previously deducted on Schedule A, select:
1040X to amend the tax return for the year the casualty loss was deducted, report additional income in the year of recovery, line 21 of 1040, 4864 to update the casualty loss information, or prepare a recovery worksheet for the taxable amount.
Submitted: 3 years ago.
Category: Business and Finance Homework
Expert:  Dave CPA replied 3 years ago.

Welcome to Just Answer,

That is not correct.

You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. The current year recovery would be reported on line 21 of the 1040.

You don't have to file an amended return.

Please let me know if you have any questions before you rate my answer. A positive rating is what I strive for. Regards Dave
Customer: replied 3 years ago.
So, do I prepare a recovery worksheet (something unique to my company) and then put the recovery amount on line 21 of 1040 or do I just enter the amount on line 21 of 1040?
Expert:  PDtax replied 3 years ago.
Hi Diana. The system prompted me to respond again.

I would complete a worksheet that calculates the income recovery. Your question suggests that a full recovery was received.

I would do up a worksheet, because only the amount that reduced the tax in the prior year is taxable (the tax benefit rule). That way, you can report the gross loss, reduced if the itemized deductions don't allow full deduction of the loss, and adjusted by the amount of recovery.

Just putting the amount on line 21 doesn't allow IRS to verify any adjustments to the loss claimed in a prior year.

Let me know if you need anything else.

PDtax, Master's Degree
Satisfied Customers: 4678
Experience: MBA/CPA, Former college instructor and tutor.
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