Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1040ez E-file

Tax Filing Tips2012 Free Tax Return1040ez Instruction Book1040ez 2012 Tax FormFiling Your State Taxes FreeTurbotax 2011 SoftwareFederal Income Tax Ez Form 20111040x Form InstructionsFile 2008 Taxes Online Free H&r BlockCan I Amend My Taxes OnlineIrs Forms 1040x InstructionsHow To File Tax ReturnWww Irs Gov2012 State Taxes Online FreeFile 2010 Tax Return Online Free1040x Instructions For Dummies1040ez FormsForm 4868How To Fill Out Amended Tax FormCan You File A 1040x OnlineAmend 2011 TaxAmended ReturnIrs Gov State Tax Forms2012 E File Tax Return1040ez 2011 File OnlineHow Can I Amend My Tax ReturnE Filing Income TaxAmend Tax Return OnlineHr Block2011 Tax 1040 FormForm 1040 EzTaxslayer Login2011 Tax FileEz Tax FormHttps Www Freefilefillableforms Com Ffa Checkstatus Htm211 Free Tax Preparation Help OnlineForm 1040File 2011 State Taxes Online Free1040ez Turbotax Free2010 Income Tax

1040ez E-file

1040ez e-file 9. 1040ez e-file   Obligations Not in Registered Form Tax is imposed on any person who issues a registration-required obligation not in registered form. 1040ez e-file The tax is: 1% of the principal of the obligation, multiplied by The number of calendar years (or portions of calendar years) during the period starting on the date the obligation was issued and ending on the date it matures. 1040ez e-file A registration-required obligation is any obligation other than one that meets any of the following conditions. 1040ez e-file It is issued by a natural person. 1040ez e-file It is not of a type offered to the public. 1040ez e-file It has a maturity (at issue) of not more than 1 year. 1040ez e-file It can only be issued to a foreign person. 1040ez e-file For item (4), if the obligation is not in registered form, the interest on the obligation must be payable only outside the United States and its possessions. 1040ez e-file Also, the obligation must state on its face that any U. 1040ez e-file S. 1040ez e-file person who holds it shall be subject to limits under the U. 1040ez e-file S. 1040ez e-file income tax laws. 1040ez e-file Prev  Up  Next   Home   More Online Publications
Español

Oops! We can't find the file

Official information and services from the U.S. government

We're sorry, but the page you're looking for might have been removed, had its name changed, or is temporarily unavailable.

What should you do?

  • If you typed the page url, check the spelling.
  • Go to our home page and browse through our topics for the information you want.
  • Go to our site index, and look through the alphabetical listing for links to the page you want.
  • If you need help finding government information, please contact us.
  • Use our search engine to find the information you want.

The 1040ez E-file

1040ez e-file 13. 1040ez e-file   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. 1040ez e-file It is divided into the following sections. 1040ez e-file Cost basis. 1040ez e-file Adjusted basis. 1040ez e-file Basis other than cost. 1040ez e-file Your basis is the amount of your investment in property for tax purposes. 1040ez e-file Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. 1040ez e-file Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. 1040ez e-file If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 1040ez e-file Only the basis allocated to the business or investment use of the property can be depreciated. 1040ez e-file Your original basis in property is adjusted (increased or decreased) by certain events. 1040ez e-file For example, if you make improvements to the property, increase your basis. 1040ez e-file If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. 1040ez e-file Keep accurate records of all items that affect the basis of your property. 1040ez e-file For more information on keeping records, see chapter 1. 1040ez e-file Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. 1040ez e-file The cost is the amount you pay in cash, debt obligations, other property, or services. 1040ez e-file Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). 1040ez e-file In addition, the basis of real estate and business assets may include other items. 1040ez e-file Loans with low or no interest. 1040ez e-file    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. 1040ez e-file You generally have unstated interest if your interest rate is less than the applicable federal rate. 1040ez e-file   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. 1040ez e-file Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 1040ez e-file If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 1040ez e-file Lump sum purchase. 1040ez e-file   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. 1040ez e-file Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. 1040ez e-file Figure the basis of each asset by multiplying the lump sum by a fraction. 1040ez e-file The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 1040ez e-file    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. 1040ez e-file Fair market value (FMV). 1040ez e-file   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. 1040ez e-file Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. 1040ez e-file Assumption of mortgage. 1040ez e-file   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. 1040ez e-file Settlement costs. 1040ez e-file   Your basis includes the settlement fees and closing costs you paid for buying the property. 1040ez e-file (A fee for buying property is a cost that must be paid even if you buy the property for cash. 1040ez e-file ) Do not include fees and costs for getting a loan on the property in your basis. 1040ez e-file   The following are some of the settlement fees or closing costs you can include in the basis of your property. 1040ez e-file Abstract fees (abstract of title fees). 1040ez e-file Charges for installing utility services. 1040ez e-file Legal fees (including fees for the title search and preparation of the sales contract and deed). 1040ez e-file Recording fees. 1040ez e-file Survey fees. 1040ez e-file Transfer taxes. 1040ez e-file Owner's title insurance. 1040ez e-file Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. 1040ez e-file   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 1040ez e-file   The following are some of the settlement fees and closing costs you cannot include in the basis of property. 1040ez e-file Casualty insurance premiums. 1040ez e-file Rent for occupancy of the property before closing. 1040ez e-file Charges for utilities or other services related to occupancy of the property before closing. 1040ez e-file Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. 1040ez e-file Fees for refinancing a mortgage. 1040ez e-file Real estate taxes. 1040ez e-file   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 1040ez e-file You cannot deduct them as an expense. 1040ez e-file    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. 1040ez e-file Do not include that amount in the basis of your property. 1040ez e-file If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. 1040ez e-file Points. 1040ez e-file   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. 1040ez e-file Generally, you deduct the points over the term of the loan. 1040ez e-file For more information on how to deduct points, see chapter 23. 1040ez e-file Points on home mortgage. 1040ez e-file   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. 1040ez e-file If certain requirements are met, you can deduct the points in full for the year in which they are paid. 1040ez e-file Reduce the basis of your home by any seller-paid points. 1040ez e-file Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. 1040ez e-file The result is the adjusted basis. 1040ez e-file Increases to Basis Increase the basis of any property by all items properly added to a capital account. 1040ez e-file Examples of items that increase basis are shown in Table 13-1. 1040ez e-file These include the items discussed below. 1040ez e-file Improvements. 1040ez e-file   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. 1040ez e-file For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. 1040ez e-file Assessments for local improvements. 1040ez e-file   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. 1040ez e-file Do not deduct them as taxes. 1040ez e-file However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. 1040ez e-file Example. 1040ez e-file Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. 1040ez e-file Add the assessment to your property's basis. 1040ez e-file In this example, the assessment is a depreciable asset. 1040ez e-file Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. 1040ez e-file Examples of items that decrease basis are shown in Table 13-1. 1040ez e-file These include the items discussed below. 1040ez e-file Table 13-1. 1040ez e-file Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. 1040ez e-file   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. 1040ez e-file    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. 1040ez e-file   For more information on casualty and theft losses, see chapter 25. 1040ez e-file Depreciation and section 179 deduction. 1040ez e-file   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. 1040ez e-file   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. 1040ez e-file Example. 1040ez e-file You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. 1040ez e-file You added an improvement to the duplex that cost $10,000. 1040ez e-file In February last year, the duplex was damaged by fire. 1040ez e-file Up to that time, you had been allowed depreciation of $23,000. 1040ez e-file You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. 1040ez e-file You deducted a casualty loss of $1,000 on your income tax return for last year. 1040ez e-file You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. 1040ez e-file You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. 1040ez e-file Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. 1040ez e-file Your basis in the land is its original cost of $5,000. 1040ez e-file Easements. 1040ez e-file   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. 1040ez e-file It reduces the basis of the affected part of the property. 1040ez e-file If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 1040ez e-file   If the gain is on a capital asset, see chapter 16 for information about how to report it. 1040ez e-file If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. 1040ez e-file Exclusion of subsidies for energy conservation measures. 1040ez e-file   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 1040ez e-file Reduce the basis of the property for which you received the subsidy by the excluded amount. 1040ez e-file For more information about this subsidy, see chapter 12. 1040ez e-file Postponed gain from sale of home. 1040ez e-file    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. 1040ez e-file For more information on the rules for the sale of a home, see chapter 15. 1040ez e-file Basis Other Than Cost There are many times when you cannot use cost as basis. 1040ez e-file In these cases, the fair market value or the adjusted basis of the property can be used. 1040ez e-file Fair market value (FMV) and adjusted basis were discussed earlier. 1040ez e-file Property Received for Services If you receive property for your services, include the FMV of the property in income. 1040ez e-file The amount you include in income becomes your basis. 1040ez e-file If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 1040ez e-file Restricted property. 1040ez e-file   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. 1040ez e-file However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. 1040ez e-file Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). 1040ez e-file For more information, see Restricted Property in Publication 525. 1040ez e-file Bargain purchases. 1040ez e-file   A bargain purchase is a purchase of an item for less than its FMV. 1040ez e-file If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. 1040ez e-file Your basis in the property is its FMV (your purchase price plus the amount you include in income). 1040ez e-file   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. 1040ez e-file However, your basis in the property is still its FMV. 1040ez e-file See Employee Discounts in Publication 15-B. 1040ez e-file Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. 1040ez e-file A taxable gain or deductible loss also is known as a recognized gain or loss. 1040ez e-file If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 1040ez e-file Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. 1040ez e-file Similar or related property. 1040ez e-file   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. 1040ez e-file Decrease the basis by the following. 1040ez e-file Any loss you recognize on the involuntary conversion. 1040ez e-file Any money you receive that you do not spend on similar property. 1040ez e-file Increase the basis by the following. 1040ez e-file Any gain you recognize on the involuntary conversion. 1040ez e-file Any cost of acquiring the replacement property. 1040ez e-file Money or property not similar or related. 1040ez e-file    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. 1040ez e-file Example. 1040ez e-file The state condemned your property. 1040ez e-file The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. 1040ez e-file You realized a gain of $5,000 ($31,000 − $26,000). 1040ez e-file You bought replacement property similar in use to the converted property for $29,000. 1040ez e-file You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. 1040ez e-file Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. 1040ez e-file The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. 1040ez e-file   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 1040ez e-file Basis for depreciation. 1040ez e-file   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 1040ez e-file For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 1040ez e-file Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 1040ez e-file If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. 1040ez e-file See Nontaxable Trades in chapter 14. 1040ez e-file Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 1040ez e-file To qualify as a like-kind exchange, the property traded and the property received must be both of the following. 1040ez e-file Qualifying property. 1040ez e-file Like-kind property. 1040ez e-file The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. 1040ez e-file If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. 1040ez e-file Qualifying property. 1040ez e-file   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. 1040ez e-file Like-kind property. 1040ez e-file   There must be an exchange of like-kind property. 1040ez e-file Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. 1040ez e-file The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. 1040ez e-file Example. 1040ez e-file You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. 1040ez e-file The dealer allows you $2,000 on the old truck, and you pay $4,800. 1040ez e-file This is a like-kind exchange. 1040ez e-file The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). 1040ez e-file If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). 1040ez e-file The basis of the new truck is the price you pay the dealer. 1040ez e-file Partially nontaxable exchanges. 1040ez e-file   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 1040ez e-file The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. 1040ez e-file Decrease the basis by the following amounts. 1040ez e-file Any money you receive. 1040ez e-file Any loss you recognize on the exchange. 1040ez e-file Increase the basis by the following amounts. 1040ez e-file Any additional costs you incur. 1040ez e-file Any gain you recognize on the exchange. 1040ez e-file If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 1040ez e-file Allocation of basis. 1040ez e-file   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 1040ez e-file The rest is the basis of the like-kind property. 1040ez e-file More information. 1040ez e-file   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. 1040ez e-file Basis for depreciation. 1040ez e-file   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. 1040ez e-file For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. 1040ez e-file Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 1040ez e-file The same rule applies to a transfer by your former spouse that is incident to divorce. 1040ez e-file However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. 1040ez e-file If the property transferred to you is a series E, series EE, or series I U. 1040ez e-file S. 1040ez e-file savings bond, the transferor must include in income the interest accrued to the date of transfer. 1040ez e-file Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. 1040ez e-file For more information on these bonds, see chapter 7. 1040ez e-file At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 1040ez e-file For more information about the transfer of property from a spouse, see chapter 14. 1040ez e-file Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. 1040ez e-file FMV less than donor's adjusted basis. 1040ez e-file   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 1040ez e-file Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 1040ez e-file Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 1040ez e-file See Adjusted Basis , earlier. 1040ez e-file Example. 1040ez e-file You received an acre of land as a gift. 1040ez e-file At the time of the gift, the land had an FMV of $8,000. 1040ez e-file The donor's adjusted basis was $10,000. 1040ez e-file After you received the property, no events occurred to increase or decrease your basis. 1040ez e-file If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. 1040ez e-file If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. 1040ez e-file If the sales price is between $8,000 and $10,000, you have neither gain nor loss. 1040ez e-file Business property. 1040ez e-file   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 1040ez e-file FMV equal to or greater than donor's adjusted basis. 1040ez e-file   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. 1040ez e-file Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. 1040ez e-file   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 1040ez e-file See Adjusted Basis , earlier. 1040ez e-file   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 1040ez e-file Figure the increase by multiplying the gift tax paid by a fraction. 1040ez e-file The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. 1040ez e-file   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 1040ez e-file The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 1040ez e-file Example. 1040ez e-file In 2013, you received a gift of property from your mother that had an FMV of $50,000. 1040ez e-file Her adjusted basis was $20,000. 1040ez e-file The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 1040ez e-file She paid a gift tax of $7,320 on the property. 1040ez e-file Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 1040ez e-file 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 1040ez e-file If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 1040ez e-file However, your basis cannot exceed the FMV of the gift at the time it was given to you. 1040ez e-file Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 1040ez e-file The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. 1040ez e-file The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. 1040ez e-file The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. 1040ez e-file If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 1040ez e-file For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 1040ez e-file Property inherited from a decedent who died in 2010. 1040ez e-file   If you inherited property from a decedent who died in 2010, special rules may apply. 1040ez e-file For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 1040ez e-file Community property. 1040ez e-file   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. 1040ez e-file When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. 1040ez e-file For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. 1040ez e-file Example. 1040ez e-file You and your spouse owned community property that had a basis of $80,000. 1040ez e-file When your spouse died, half the FMV of the community interest was includible in your spouse's estate. 1040ez e-file The FMV of the community interest was $100,000. 1040ez e-file The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). 1040ez e-file The basis of the other half to your spouse's heirs is also $50,000. 1040ez e-file For more information about community property, see Publication 555, Community Property. 1040ez e-file Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. 1040ez e-file To do so, you must figure its basis for depreciation at the time of the change. 1040ez e-file An example of changing property held for personal use to business or rental use would be renting out your former personal residence. 1040ez e-file Basis for depreciation. 1040ez e-file   The basis for depreciation is the lesser of the following amounts. 1040ez e-file The FMV of the property on the date of the change. 1040ez e-file Your adjusted basis on the date of the change. 1040ez e-file Example. 1040ez e-file Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. 1040ez e-file You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. 1040ez e-file Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. 1040ez e-file Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). 1040ez e-file On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. 1040ez e-file The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). 1040ez e-file Sale of property. 1040ez e-file   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. 1040ez e-file Gain. 1040ez e-file   The basis for figuring a gain is your adjusted basis in the property when you sell the property. 1040ez e-file Example. 1040ez e-file Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. 1040ez e-file Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). 1040ez e-file Loss. 1040ez e-file   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 1040ez e-file Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 1040ez e-file Example. 1040ez e-file Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. 1040ez e-file In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. 1040ez e-file Reduce that amount ($180,000) by the depreciation deductions ($37,500). 1040ez e-file The basis for loss is $142,500 ($180,000 − $37,500). 1040ez e-file Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. 1040ez e-file If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. 1040ez e-file You must adjust the basis of stocks for certain events that occur after purchase. 1040ez e-file For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. 1040ez e-file This rule applies only when the additional stock received is identical to the stock held. 1040ez e-file Also reduce your basis when you receive nontaxable distributions. 1040ez e-file They are a return of capital. 1040ez e-file Example. 1040ez e-file In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. 1040ez e-file In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. 1040ez e-file In 2013 XYZ declared a 2-for-1 stock split. 1040ez e-file You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. 1040ez e-file Other basis. 1040ez e-file   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. 1040ez e-file For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 1040ez e-file Identifying stocks or bonds sold. 1040ez e-file   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. 1040ez e-file If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. 1040ez e-file For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. 1040ez e-file Mutual fund shares. 1040ez e-file   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. 1040ez e-file For more information, see Publication 550. 1040ez e-file Bond premium. 1040ez e-file   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. 1040ez e-file See Bond Premium Amortization in chapter 3 of Publication 550 for more information. 1040ez e-file Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. 1040ez e-file Original issue discount (OID) on debt instruments. 1040ez e-file   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. 1040ez e-file See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. 1040ez e-file Tax-exempt obligations. 1040ez e-file    OID on tax-exempt obligations is generally not taxable. 1040ez e-file However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. 1040ez e-file The accrued OID is added to the basis of the obligation to determine your gain or loss. 1040ez e-file See chapter 4 of Publication 550. 1040ez e-file Prev  Up  Next   Home   More Online Publications