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2007 Taxes Online

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2007 Taxes Online

2007 taxes online Internal Revenue Bulletin:  2010-9  March 1, 2010  Rev. 2007 taxes online Proc. 2007 taxes online 2010-18 Table of Contents SECTION 1. 2007 taxes online PURPOSE SECTION 2. 2007 taxes online BACKGROUND SECTION 3. 2007 taxes online SCOPE SECTION 4. 2007 taxes online APPLICATION SECTION 5. 2007 taxes online EFFECTIVE DATE SECTION 6. 2007 taxes online DRAFTING INFORMATION SECTION 1. 2007 taxes online PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2010, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2010, including a separate table of inclusion amounts for lessees of trucks and vans. 2007 taxes online The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. 2007 taxes online SECTION 2. 2007 taxes online BACKGROUND . 2007 taxes online 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. 2007 taxes online Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. 2007 taxes online The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. 2007 taxes online This change reflects the higher rate of price inflation for trucks and vans since 1988. 2007 taxes online . 2007 taxes online 02 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. 2007 taxes online The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. 2007 taxes online Under § 1. 2007 taxes online 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. 2007 taxes online One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. 2007 taxes online Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. 2007 taxes online SECTION 3. 2007 taxes online SCOPE . 2007 taxes online 01 The limitations on depreciation deductions in section 4. 2007 taxes online 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2010, and continue to apply for each taxable year that the passenger automobile remains in service. 2007 taxes online . 2007 taxes online 02 The tables in section 4. 2007 taxes online 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2010. 2007 taxes online Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. 2007 taxes online See Rev. 2007 taxes online Proc. 2007 taxes online 2005-13, 2005-1 C. 2007 taxes online B. 2007 taxes online 759, for passenger automobiles first leased before calendar year 2006; Rev. 2007 taxes online Proc. 2007 taxes online 2006-18, 2006-1 C. 2007 taxes online B. 2007 taxes online 645, for passenger automobiles first leased during calendar year 2006; Rev. 2007 taxes online Proc. 2007 taxes online 2007-30, 2007-1 C. 2007 taxes online B. 2007 taxes online 1104, for passenger automobiles first leased during calendar year 2007; Rev. 2007 taxes online Proc. 2007 taxes online 2008-22, 2008-12 I. 2007 taxes online R. 2007 taxes online B. 2007 taxes online 658, for passenger automobiles first leased during calendar year 2008; and Rev. 2007 taxes online Proc. 2007 taxes online 2009-24, 2009-17 I. 2007 taxes online R. 2007 taxes online B. 2007 taxes online 885, for passenger automobiles first leased during calendar year 2009. 2007 taxes online SECTION 4. 2007 taxes online APPLICATION . 2007 taxes online 01 Limitations on Depreciation Deductions for Certain Automobiles. 2007 taxes online (1) Amount of the inflation adjustment. 2007 taxes online (a) Passenger automobiles (other than trucks or vans). 2007 taxes online Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. 2007 taxes online The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. 2007 taxes online The new car component of the CPI was 115. 2007 taxes online 2 for October 1987 and 137. 2007 taxes online 851 for October 2009. 2007 taxes online The October 2009 index exceeded the October 1987 index by 22. 2007 taxes online 651. 2007 taxes online Therefore, the automobile price inflation adjustment for 2010 for passenger automobiles (other than trucks and vans) is 19. 2007 taxes online 66 percent (22. 2007 taxes online 651/115. 2007 taxes online 2 x 100%). 2007 taxes online The dollar limitations in § 280F(a) are multiplied by a factor of 0. 2007 taxes online 1966, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2010. 2007 taxes online This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2010. 2007 taxes online (b) Trucks and vans. 2007 taxes online To determine the dollar limitations for trucks and vans first placed in service during calendar year 2010, the new truck component of the CPI is used instead of the new car component. 2007 taxes online The new truck component of the CPI was 112. 2007 taxes online 4 for October 1987 and 140. 2007 taxes online 897 for October 2009. 2007 taxes online The October 2009 index exceeded the October 1987 index by 28. 2007 taxes online 497. 2007 taxes online Therefore, the automobile price inflation adjustment for 2010 for trucks and vans is 25. 2007 taxes online 35 percent (28. 2007 taxes online 497/112. 2007 taxes online 4 x 100%). 2007 taxes online The dollar limitations in § 280F(a) are multiplied by a factor of 0. 2007 taxes online 2535, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. 2007 taxes online This adjustment applies to all trucks and vans that are first placed in service in calendar year 2010. 2007 taxes online (2) Amount of the limitation. 2007 taxes online Tables 1 and 2 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2010. 2007 taxes online Use Table 1 for a passenger automobile (other than a truck or van) and Table 2 for a truck or van placed in service in calendar year 2010. 2007 taxes online REV. 2007 taxes online PROC. 2007 taxes online 2010-18 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2010 Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. 2007 taxes online PROC. 2007 taxes online 2010-18 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2010 Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 . 2007 taxes online 02 Inclusions in Income of Lessees of Passenger Automobiles. 2007 taxes online A taxpayer must follow the procedures in § 1. 2007 taxes online 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2010. 2007 taxes online In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 3 of this revenue procedure, while lessees of trucks and vans should use Table 4 of this revenue procedure. 2007 taxes online REV. 2007 taxes online PROC. 2007 taxes online 2010-18 TABLE 3 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2010 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $16,700 $17,000 3 7 10 11 14 17,000 17,500 4 8 13 15 16 17,500 18,000 5 10 16 19 21 18,000 18,500 6 13 18 23 26 18,500 19,000 7 15 22 26 31 19,000 19,500 8 17 25 30 35 19,500 20,000 9 19 29 34 39 20,000 20,500 10 21 32 38 44 20,500 21,000 11 23 35 42 48 21,000 21,500 12 26 38 45 53 21,500 22,000 13 28 41 50 57 22,000 23,000 14 31 46 56 63 23,000 24,000 16 36 52 63 73 24,000 25,000 18 40 59 71 81 25,000 26,000 20 44 66 78 90 26,000 27,000 22 49 71 86 100 27,000 28,000 24 53 78 94 108 28,000 29,000 26 57 85 101 118 29,000 30,000 28 61 92 109 126 30,000 31,000 30 66 97 117 135 31,000 32,000 32 70 104 125 144 32,000 33,000 34 74 111 132 153 33,000 34,000 36 79 117 140 161 34,000 35,000 38 83 123 148 171 35,000 36,000 40 87 130 156 179 36,000 37,000 42 92 136 163 188 37,000 38,000 44 96 143 170 198 38,000 39,000 46 100 149 179 206 39,000 40,000 48 105 155 186 215 40,000 41,000 50 109 162 194 224 41,000 42,000 52 113 169 201 233 42,000 43,000 54 118 174 210 241 43,000 44,000 56 122 181 217 251 44,000 45,000 58 126 188 225 259 45,000 46,000 60 131 194 232 269 46,000 47,000 61 135 201 240 277 47,000 48,000 63 140 207 248 286 48,000 49,000 65 144 213 256 295 49,000 50,000 67 148 220 263 304 50,000 51,000 69 153 226 271 313 51,000 52,000 71 157 232 279 322 52,000 53,000 73 161 239 287 331 53,000 54,000 75 166 245 294 340 54,000 55,000 77 170 252 302 348 55,000 56,000 79 174 258 310 358 56,000 57,000 81 178 265 318 366 57,000 58,000 83 183 271 325 375 58,000 59,000 85 187 278 333 384 59,000 60,000 87 191 284 341 393 60,000 62,000 90 198 294 352 406 62,000 64,000 94 207 306 368 424 64,000 66,000 98 215 320 382 443 66,000 68,000 102 224 332 398 460 68,000 70,000 106 232 346 413 478 70,000 72,000 110 241 358 429 496 72,000 74,000 114 250 371 444 513 74,000 76,000 118 258 384 460 531 76,000 78,000 122 267 396 476 549 78,000 80,000 126 276 409 491 566 80,000 85,000 132 291 432 518 598 85,000 90,000 142 313 464 556 643 90,000 95,000 152 334 497 594 687 95,000 100,000 162 356 528 634 731 100,000 110,000 177 388 577 691 798 110,000 120,000 196 432 641 768 887 120,000 130,000 216 475 705 846 976 130,000 140,000 236 518 770 922 1,065 140,000 150,000 256 561 834 1,000 1,154 150,000 160,000 275 605 898 1,077 1,243 160,000 170,000 295 648 963 1,153 1,333 170,000 180,000 315 691 1,027 1,231 1,421 180,000 190,000 334 735 1,091 1,308 1,510 190,000 200,000 354 778 1,155 1,386 1,599 200,000 210,000 374 821 1,220 1,462 1,688 210,000 220,000 393 865 1,284 1,539 1,777 220,000 230,000 413 908 1,348 1,617 1,866 230,000 240,000 433 951 1,413 1,693 1,956 240,000 and up 453 995 1,476 1,771 2,044 REV. 2007 taxes online PROC. 2007 taxes online 2010-18 TABLE 4 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2010 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later 17,000 17,500 3 6 9 10 11 17,500 18,000 4 8 12 14 16 18,000 18,500 5 10 15 18 21 18,500 19,000 6 12 19 22 24 19,000 19,500 7 15 21 26 29 19,500 20,000 8 17 25 29 34 20,000 20,500 9 19 28 33 38 20,500 21,000 10 21 31 37 43 21,000 21,500 11 23 35 41 47 21,500 22,000 12 25 38 45 51 22,000 23,000 13 29 42 51 58 23,000 24,000 15 33 49 58 67 24,000 25,000 17 37 56 66 76 25,000 26,000 19 42 62 73 85 26,000 27,000 21 46 68 82 93 27,000 28,000 23 50 75 89 103 28,000 29,000 25 55 81 97 111 29,000 30,000 27 59 88 104 121 30,000 31,000 29 63 94 113 129 31,000 32,000 31 68 100 120 138 32,000 33,000 33 72 107 127 148 33,000 34,000 35 76 114 135 156 34,000 35,000 37 81 119 143 165 35,000 36,000 39 85 126 151 174 36,000 37,000 41 89 133 158 183 37,000 38,000 43 94 139 166 191 38,000 39,000 45 98 145 174 201 39,000 40,000 47 102 152 182 209 40,000 41,000 49 106 159 189 218 41,000 42,000 51 111 164 198 227 42,000 43,000 53 115 171 205 236 43,000 44,000 55 119 178 213 245 44,000 45,000 57 124 184 220 254 45,000 46,000 59 128 190 228 263 46,000 47,000 60 133 197 235 272 47,000 48,000 62 137 203 244 280 48,000 49,000 64 142 209 251 290 49,000 50,000 66 146 216 259 298 50,000 51,000 68 150 223 266 308 51,000 52,000 70 154 229 275 316 52,000 53,000 72 159 235 282 325 53,000 54,000 74 163 242 290 334 54,000 55,000 76 167 249 297 343 55,000 56,000 78 172 254 305 352 56,000 57,000 80 176 261 313 361 57,000 58,000 82 180 268 320 370 58,000 59,000 84 185 274 328 378 59,000 60,000 86 189 280 336 388 60,000 62,000 89 195 291 347 401 62,000 64,000 93 204 303 363 418 64,000 66,000 97 213 315 379 436 66,000 68,000 101 221 329 394 454 68,000 70,000 105 230 341 410 472 70,000 72,000 109 239 354 424 490 72,000 74,000 113 247 367 440 508 74,000 76,000 117 256 380 455 526 76,000 78,000 121 264 393 471 543 78,000 80,000 125 273 406 486 561 80,000 85,000 131 289 428 513 592 85,000 90,000 141 310 461 552 636 90,000 95,000 151 332 492 591 681 95,000 100,000 161 353 525 629 726 100,000 110,000 176 386 573 686 793 110,000 120,000 195 430 637 763 882 120,000 130,000 215 473 701 841 971 130,000 140,000 235 516 766 918 1,059 140,000 150,000 255 559 830 995 1,149 150,000 160,000 274 603 894 1,072 1,238 160,000 170,000 294 646 958 1,150 1,326 170,000 180,000 314 689 1,023 1,226 1,416 180,000 190,000 333 733 1,087 1,303 1,505 190,000 200,000 353 776 1,151 1,381 1,594 200,000 210,000 373 819 1,216 1,457 1,683 210,000 220,000 392 863 1,280 1,534 1,772 220,000 230,000 412 906 1,344 1,612 1,861 230,000 240,000 432 949 1,409 1,689 1,949 240,000 and up 452 992 1,473 1,766 2,039 SECTION 5. 2007 taxes online EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2010. 2007 taxes online SECTION 6. 2007 taxes online DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. 2007 taxes online Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). 2007 taxes online For further information regarding this revenue procedure, contact Mr. 2007 taxes online Harvey at (202) 622-4930 (not a toll-free call). 2007 taxes online Prev  Up  Next   Home   More Internal Revenue Bulletins
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The 2007 Taxes Online

2007 taxes online 1. 2007 taxes online   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. 2007 taxes online Amount realized on a recourse debt. 2007 taxes online Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. 2007 taxes online S. 2007 taxes online Individual Income Tax Return 1040X Amended U. 2007 taxes online S. 2007 taxes online Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. 2007 taxes online However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. 2007 taxes online See chapter 5 for information about getting publications and forms. 2007 taxes online Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. 2007 taxes online An exchange is a transfer of property for other property or services. 2007 taxes online The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. 2007 taxes online Sale or lease. 2007 taxes online    Some agreements that seem to be leases may really be conditional sales contracts. 2007 taxes online The intention of the parties to the agreement can help you distinguish between a sale and a lease. 2007 taxes online   There is no test or group of tests to prove what the parties intended when they made the agreement. 2007 taxes online You should consider each agreement based on its own facts and circumstances. 2007 taxes online For more information, see chapter 3 in Publication 535, Business Expenses. 2007 taxes online Cancellation of a lease. 2007 taxes online    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. 2007 taxes online Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. 2007 taxes online Copyright. 2007 taxes online    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. 2007 taxes online It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. 2007 taxes online Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. 2007 taxes online   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. 2007 taxes online For more information, see Section 1231 Gains and Losses in chapter 3. 2007 taxes online Easement. 2007 taxes online   The amount received for granting an easement is subtracted from the basis of the property. 2007 taxes online If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. 2007 taxes online If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. 2007 taxes online   Any amount received that is more than the basis to be reduced is a taxable gain. 2007 taxes online The transaction is reported as a sale of property. 2007 taxes online   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. 2007 taxes online However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. 2007 taxes online   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. 2007 taxes online Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. 2007 taxes online See Gain or Loss From Condemnations, later. 2007 taxes online Property transferred to satisfy debt. 2007 taxes online   A transfer of property to satisfy a debt is an exchange. 2007 taxes online Note's maturity date extended. 2007 taxes online   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. 2007 taxes online Also, it is not considered a closed and completed transaction that would result in a gain or loss. 2007 taxes online However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. 2007 taxes online Each case must be determined by its own facts. 2007 taxes online For more information, see Regulations section 1. 2007 taxes online 1001-3. 2007 taxes online Transfer on death. 2007 taxes online   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. 2007 taxes online No taxable gain or deductible loss results from the transfer. 2007 taxes online Bankruptcy. 2007 taxes online   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. 2007 taxes online Consequently, the transfer generally does not result in gain or loss. 2007 taxes online For more information, see Publication 908, Bankruptcy Tax Guide. 2007 taxes online Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. 2007 taxes online A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. 2007 taxes online A loss is the adjusted basis of the property that is more than the amount you realize. 2007 taxes online   Table 1-1. 2007 taxes online How To Figure Whether You Have a Gain or Loss IF your. 2007 taxes online . 2007 taxes online . 2007 taxes online THEN you have a. 2007 taxes online . 2007 taxes online . 2007 taxes online Adjusted basis is more than the amount realized, Loss. 2007 taxes online Amount realized is more than the adjusted basis, Gain. 2007 taxes online Basis. 2007 taxes online   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. 2007 taxes online The basis of property you buy is usually its cost. 2007 taxes online However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. 2007 taxes online See Basis Other Than Cost in Publication 551, Basis of Assets. 2007 taxes online Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. 2007 taxes online See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. 2007 taxes online Adjusted basis. 2007 taxes online   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. 2007 taxes online Increases include costs of any improvements having a useful life of more than 1 year. 2007 taxes online Decreases include depreciation and casualty losses. 2007 taxes online For more details and additional examples, see Adjusted Basis in Publication 551. 2007 taxes online Amount realized. 2007 taxes online   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. 2007 taxes online The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 2007 taxes online Fair market value. 2007 taxes online   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. 2007 taxes online If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. 2007 taxes online If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. 2007 taxes online Example. 2007 taxes online You used a building in your business that cost you $70,000. 2007 taxes online You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. 2007 taxes online You sold the building for $100,000 plus property having an FMV of $20,000. 2007 taxes online The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. 2007 taxes online The selling expenses were $4,000. 2007 taxes online Your gain on the sale is figured as follows. 2007 taxes online Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. 2007 taxes online   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. 2007 taxes online Recognized gains must be included in gross income. 2007 taxes online Recognized losses are deductible from gross income. 2007 taxes online However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. 2007 taxes online See Nontaxable Exchanges, later. 2007 taxes online Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. 2007 taxes online Interest in property. 2007 taxes online   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. 2007 taxes online If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. 2007 taxes online Your basis in the property is disregarded. 2007 taxes online This rule does not apply if all interests in the property are disposed of at the same time. 2007 taxes online Example 1. 2007 taxes online Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. 2007 taxes online You decide to sell your life interest in the farm. 2007 taxes online The entire amount you receive is a recognized gain. 2007 taxes online Your basis in the farm is disregarded. 2007 taxes online Example 2. 2007 taxes online The facts are the same as in Example 1, except that your brother joins you in selling the farm. 2007 taxes online The entire interest in the property is sold, so your basis in the farm is not disregarded. 2007 taxes online Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. 2007 taxes online Canceling a sale of real property. 2007 taxes online   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. 2007 taxes online If the buyer returns the property in the year of sale, no gain or loss is recognized. 2007 taxes online This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. 2007 taxes online If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. 2007 taxes online When the property is returned in a later year, you acquire a new basis in the property. 2007 taxes online That basis is equal to the amount you pay to the buyer. 2007 taxes online Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. 2007 taxes online You have a gain if the amount realized is more than your adjusted basis in the property. 2007 taxes online However, you do not have a loss if the amount realized is less than the adjusted basis of the property. 2007 taxes online Bargain sales to charity. 2007 taxes online   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. 2007 taxes online If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. 2007 taxes online The adjusted basis of the part sold is figured as follows. 2007 taxes online Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. 2007 taxes online This allocation rule does not apply if a charitable contribution deduction is not allowable. 2007 taxes online   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. 2007 taxes online Example. 2007 taxes online You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. 2007 taxes online Your adjusted basis in the property is $4,000. 2007 taxes online Your gain on the sale is $1,200, figured as follows. 2007 taxes online Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. 2007 taxes online You must subtract depreciation you took or could have taken from the basis of the business or rental part. 2007 taxes online However, see the special rule below for a home used partly for business or rental. 2007 taxes online You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. 2007 taxes online Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. 2007 taxes online Any gain on the personal part of the property is a capital gain. 2007 taxes online You cannot deduct a loss on the personal part. 2007 taxes online Home used partly for business or rental. 2007 taxes online    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. 2007 taxes online See Property Used Partly for Business or Rental, in Publication 523. 2007 taxes online Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. 2007 taxes online You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. 2007 taxes online However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. 2007 taxes online Figure the loss you can deduct as follows. 2007 taxes online Use the lesser of the property's adjusted basis or fair market value at the time of the change. 2007 taxes online Add to (1) the cost of any improvements and other increases to basis since the change. 2007 taxes online Subtract from (2) depreciation and any other decreases to basis since the change. 2007 taxes online Subtract the amount you realized on the sale from the result in (3). 2007 taxes online If the amount you realized is more than the result in (3), treat this result as zero. 2007 taxes online The result in (4) is the loss you can deduct. 2007 taxes online Example. 2007 taxes online You changed your main home to rental property 5 years ago. 2007 taxes online At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. 2007 taxes online This year, you sold the property for $55,000. 2007 taxes online You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. 2007 taxes online Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. 2007 taxes online Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. 2007 taxes online   If you have a gain on the sale, you generally must recognize the full amount of the gain. 2007 taxes online You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. 2007 taxes online   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 2007 taxes online However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. 2007 taxes online   For more information, see Business Use or Rental of Home in Publication 523. 2007 taxes online In addition, special rules apply if the home sold was acquired in a like-kind exchange. 2007 taxes online See Special Situations in Publication 523. 2007 taxes online Also see Like-Kind Exchanges, later. 2007 taxes online Abandonments The abandonment of property is a disposition of property. 2007 taxes online You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. 2007 taxes online Generally, abandonment is not treated as a sale or exchange of the property. 2007 taxes online If the amount you realize (if any) is more than your adjusted basis, then you have a gain. 2007 taxes online If your adjusted basis is more than the amount you realize (if any), then you have a loss. 2007 taxes online Loss from abandonment of business or investment property is deductible as a loss. 2007 taxes online A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. 2007 taxes online This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. 2007 taxes online If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. 2007 taxes online The abandonment loss is deducted in the tax year in which the loss is sustained. 2007 taxes online If the abandoned property is secured by debt, special rules apply. 2007 taxes online The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). 2007 taxes online For more information, including examples, see chapter 3 of Publication 4681. 2007 taxes online You cannot deduct any loss from abandonment of your home or other property held for personal use only. 2007 taxes online Cancellation of debt. 2007 taxes online   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. 2007 taxes online This income is separate from any loss realized from abandonment of the property. 2007 taxes online   You must report this income on your tax return unless one of the following applies. 2007 taxes online The cancellation is intended as a gift. 2007 taxes online The debt is qualified farm debt. 2007 taxes online The debt is qualified real property business debt. 2007 taxes online You are insolvent or bankrupt. 2007 taxes online The debt is qualified principal residence indebtedness. 2007 taxes online File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. 2007 taxes online For more information, including other exceptions and exclusion, see Publication 4681. 2007 taxes online Forms 1099-A and 1099-C. 2007 taxes online   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. 2007 taxes online However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. 2007 taxes online The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 2007 taxes online For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 2007 taxes online Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 2007 taxes online The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. 2007 taxes online This is true even if you voluntarily return the property to the lender. 2007 taxes online You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. 2007 taxes online Buyer's (borrower's) gain or loss. 2007 taxes online   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. 2007 taxes online The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. 2007 taxes online See Gain or Loss From Sales and Exchanges, earlier. 2007 taxes online You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. 2007 taxes online Amount realized on a nonrecourse debt. 2007 taxes online   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. 2007 taxes online The full canceled debt is included even if the fair market value of the property is less than the canceled debt. 2007 taxes online Example 1. 2007 taxes online Chris bought a new car for $15,000. 2007 taxes online He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. 2007 taxes online Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. 2007 taxes online The credit company repossessed the car because he stopped making loan payments. 2007 taxes online The balance due after taking into account the payments Chris made was $10,000. 2007 taxes online The fair market value of the car when repossessed was $9,000. 2007 taxes online The amount Chris realized on the repossession is $10,000. 2007 taxes online That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. 2007 taxes online Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). 2007 taxes online He has a $5,000 nondeductible loss. 2007 taxes online Example 2. 2007 taxes online Abena paid $200,000 for her home. 2007 taxes online She paid $15,000 down and borrowed the remaining $185,000 from a bank. 2007 taxes online Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. 2007 taxes online The bank foreclosed on the loan because Abena stopped making payments. 2007 taxes online When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. 2007 taxes online The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. 2007 taxes online She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). 2007 taxes online She has a $5,000 realized gain. 2007 taxes online Amount realized on a recourse debt. 2007 taxes online   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. 2007 taxes online You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. 2007 taxes online The amount realized does not include the canceled debt that is your income from cancellation of debt. 2007 taxes online See Cancellation of debt, below. 2007 taxes online Seller's (lender's) gain or loss on repossession. 2007 taxes online   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. 2007 taxes online For more information, see Repossession in Publication 537. 2007 taxes online    Table 1-2. 2007 taxes online Worksheet for Foreclosures and Repossessions Part 1. 2007 taxes online Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. 2007 taxes online Complete this part only  if you were personally liable for the debt. 2007 taxes online Otherwise,  go to Part 2. 2007 taxes online   1. 2007 taxes online Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. 2007 taxes online Enter the fair market value of the transferred property   3. 2007 taxes online Ordinary income from cancellation of debt upon foreclosure or    repossession. 2007 taxes online * Subtract line 2 from line 1. 2007 taxes online   If less than zero, enter zero   Part 2. 2007 taxes online Figure your gain or loss from foreclosure or repossession. 2007 taxes online   4. 2007 taxes online If you completed Part 1, enter the smaller of line 1 or line 2. 2007 taxes online   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. 2007 taxes online Enter any proceeds you received from the foreclosure sale   6. 2007 taxes online Add lines 4 and 5   7. 2007 taxes online Enter the adjusted basis of the transferred property   8. 2007 taxes online Gain or loss from foreclosure or repossession. 2007 taxes online Subtract line 7  from line 6   * The income may not be taxable. 2007 taxes online See Cancellation of debt. 2007 taxes online Cancellation of debt. 2007 taxes online   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. 2007 taxes online This income is separate from any gain or loss realized from the foreclosure or repossession. 2007 taxes online Report the income from cancellation of a debt related to a business or rental activity as business or rental income. 2007 taxes online    You can use Table 1-2 to figure your income from cancellation of debt. 2007 taxes online   You must report this income on your tax return unless one of the following applies. 2007 taxes online The cancellation is intended as a gift. 2007 taxes online The debt is qualified farm debt. 2007 taxes online The debt is qualified real property business debt. 2007 taxes online You are insolvent or bankrupt. 2007 taxes online The debt is qualified principal residence indebtedness. 2007 taxes online File Form 982 to report the income exclusion. 2007 taxes online Example 1. 2007 taxes online Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). 2007 taxes online In this case, the amount he realizes is $9,000. 2007 taxes online This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). 2007 taxes online Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). 2007 taxes online He has a $6,000 nondeductible loss. 2007 taxes online He also is treated as receiving ordinary income from cancellation of debt. 2007 taxes online That income is $1,000 ($10,000 − $9,000). 2007 taxes online This is the part of the canceled debt not included in the amount realized. 2007 taxes online Example 2. 2007 taxes online Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). 2007 taxes online In this case, the amount she realizes is $170,000. 2007 taxes online This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). 2007 taxes online Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). 2007 taxes online She has a $5,000 nondeductible loss. 2007 taxes online She also is treated as receiving ordinary income from cancellation of debt. 2007 taxes online (The debt is not exempt from tax as discussed under Cancellation of debt, above. 2007 taxes online ) That income is $10,000 ($180,000 − $170,000). 2007 taxes online This is the part of the canceled debt not included in the amount realized. 2007 taxes online Forms 1099-A and 1099-C. 2007 taxes online   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. 2007 taxes online However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. 2007 taxes online The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 2007 taxes online For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 2007 taxes online Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. 2007 taxes online Involuntary conversions are also called involuntary exchanges. 2007 taxes online Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. 2007 taxes online You report the gain or deduct the loss on your tax return for the year you realize it. 2007 taxes online You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. 2007 taxes online However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. 2007 taxes online Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. 2007 taxes online Your basis for the new property is the same as your basis for the converted property. 2007 taxes online This means that the gain is deferred until a taxable sale or exchange occurs. 2007 taxes online If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. 2007 taxes online This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. 2007 taxes online If you have a gain or loss from the destruction or theft of property, see Publication 547. 2007 taxes online Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. 2007 taxes online The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. 2007 taxes online The owner receives a condemnation award (money or property) in exchange for the property taken. 2007 taxes online A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. 2007 taxes online Example. 2007 taxes online A local government authorized to acquire land for public parks informed you that it wished to acquire your property. 2007 taxes online After the local government took action to condemn your property, you went to court to keep it. 2007 taxes online But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. 2007 taxes online This is a condemnation of private property for public use. 2007 taxes online Threat of condemnation. 2007 taxes online   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. 2007 taxes online You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. 2007 taxes online   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. 2007 taxes online If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. 2007 taxes online Reports of condemnation. 2007 taxes online   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. 2007 taxes online You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. 2007 taxes online If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. 2007 taxes online Example. 2007 taxes online Your property lies along public utility lines. 2007 taxes online The utility company has the authority to condemn your property. 2007 taxes online The company informs you that it intends to acquire your property by negotiation or condemnation. 2007 taxes online A threat of condemnation exists when you receive the notice. 2007 taxes online Related property voluntarily sold. 2007 taxes online   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. 2007 taxes online A substantial economic relationship exists if together the properties were one economic unit. 2007 taxes online You also must show that the condemned property could not reasonably or adequately be replaced. 2007 taxes online You can elect to postpone reporting the gain by buying replacement property. 2007 taxes online See Postponement of Gain, later. 2007 taxes online Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. 2007 taxes online If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. 2007 taxes online You can postpone reporting gain from a condemnation if you buy replacement property. 2007 taxes online If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. 2007 taxes online See Postponement of Gain, later. 2007 taxes online If your net condemnation award is less than your adjusted basis, you have a loss. 2007 taxes online If your loss is from property you held for personal use, you cannot deduct it. 2007 taxes online You must report any deductible loss in the tax year it happened. 2007 taxes online You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. 2007 taxes online Main home condemned. 2007 taxes online   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. 2007 taxes online You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). 2007 taxes online For information on this exclusion, see Publication 523. 2007 taxes online If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. 2007 taxes online See Postponement of Gain, later. 2007 taxes online Table 1-3. 2007 taxes online Worksheet for Condemnations Part 1. 2007 taxes online Gain from severance damages. 2007 taxes online  If you did not receive severance damages, skip Part 1 and go to Part 2. 2007 taxes online   1. 2007 taxes online Enter gross severance damages received   2. 2007 taxes online Enter your expenses in getting severance damages   3. 2007 taxes online Subtract line 2 from line 1. 2007 taxes online If less than zero, enter -0-   4. 2007 taxes online Enter any special assessment on remaining property taken out of your award   5. 2007 taxes online Net severance damages. 2007 taxes online Subtract line 4 from line 3. 2007 taxes online If less than zero, enter -0-   6. 2007 taxes online Enter the adjusted basis of the remaining property   7. 2007 taxes online Gain from severance damages. 2007 taxes online Subtract line 6 from line 5. 2007 taxes online If less than zero, enter -0-   8. 2007 taxes online Refigured adjusted basis of the remaining property. 2007 taxes online Subtract line 5 from line 6. 2007 taxes online If less than zero, enter -0-   Part 2. 2007 taxes online Gain or loss from condemnation award. 2007 taxes online   9. 2007 taxes online Enter the gross condemnation award received   10. 2007 taxes online Enter your expenses in getting the condemnation award   11. 2007 taxes online If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. 2007 taxes online If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. 2007 taxes online Otherwise, enter -0-   12. 2007 taxes online Add lines 10 and 11   13. 2007 taxes online Net condemnation award. 2007 taxes online Subtract line 12 from line 9   14. 2007 taxes online Enter the adjusted basis of the condemned property   15. 2007 taxes online Gain from condemnation award. 2007 taxes online If line 14 is more than line 13, enter -0-. 2007 taxes online Otherwise, subtract line 14 from  line 13 and skip line 16   16. 2007 taxes online Loss from condemnation award. 2007 taxes online Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. 2007 taxes online )   Part 3. 2007 taxes online Postponed gain from condemnation. 2007 taxes online  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. 2007 taxes online )   17. 2007 taxes online If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. 2007 taxes online Otherwise, enter -0-   18. 2007 taxes online If line 15 is more than zero, enter the amount from line 13. 2007 taxes online Otherwise, enter -0-   19. 2007 taxes online Add lines 17 and 18. 2007 taxes online If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. 2007 taxes online Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. 2007 taxes online Subtract line 20 from line 19. 2007 taxes online If less than zero, enter -0-   22. 2007 taxes online If you completed Part 1, add lines 7 and 15. 2007 taxes online Otherwise, enter the amount from line 15. 2007 taxes online If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. 2007 taxes online Recognized gain. 2007 taxes online Enter the smaller of line 21 or line 22. 2007 taxes online   24. 2007 taxes online Postponed gain. 2007 taxes online Subtract line 23 from line 22. 2007 taxes online If less than zero, enter -0-   Condemnation award. 2007 taxes online   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. 2007 taxes online The award is also the amount you are paid for the sale of your property under threat of condemnation. 2007 taxes online Payment of your debts. 2007 taxes online   Amounts taken out of the award to pay your debts are considered paid to you. 2007 taxes online Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. 2007 taxes online Example. 2007 taxes online The state condemned your property for public use. 2007 taxes online The award was set at $200,000. 2007 taxes online The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. 2007 taxes online You are considered to have received the entire $200,000 as a condemnation award. 2007 taxes online Interest on award. 2007 taxes online   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. 2007 taxes online You must report the interest separately as ordinary income. 2007 taxes online Payments to relocate. 2007 taxes online   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. 2007 taxes online Do not include them in your income. 2007 taxes online Replacement housing payments used to buy new property are included in the property's basis as part of your cost. 2007 taxes online Net condemnation award. 2007 taxes online   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. 2007 taxes online If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. 2007 taxes online This is discussed later under Special assessment taken out of award. 2007 taxes online Severance damages. 2007 taxes online    Severance damages are not part of the award paid for the property condemned. 2007 taxes online They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. 2007 taxes online   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. 2007 taxes online Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. 2007 taxes online   The contracting parties should agree on the specific amount of severance damages in writing. 2007 taxes online If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. 2007 taxes online   You cannot make a completely new allocation of the total award after the transaction is completed. 2007 taxes online However, you can show how much of the award both parties intended for severance damages. 2007 taxes online The severance damages part of the award is determined from all the facts and circumstances. 2007 taxes online Example. 2007 taxes online You sold part of your property to the state under threat of condemnation. 2007 taxes online The contract you and the condemning authority signed showed only the total purchase price. 2007 taxes online It did not specify a fixed sum for severance damages. 2007 taxes online However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. 2007 taxes online You may treat this part as severance damages. 2007 taxes online Treatment of severance damages. 2007 taxes online   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. 2007 taxes online Use them to reduce the basis of the remaining property. 2007 taxes online If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. 2007 taxes online   If your net severance damages are more than the basis of your retained property, you have a gain. 2007 taxes online You may be able to postpone reporting the gain. 2007 taxes online See Postponement of Gain, later. 2007 taxes online    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. 2007 taxes online Net severance damages. 2007 taxes online   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. 2007 taxes online You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. 2007 taxes online The balance is your net severance damages. 2007 taxes online Expenses of obtaining a condemnation award and severance damages. 2007 taxes online   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. 2007 taxes online Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. 2007 taxes online If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. 2007 taxes online Example. 2007 taxes online You receive a condemnation award and severance damages. 2007 taxes online One-fourth of the total was designated as severance damages in your agreement with the condemning authority. 2007 taxes online You had legal expenses for the entire condemnation proceeding. 2007 taxes online You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. 2007 taxes online You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. 2007 taxes online Special assessment retained out of award. 2007 taxes online   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. 2007 taxes online An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. 2007 taxes online Examples of improvements that may cause a special assessment are widening a street and installing a sewer. 2007 taxes online   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. 2007 taxes online Example. 2007 taxes online To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. 2007 taxes online You were awarded $5,000 for this and spent $300 to get the award. 2007 taxes online Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. 2007 taxes online The city then paid you only $4,300. 2007 taxes online Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). 2007 taxes online If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). 2007 taxes online The net award would not change, even if you later paid the assessment from the amount you received. 2007 taxes online Severance damages received. 2007 taxes online   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. 2007 taxes online Any balance of the special assessment is used to reduce the condemnation award. 2007 taxes online Example. 2007 taxes online You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. 2007 taxes online You spent $300 to obtain the severance damages. 2007 taxes online A special assessment of $800 was retained out of the award. 2007 taxes online The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. 2007 taxes online Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. 2007 taxes online Part business or rental. 2007 taxes online   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. 2007 taxes online Figure your gain or loss separately because gain or loss on each part may be treated differently. 2007 taxes online   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. 2007 taxes online Example. 2007 taxes online You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. 2007 taxes online You rented half the building and lived in the other half. 2007 taxes online You paid $25,000 for the building and spent an additional $1,000 for a new roof. 2007 taxes online You claimed allowable depreciation of $4,600 on the rental half. 2007 taxes online You spent $200 in legal expenses to obtain the condemnation award. 2007 taxes online Figure your gain or loss as follows. 2007 taxes online     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. 2007 taxes online Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. 2007 taxes online Your basis for the new property is the same as your basis for the old. 2007 taxes online Money or unlike property received. 2007 taxes online   You ordinarily must report the gain if you receive money or unlike property. 2007 taxes online You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. 2007 taxes online You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. 2007 taxes online See Controlling interest in a corporation, later. 2007 taxes online   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. 2007 taxes online If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. 2007 taxes online   The basis of the replacement property is its cost, reduced by the postponed gain. 2007 taxes online Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. 2007 taxes online See Controlling interest in a corporation, later. 2007 taxes online You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. 2007 taxes online Postponing gain on severance damages. 2007 taxes online   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. 2007 taxes online See Treatment of severance damages, earlier. 2007 taxes online You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). 2007 taxes online   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. 2007 taxes online If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. 2007 taxes online   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. 2007 taxes online Postponing gain on the sale of related property. 2007 taxes online   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. 2007 taxes online You must meet the requirements explained earlier under Related property voluntarily sold. 2007 taxes online You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). 2007 taxes online Buying replacement property from a related person. 2007 taxes online   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. 2007 taxes online For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. 2007 taxes online   This rule applies to the following taxpayers. 2007 taxes online C corporations. 2007 taxes online Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. 2007 taxes online All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. 2007 taxes online   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. 2007 taxes online If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. 2007 taxes online If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. 2007 taxes online Exception. 2007 taxes online   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. 2007 taxes online Advance payment. 2007 taxes online   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). 2007 taxes online Replacement property. 2007 taxes online   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. 2007 taxes online You do not have to use the actual funds from the condemnation award to acquire the replacement property. 2007 taxes online Property you acquire by gift or inheritance does not qualify as replacement property. 2007 taxes online Similar or related in service or use. 2007 taxes online   Your replacement property must be similar or related in service or use to the property it replaces. 2007 taxes online   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. 2007 taxes online For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. 2007 taxes online Owner-user. 2007 taxes online   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. 2007 taxes online Example. 2007 taxes online Your home was condemned and you invested the proceeds from the condemnation in a grocery store. 2007 taxes online Your replacement property is not similar or related in service or use to the condemned property. 2007 taxes online To be similar or related in service or use, your replacement property must also be used by you as your home. 2007 taxes online Owner-investor. 2007 taxes online   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. 2007 taxes online You decide this by determining all the following information. 2007 taxes online Whether the properties are of similar service to you. 2007 taxes online The nature of the business risks connected with the properties. 2007 taxes online What the properties demand of you in the way of management, service, and relations to your tenants. 2007 taxes online Example. 2007 taxes online You owned land and a building you rented to a manufacturing company. 2007 taxes online The building was condemned. 2007 taxes online During the replacement period, you had a new building built on other land you already owned. 2007 taxes online You rented out the new building for use as a wholesale grocery warehouse. 2007 taxes online The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. 2007 taxes online Your management activities. 2007 taxes online The amount and kind of services you provide to your tenants. 2007 taxes online The nature of your business risks connected with the properties. 2007 taxes online Leasehold replaced with fee simple property. 2007 taxes online   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. 2007 taxes online   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. 2007 taxes online A leasehold is property held under a lease, usually for a term of years. 2007 taxes online Outdoor advertising display replaced with real property. 2007 taxes online   You can elect to treat an outdoor advertising display as real property. 2007 taxes online If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. 2007 taxes online For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. 2007 taxes online   You can make this election only if you did not claim a section 179 deduction for the display. 2007 taxes online You cannot cancel this election unless you get the consent of the IRS. 2007 taxes online   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. 2007 taxes online Substituting replacement property. 2007 taxes online   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. 2007 taxes online But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. 2007 taxes online Controlling interest in a corporation. 2007 taxes online   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. 2007 taxes online You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. 2007 taxes online Basis adjustment to corporation's property. 2007 taxes online   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. 2007 taxes online You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). 2007 taxes online   Allocate this reduction to the following classes of property in the order shown below. 2007 taxes online Property that is similar or related in service or use to the condemned property. 2007 taxes online Depreciable property not reduced in (1). 2007 taxes online All other property. 2007 taxes online If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. 2007 taxes online The reduced basis of any single property cannot be less than zero. 2007 taxes online Main home replaced. 2007 taxes online   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. 2007 taxes online The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. 2007 taxes online   You must reduce the basis of your replacement property by the postponed gain. 2007 taxes online Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. 2007 taxes online Example. 2007 taxes online City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. 2007 taxes online The city paid you a condemnation award of $400,000. 2007 taxes online Your adjusted basis in the property was $80,000. 2007 taxes online You realize a gain of $320,000 ($400,000 − $80,000). 2007 taxes online You purchased a new home for $100,000. 2007 taxes online You can exclude $250,000 of the realized gain from your gross income. 2007 taxes online The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). 2007 taxes online You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). 2007 taxes online The remaining $20,000 of realized gain is postponed. 2007 taxes online Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). 2007 taxes online Replacement period. 2007 taxes online   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. 2007 taxes online This is the replacement period. 2007 taxes online   The replacement period for a condemnation begins on the earlier of the following dates. 2007 taxes online The date on which you disposed of the condemned property. 2007 taxes online The date on which the threat of condemnation began. 2007 taxes online   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 2007 taxes online However, see the exceptions below. 2007 taxes online Three-year replacement period for certain property. 2007 taxes online   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 2007 taxes online However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. 2007 taxes online Five-year replacement period for certain property. 2007 taxes online   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. 2007 taxes online Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. 2007 taxes online Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. 2007 taxes online Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 2007 taxes online Extended replacement period for taxpayers affected by other federally declared disasters. 2007 taxes online    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. 2007 taxes online For more information visit www. 2007 taxes online irs. 2007 taxes online gov/uac/Tax-Relief-in-Disaster-Situations. 2007 taxes online Weather-related sales of livestock in an area eligible for federal assistance. 2007 taxes online   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. 2007 taxes online    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. 2007 taxes online See Notice 2006-82. 2007 taxes online You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. 2007 taxes online irs. 2007 taxes online gov/irb/2006-39_IRB/ar13. 2007 taxes online html. 2007 taxes online    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. 2007 taxes online If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. 2007 taxes online You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. 2007 taxes online irs. 2007 taxes online gov/irb/2013-45_IRB/ar04. 2007 taxes online html. 2007 taxes online The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. 2007 taxes online Determining when gain is realized. 2007 taxes online   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. 2007 taxes online If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. 2007 taxes online   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. 2007 taxes online A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. 2007 taxes online   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. 2007 taxes online All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. 2007 taxes online All or part of the award is actually or constructively received. 2007 taxes online For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. 2007 taxes online Replacement property bought before the condemnation. 2007 taxes online   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. 2007 taxes online Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. 2007 taxes online Example. 2007 taxes online On April 3, 2012, city authorities notified you that your property would be condemned. 2007 taxes online On June 5, 2012, you acquired property to replace the property to be condemned. 2007 taxes online You still had the new property when the city took possession of your old property on September 4, 2013. 2007 taxes online You have made a replacement within the replacement period. 2007 taxes online Extension. 2007 taxes online   You can request an extension of the replacement period from the IRS director for your area. 2007 taxes online You should apply before the end of the replacement period. 2007 taxes online Your request should explain in detail why you need an extension. 2007 taxes online The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. 2007 taxes online An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. 2007 taxes online   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. 2007 taxes online Extensions are usually limited to a period of 1 year or less. 2007 taxes online The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. 2007 taxes online If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri