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2011 Income Tax

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2011 Income Tax

2011 income tax 13. 2011 income tax   Payment of Taxes Table of Contents How To Make Deposits When To Make Deposits Amount of DepositsSafe Harbor Rule Generally, semimonthly deposits of excise taxes are required. 2011 income tax A semimonthly period is the first 15 days of a month (the first semimonthly period) or the 16th through the last day of a month (the second semimonthly period). 2011 income tax However, no deposit is required for the situations listed below; the taxes are payable with Form 720. 2011 income tax The net liability for taxes listed in Part I (Form 720) does not exceed $2,500 for the quarter. 2011 income tax The gas guzzler tax is being paid on a one-time filing. 2011 income tax The liability is for taxes listed in Part II (Form 720), except for the floor stocks tax which generally requires a single deposit. 2011 income tax How To Make Deposits Electronic deposit requirement. 2011 income tax   You must use electronic funds transfer to make excise tax deposits. 2011 income tax Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). 2011 income tax If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf. 2011 income tax Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. 2011 income tax   EFTPS is a free service provided by the Department of Treasury. 2011 income tax Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. 2011 income tax To get more information about EFTPS or to enroll in EFTPS, visit www. 2011 income tax eftps. 2011 income tax gov or call 1-800-555-4477. 2011 income tax Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. 2011 income tax    Depositing on time. 2011 income tax For EFTPS deposits to be on time, you must initiate the transaction at least 1 day before the date the deposit is due (before 8:00 p. 2011 income tax m. 2011 income tax Eastern time). 2011 income tax You will automatically be enrolled in EFTPS when you apply for an EIN. 2011 income tax You will receive a separate mailing containing instructions for activating your EFTPS enrollment after you receive your EIN. 2011 income tax When To Make Deposits There are two methods for determining deposits: the regular method and the alternative method. 2011 income tax The regular method applies to all taxes in Part I of Form 720 except for communications and air transportation taxes if deposits are based on amounts billed or tickets sold, rather than on amounts actually collected. 2011 income tax See Alternative method below. 2011 income tax If you are depositing more than one tax under a method, combine all the taxes under the method and make one deposit for the semimonthly period. 2011 income tax Regular method. 2011 income tax   The deposit of tax for a semimonthly period is due by the 14th day following that period. 2011 income tax Generally, this is the 29th day of a month for the first semimonthly period and the 14th day of the following month for the second semimonthly period. 2011 income tax If the 14th or the 29th day falls on a Saturday, Sunday, or legal holiday, you must make the deposit by the immediately preceding day that is not a Saturday, Sunday, or legal holiday. 2011 income tax Alternative method (IRS Nos. 2011 income tax 22, 26, 27, and 28). 2011 income tax   Deposits of communications and air transportation taxes may be based on taxes included in amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. 2011 income tax Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second following semimonthly period. 2011 income tax The deposit of tax is due by the 3rd banking day after the 7th day of that period. 2011 income tax   For an example of the alternative method, see the Instructions for Form 720. 2011 income tax To use the alternative method, you must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the tax included in amounts billed or tickets sold and not the amount of tax that is actually collected. 2011 income tax For example, amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the 1st quarter of the calendar year. 2011 income tax The separate account for each month must reflect: All items of tax included in amounts billed or tickets sold during the month, and Other items of adjustment relating to tax for prior months (within the statute of limitations on credits or refunds). 2011 income tax The separate account for any month cannot include an adjustment resulting from a refusal to pay or inability to collect unless the refusal has been reported to the IRS. 2011 income tax See Uncollected Tax Report in chapter 4. 2011 income tax The net amount of tax that is considered collected during the semimonthly period must be either: The net amount of tax reflected in the separate account for the corresponding semimonthly period of the preceding month, or One-half of the net amount of tax reflected in the separate account for the preceding month. 2011 income tax Special rule for deposits of taxes in September. 2011 income tax   See the Instructions for Form 720 for a special rule on deposits made in September. 2011 income tax Amount of Deposits Deposits for a semimonthly period generally must be at least 95% of the net tax liability for that period unless the safe harbor rule (discussed later) applies. 2011 income tax Generally, you do not have to make a deposit for a period in which you incurred no tax liability. 2011 income tax Net tax liability. 2011 income tax   Your net tax liability is your tax liability for the period minus any claims on Schedule C (Form 720) for the period. 2011 income tax You may figure your net tax liability for a semimonthly period by dividing your net liability incurred during the calendar month by two. 2011 income tax If you use this method, you must use it for all semimonthly periods in the calendar quarter. 2011 income tax Do not reduce your liability by any amounts from Form 720X. 2011 income tax Safe Harbor Rule The safe harbor rule applies separately to deposits under the regular method and the alternative method. 2011 income tax Persons who filed Form 720 for the look-back quarter (the 2nd calendar quarter preceding the current quarter) are considered to meet the semimonthly deposit requirement if the deposit for each semimonthly period in the current quarter is at least 1/6 (16. 2011 income tax 67%) of the net tax liability reported for the look-back quarter. 2011 income tax For the semimonthly period for which the additional deposit is required, the additional deposit must be at least 11/90 12. 2011 income tax 23%), 10/90 (11. 2011 income tax 12%) for non-EFTPS, of the net tax liability reported for the look-back quarter. 2011 income tax Also, the total deposit for that semimonthly period must be at least 1/6 (16. 2011 income tax 67%) of the net tax liability reported for the look-back quarter. 2011 income tax Exceptions. 2011 income tax   The safe harbor rule does not apply to: The 1st and 2nd quarters beginning on or after the effective date of an increase in the rate of tax unless the deposit of taxes for each semimonthly period in the calendar quarter is at least 1/6 (16. 2011 income tax 67%) of the tax liability you would have had for the look-back quarter if the increased rate of tax had been in effect for that look-back quarter, Any quarter if liability includes any tax not in effect throughout the look-back quarter, or For deposits under the alternative method, any quarter if liability includes any tax not in effect throughout the look-back quarter and the month preceding the look-back quarter. 2011 income tax Requirements to be met. 2011 income tax   For the safe harbor rule to apply, you must: Make each deposit timely at an authorized financial institution, and Pay any underpayment for the current quarter by the due date of the return. 2011 income tax    The IRS may withdraw the right to make deposits of tax using the safe harbor rule from any person not complying with these rules. 2011 income tax Tax rate increases. 2011 income tax   You must modify the safe harbor rule if there has been an increase in the rate of tax. 2011 income tax You must figure your tax liability in the look-back quarter as if the increased rate had been in effect. 2011 income tax To qualify for the safe harbor rule, your deposits cannot be less than 1/6 of the refigured tax liability. 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The 2011 Income Tax

2011 income tax 14. 2011 income tax   Sale of Property Table of Contents Reminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities Reminder Foreign income. 2011 income tax  If you are a U. 2011 income tax S. 2011 income tax citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. 2011 income tax S. 2011 income tax law. 2011 income tax This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. 2011 income tax Introduction This chapter discusses the tax consequences of selling or trading investment property. 2011 income tax It explains the following. 2011 income tax What a sale or trade is. 2011 income tax Figuring gain or loss. 2011 income tax Nontaxable trades. 2011 income tax Related party transactions. 2011 income tax Capital gains or losses. 2011 income tax Capital assets and noncapital assets. 2011 income tax Holding period. 2011 income tax Rollover of gain from publicly traded securities. 2011 income tax Other property transactions. 2011 income tax   Certain transfers of property are not discussed here. 2011 income tax They are discussed in other IRS publications. 2011 income tax These include the following. 2011 income tax Sales of a main home, covered in chapter 15. 2011 income tax Installment sales, covered in Publication 537, Installment Sales. 2011 income tax Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. 2011 income tax Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. 2011 income tax    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. 2011 income tax Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. 2011 income tax It also discusses investment-related expenses. 2011 income tax Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. 2011 income tax Generally, you should receive the statement by February 15 of the next year. 2011 income tax It will show the gross proceeds from the sale. 2011 income tax If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. 2011 income tax Generally, a covered security is a security you acquired after 2010, with certain exceptions. 2011 income tax See the Instructions for Form 8949. 2011 income tax The IRS will also get a copy of Form 1099-B from the broker. 2011 income tax Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. 2011 income tax What Is a Sale or Trade? This section explains what is a sale or trade. 2011 income tax It also explains certain transactions and events that are treated as sales or trades. 2011 income tax A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. 2011 income tax A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. 2011 income tax Sale and purchase. 2011 income tax   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. 2011 income tax The sale and purchase are two separate transactions. 2011 income tax But see Like-kind exchanges under Nontaxable Trades, later. 2011 income tax Redemption of stock. 2011 income tax   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. 2011 income tax Dividend versus sale or trade. 2011 income tax   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. 2011 income tax Both direct and indirect ownership of stock will be considered. 2011 income tax The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. 2011 income tax Redemption or retirement of bonds. 2011 income tax   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. 2011 income tax   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. 2011 income tax For details, see Regulations section 1. 2011 income tax 1001-3. 2011 income tax Surrender of stock. 2011 income tax   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. 2011 income tax The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. 2011 income tax Worthless securities. 2011 income tax    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. 2011 income tax This affects whether your capital loss is long term or short term. 2011 income tax See Holding Period , later. 2011 income tax   Worthless securities also include securities that you abandon after March 12, 2008. 2011 income tax To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. 2011 income tax All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. 2011 income tax    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. 2011 income tax Do not deduct them in the year the stock became worthless. 2011 income tax How to report loss. 2011 income tax    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. 2011 income tax In column (a), enter “Worthless. 2011 income tax ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. 2011 income tax See Form 8949 and the Instructions for Form 8949. 2011 income tax For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 2011 income tax See also Schedule D (Form 1040), Form 8949, and their separate instructions. 2011 income tax Filing a claim for refund. 2011 income tax   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. 2011 income tax You must use Form 1040X, Amended U. 2011 income tax S. 2011 income tax Individual Income Tax Return, to amend your return for the year the security became worthless. 2011 income tax You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. 2011 income tax For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. 2011 income tax How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. 2011 income tax Gain. 2011 income tax   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. 2011 income tax Loss. 2011 income tax   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. 2011 income tax Adjusted basis. 2011 income tax   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. 2011 income tax See chapter 13 for more information about determining the adjusted basis of property. 2011 income tax Amount realized. 2011 income tax   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). 2011 income tax Amount realized includes the money you receive plus the fair market value of any property or services you receive. 2011 income tax If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. 2011 income tax If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. 2011 income tax For more information, see Publication 537. 2011 income tax Fair market value. 2011 income tax   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. 2011 income tax Example. 2011 income tax You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. 2011 income tax Your gain is $3,000 ($10,000 − $7,000). 2011 income tax Debt paid off. 2011 income tax    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. 2011 income tax This is true even if neither you nor the buyer is personally liable for the debt. 2011 income tax For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. 2011 income tax Example. 2011 income tax You sell stock that you had pledged as security for a bank loan of $8,000. 2011 income tax Your basis in the stock is $6,000. 2011 income tax The buyer pays off your bank loan and pays you $20,000 in cash. 2011 income tax The amount realized is $28,000 ($20,000 + $8,000). 2011 income tax Your gain is $22,000 ($28,000 − $6,000). 2011 income tax Payment of cash. 2011 income tax   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. 2011 income tax Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. 2011 income tax If the result is a positive number, it is a gain. 2011 income tax If the result is a negative number, it is a loss. 2011 income tax No gain or loss. 2011 income tax   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. 2011 income tax In this case, you may have neither a gain nor a loss. 2011 income tax See Basis Other Than Cost in chapter 13. 2011 income tax Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. 2011 income tax For more information on nontaxable trades, see chapter 1 of Publication 544. 2011 income tax Like-kind exchanges. 2011 income tax   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. 2011 income tax To be nontaxable, a trade must meet all six of the following conditions. 2011 income tax The property must be business or investment property. 2011 income tax You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. 2011 income tax Neither property may be property used for personal purposes, such as your home or family car. 2011 income tax The property must not be held primarily for sale. 2011 income tax The property you trade and the property you receive must not be property you sell to customers, such as merchandise. 2011 income tax The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. 2011 income tax However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. 2011 income tax Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. 2011 income tax There must be a trade of like property. 2011 income tax The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. 2011 income tax The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. 2011 income tax The trade of a piece of machinery for a store building is not a trade of like property. 2011 income tax Real property located in the United States and real property located outside the United States are not like property. 2011 income tax Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. 2011 income tax The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. 2011 income tax The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. 2011 income tax    If you trade property with a related party in a like-kind exchange, a special rule may apply. 2011 income tax See Related Party Transactions , later in this chapter. 2011 income tax Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. 2011 income tax Partly nontaxable exchange. 2011 income tax   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. 2011 income tax You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. 2011 income tax You cannot deduct a loss. 2011 income tax Like property and unlike property transferred. 2011 income tax   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. 2011 income tax The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. 2011 income tax Like property and money transferred. 2011 income tax   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. 2011 income tax Basis of property received. 2011 income tax   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. 2011 income tax How to report. 2011 income tax   You must report the trade of like property on Form 8824. 2011 income tax If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. 2011 income tax See the instructions for Line 22 in the Instructions for Form 8824. 2011 income tax   For information on using Form 4797, see chapter 4 of Publication 544. 2011 income tax Corporate stocks. 2011 income tax   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. 2011 income tax Corporate reorganizations. 2011 income tax   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. 2011 income tax If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. 2011 income tax Stock for stock of the same corporation. 2011 income tax   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. 2011 income tax This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. 2011 income tax Convertible stocks and bonds. 2011 income tax   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. 2011 income tax Property for stock of a controlled corporation. 2011 income tax   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. 2011 income tax This rule applies both to individuals and to groups who transfer property to a corporation. 2011 income tax It does not apply if the corporation is an investment company. 2011 income tax   For this purpose, to be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock of the corporation. 2011 income tax   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. 2011 income tax For details, see Regulations section 1. 2011 income tax 351-3. 2011 income tax Additional information. 2011 income tax   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. 2011 income tax Insurance policies and annuities. 2011 income tax   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. 2011 income tax   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. 2011 income tax For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. 2011 income tax Revenue Ruling 2003-76 is available at www. 2011 income tax irs. 2011 income tax gov/irb/2003-33_IRB/ar11. 2011 income tax html. 2011 income tax Revenue Procedure 2008-24 is available at www. 2011 income tax irs. 2011 income tax gov/irb/2008-13_IRB/ar13. 2011 income tax html. 2011 income tax For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. 2011 income tax Revenue Procedure 2011-38 is available at www. 2011 income tax irs. 2011 income tax gov/irb/2011-30_IRB/ar09. 2011 income tax html. 2011 income tax   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. 2011 income tax A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. 2011 income tax The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. 2011 income tax   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. 2011 income tax Demutualization of life insurance companies. 2011 income tax   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. 2011 income tax See Demutualization of Life Insurance Companies in Publication 550. 2011 income tax U. 2011 income tax S. 2011 income tax Treasury notes or bonds. 2011 income tax   You can trade certain issues of U. 2011 income tax S. 2011 income tax Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. 2011 income tax See Savings bonds traded in chapter 1 of Publication 550 for more information. 2011 income tax Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. 2011 income tax This nonrecognition rule does not apply in the following situations. 2011 income tax The recipient spouse or former spouse is a nonresident alien. 2011 income tax Property is transferred in trust and liability exceeds basis. 2011 income tax Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. 2011 income tax For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. 2011 income tax Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. 2011 income tax The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. 2011 income tax This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. 2011 income tax This rule applies for purposes of determining loss as well as gain. 2011 income tax Any gain recognized on a transfer in trust increases the basis. 2011 income tax A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. 2011 income tax Related Party Transactions Special rules apply to the sale or trade of property between related parties. 2011 income tax Gain on sale or trade of depreciable property. 2011 income tax   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. 2011 income tax See chapter 3 of Publication 544 for more information. 2011 income tax Like-kind exchanges. 2011 income tax   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. 2011 income tax See Like-kind exchanges , earlier, under Nontaxable Trades. 2011 income tax   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. 2011 income tax However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. 2011 income tax See Related Party Transactions in chapter 4 of Publication 550 for exceptions. 2011 income tax Losses on sales or trades of property. 2011 income tax   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. 2011 income tax Members of your family. 2011 income tax This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. 2011 income tax ), and lineal descendants (children, grandchildren, etc. 2011 income tax ). 2011 income tax A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. 2011 income tax A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. 2011 income tax (See Constructive ownership of stock , later. 2011 income tax ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. 2011 income tax   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. 2011 income tax A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. 2011 income tax Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. 2011 income tax A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. 2011 income tax A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership. 2011 income tax Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. 2011 income tax Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. 2011 income tax An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). 2011 income tax Two corporations that are members of the same controlled group. 2011 income tax (Under certain conditions, however, these losses are not disallowed but must be deferred. 2011 income tax ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. 2011 income tax Multiple property sales or trades. 2011 income tax   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. 2011 income tax The gain on each item may be taxable. 2011 income tax However, you cannot deduct the loss on any item. 2011 income tax Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. 2011 income tax Indirect transactions. 2011 income tax   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. 2011 income tax This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. 2011 income tax Constructive ownership of stock. 2011 income tax   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. 2011 income tax Rule 1. 2011 income tax   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. 2011 income tax Rule 2. 2011 income tax   An individual is considered to own the stock directly or indirectly owned by or for his or her family. 2011 income tax Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. 2011 income tax Rule 3. 2011 income tax   An individual owning, other than by applying rule 2, any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. 2011 income tax Rule 4. 2011 income tax   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. 2011 income tax But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. 2011 income tax Property received from a related party. 2011 income tax    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. 2011 income tax This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. 2011 income tax This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. 2011 income tax   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. 2011 income tax Example 1. 2011 income tax Your brother sells you stock for $7,600. 2011 income tax His cost basis is $10,000. 2011 income tax Your brother cannot deduct the loss of $2,400. 2011 income tax Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. 2011 income tax Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). 2011 income tax Example 2. 2011 income tax If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). 2011 income tax You cannot deduct the loss that was not allowed to your brother. 2011 income tax Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. 2011 income tax Character of gain or loss. 2011 income tax   You need to classify your gains and losses as either ordinary or capital gains or losses. 2011 income tax You then need to classify your capital gains and losses as either short term or long term. 2011 income tax If you have long-term gains and losses, you must identify your 28% rate gains and losses. 2011 income tax If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. 2011 income tax   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. 2011 income tax Reporting capital gains and losses is explained in chapter 16. 2011 income tax Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. 2011 income tax Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. 2011 income tax A sale or trade of a noncapital asset generally results in ordinary gain or loss. 2011 income tax Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. 2011 income tax In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. 2011 income tax Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. 2011 income tax Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. 2011 income tax Any property you own is a capital asset, except the following noncapital assets. 2011 income tax Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. 2011 income tax For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. 2011 income tax Depreciable property used in your trade or business, even if fully depreciated. 2011 income tax Real property used in your trade or business. 2011 income tax A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. 2011 income tax For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. 2011 income tax Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). 2011 income tax U. 2011 income tax S. 2011 income tax Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. 2011 income tax Certain commodities derivative financial instruments held by commodities derivatives dealers. 2011 income tax Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. 2011 income tax Supplies of a type you regularly use or consume in the ordinary course of your trade or business. 2011 income tax Investment Property Investment property is a capital asset. 2011 income tax Any gain or loss from its sale or trade is generally a capital gain or loss. 2011 income tax Gold, silver, stamps, coins, gems, etc. 2011 income tax   These are capital assets except when they are held for sale by a dealer. 2011 income tax Any gain or loss you have from their sale or trade generally is a capital gain or loss. 2011 income tax Stocks, stock rights, and bonds. 2011 income tax   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. 2011 income tax However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. 2011 income tax Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. 2011 income tax However, you cannot deduct a loss from selling personal use property. 2011 income tax Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. 2011 income tax You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. 2011 income tax You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. 2011 income tax You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. 2011 income tax For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 2011 income tax See also Schedule D (Form 1040), Form 8949, and their separate instructions. 2011 income tax You can revoke the election if you have IRS approval. 2011 income tax To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. 2011 income tax See, for example, Rev. 2011 income tax Proc. 2011 income tax 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. 2011 income tax Proc. 2011 income tax 2013–32, available at www. 2011 income tax irs. 2011 income tax gov/irb/2013-01_IRB/ar06. 2011 income tax html. 2011 income tax Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. 2011 income tax Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. 2011 income tax Short-term government obligations. 2011 income tax   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. 2011 income tax This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. 2011 income tax Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. 2011 income tax   However, do not treat these gains as income to the extent you previously included the discount in income. 2011 income tax See Discount on Short-Term Obligations in chapter 1 of Publication 550. 2011 income tax Short-term nongovernment obligations. 2011 income tax   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). 2011 income tax This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. 2011 income tax   However, to the extent you previously included the discount in income, you do not have to include it in income again. 2011 income tax See Discount on Short-Term Obligations in chapter 1 of Publication 550. 2011 income tax Tax-exempt state and local government bonds. 2011 income tax   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. 2011 income tax To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. 2011 income tax   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. 2011 income tax For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. 2011 income tax   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. 2011 income tax If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. 2011 income tax If you bought the bonds after April 30, 1993, the gain is ordinary income. 2011 income tax   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. 2011 income tax For more information, see Market Discount Bonds in chapter 1 of Publication 550. 2011 income tax    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. 2011 income tax Redeemed before maturity. 2011 income tax   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. 2011 income tax   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. 2011 income tax However, you must report the unearned part of OID as a capital gain. 2011 income tax Example. 2011 income tax On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. 2011 income tax The face amount of the bond was $1,000. 2011 income tax The $200 discount was OID. 2011 income tax At the time the bond was issued, the issuer had no intention of redeeming it before it matured. 2011 income tax The bond was callable at its face amount beginning 10 years after the issue date. 2011 income tax The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. 2011 income tax The OID earned during the time you held the bond, $73, is not taxable. 2011 income tax The $60 accrued annual interest also is not taxable. 2011 income tax However, you must report the unearned part of OID ($127) as a capital gain. 2011 income tax Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). 2011 income tax   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. 2011 income tax The rest of the gain is capital gain. 2011 income tax If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. 2011 income tax This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. 2011 income tax Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). 2011 income tax   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. 2011 income tax Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. 2011 income tax See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. 2011 income tax   If you sell or trade the debt instrument before maturity, your gain is a capital gain. 2011 income tax However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. 2011 income tax In this case, the rest of the gain is capital gain. 2011 income tax Market discount bonds. 2011 income tax   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. 2011 income tax If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. 2011 income tax The rest of the gain is capital gain. 2011 income tax See Market Discount Bonds in chapter 1 of Publication 550. 2011 income tax   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. 2011 income tax See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. 2011 income tax Retirement of debt instrument. 2011 income tax   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. 2011 income tax Notes of individuals. 2011 income tax   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. 2011 income tax An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. 2011 income tax The lender is not in the business of lending money. 2011 income tax The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. 2011 income tax Avoiding federal tax is not one of the principal purposes of the loan. 2011 income tax   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. 2011 income tax When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. 2011 income tax The rest of the gain, if any, is capital gain. 2011 income tax Any loss on the sale or redemption is capital loss. 2011 income tax Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. 2011 income tax Ordinary loss. 2011 income tax Casualty loss. 2011 income tax Nonbusiness bad debt (short-term capital loss). 2011 income tax  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. 2011 income tax Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. 2011 income tax Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. 2011 income tax Report the loss on Form 4797, line 10. 2011 income tax Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. 2011 income tax Report the gain on Form 8949. 2011 income tax See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. 2011 income tax For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 2011 income tax See also Schedule D (Form 1040), Form 8949, and their separate instructions. 2011 income tax Holding Period If you sold or traded investment property, you must determine your holding period for the property. 2011 income tax Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. 2011 income tax Long-term or short-term. 2011 income tax   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. 2011 income tax If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. 2011 income tax   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. 2011 income tax The day you disposed of the property is part of your holding period. 2011 income tax Example. 2011 income tax If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. 2011 income tax If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. 2011 income tax Securities traded on established market. 2011 income tax   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. 2011 income tax    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. 2011 income tax Example. 2011 income tax You are a cash method, calendar year taxpayer. 2011 income tax You sold stock at a gain on December 30, 2013. 2011 income tax According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. 2011 income tax You received payment of the sales price on that same day. 2011 income tax Report your gain on your 2013 return, even though you received the payment in 2014. 2011 income tax The gain is long term or short term depending on whether you held the stock more than 1 year. 2011 income tax Your holding period ended on December 30. 2011 income tax If you had sold the stock at a loss, you would also report it on your 2013 return. 2011 income tax U. 2011 income tax S. 2011 income tax Treasury notes and bonds. 2011 income tax   The holding period of U. 2011 income tax S. 2011 income tax Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. 2011 income tax The holding period of U. 2011 income tax S. 2011 income tax Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. 2011 income tax Automatic investment service. 2011 income tax   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. 2011 income tax Your holding period starts on the day after the bank's purchase date. 2011 income tax If a share was bought over more than one purchase date, your holding period for that share is a split holding period. 2011 income tax A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. 2011 income tax Nontaxable trades. 2011 income tax   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. 2011 income tax Property received as a gift. 2011 income tax   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. 2011 income tax   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. 2011 income tax Inherited property. 2011 income tax   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. 2011 income tax This is true regardless of how long you actually held the property. 2011 income tax However, if you inherited property from someone who died in 2010, see the information below. 2011 income tax Inherited property from someone who died in 2010. 2011 income tax   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. 2011 income tax Real property bought. 2011 income tax   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. 2011 income tax However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. 2011 income tax The holding period cannot start until there is an actual contract of sale. 2011 income tax The holding period of the seller cannot end before that time. 2011 income tax Real property repossessed. 2011 income tax   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. 2011 income tax Your holding period does not include the time between the original sale and the repossession. 2011 income tax That is, it does not include the period during which the first buyer held the property. 2011 income tax Stock dividends. 2011 income tax   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. 2011 income tax   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. 2011 income tax This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. 2011 income tax Nontaxable stock rights. 2011 income tax   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. 2011 income tax The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. 2011 income tax Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. 2011 income tax You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. 2011 income tax Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. 2011 income tax To be deductible, nonbusiness bad debts must be totally worthless. 2011 income tax You cannot deduct a partly worthless nonbusiness debt. 2011 income tax Genuine debt required. 2011 income tax   A debt must be genuine for you to deduct a loss. 2011 income tax A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. 2011 income tax Basis in bad debt required. 2011 income tax    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. 2011 income tax For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. 2011 income tax If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. 2011 income tax When deductible. 2011 income tax   You can take a bad debt deduction only in the year the debt becomes worthless. 2011 income tax You do not have to wait until a debt is due to determine whether it is worthless. 2011 income tax A debt becomes worthless when there is no longer any chance that the amount owed will be paid. 2011 income tax   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. 2011 income tax You must only show that you have taken reasonable steps to collect the debt. 2011 income tax Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. 2011 income tax How to report bad debts. 2011 income tax    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. 2011 income tax    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. 2011 income tax    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 2011 income tax See also Schedule D (Form 1040), Form 8949, and their separate instructions. 2011 income tax   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. 2011 income tax For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. 2011 income tax Filing a claim for refund. 2011 income tax    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. 2011 income tax To do this, use Form 1040X to amend your return for the year the debt became worthless. 2011 income tax You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. 2011 income tax For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. 2011 income tax Additional information. 2011 income tax   For more information, see Nonbusiness Bad Debts in Publication 550. 2011 income tax For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. 2011 income tax Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. 2011 income tax A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. 2011 income tax If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). 2011 income tax The result is your basis in the new stock or securities. 2011 income tax This adjustment postpones the loss deduction until the disposition of the new stock or securities. 2011 income tax Your holding period for the new stock or securities includes the holding period of the stock or securities sold. 2011 income tax For more information, see Wash Sales, in chapter 4 of Publication 550. 2011 income tax Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. 2011 income tax This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. 2011 income tax You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. 2011 income tax This postpones your gain until the year you dispose of the replacement property. 2011 income tax You qualify to make this choice if you meet all the following tests. 2011 income tax You sell publicly traded securities at a gain. 2011 income tax Publicly traded securities are securities traded on an established securities market. 2011 income tax Your gain from the sale is a capital gain. 2011 income tax During the 60-day period beginning on the date of the sale, you buy replacement property. 2011 income tax This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). 2011 income tax This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. 2011 income tax Amount of gain recognized. 2011 income tax   If you make the choice described in this section, you must recognize gain only up to the following amount. 2011 income tax The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). 2011 income tax  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. 2011 income tax If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. 2011 income tax Limit on gain postponed. 2011 income tax   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. 2011 income tax Basis of replacement property. 2011 income tax   You must subtract the amount of postponed gain from the basis of your replacement property. 2011 income tax How to report and postpone gain. 2011 income tax    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. 2011 income tax Prev  Up  Next   Home   More Online Publications