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2013 1040ez Form Instructions

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2013 1040ez Form Instructions

2013 1040ez form instructions 8. 2013 1040ez form instructions   Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. 2013 1040ez form instructions Reporting tax withheld. 2013 1040ez form instructions Nominees. 2013 1040ez form instructions Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. 2013 1040ez form instructions Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. 2013 1040ez form instructions Alternative minimum tax treatment. 2013 1040ez form instructions How To Report Dividend IncomeInvestment interest deducted. 2013 1040ez form instructions Reminder Foreign-source income. 2013 1040ez form instructions  If you are a U. 2013 1040ez form instructions S. 2013 1040ez form instructions citizen with dividend income from sources outside the United States (foreign-source income), you must report that income on your tax return unless it is exempt by U. 2013 1040ez form instructions S. 2013 1040ez form instructions law. 2013 1040ez form instructions This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. 2013 1040ez form instructions Introduction This chapter discusses the tax treatment of: Ordinary dividends, Capital gain distributions, Nondividend distributions, and Other distributions you may receive from a corporation or a mutual fund. 2013 1040ez form instructions This chapter also explains how to report dividend income on your tax return. 2013 1040ez form instructions Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. 2013 1040ez form instructions You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. 2013 1040ez form instructions However, some amounts you receive that are called dividends are actually interest income. 2013 1040ez form instructions (See Dividends that are actually interest under Taxable Interest in chapter 7. 2013 1040ez form instructions ) Most distributions are paid in cash (or check). 2013 1040ez form instructions However, distributions can consist of more stock, stock rights, other property, or services. 2013 1040ez form instructions Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 550 Investment Income and Expenses Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends General Information This section discusses general rules for dividend income. 2013 1040ez form instructions Tax on unearned income of certain children. 2013 1040ez form instructions   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. 2013 1040ez form instructions If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. 2013 1040ez form instructions If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. 2013 1040ez form instructions    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. 2013 1040ez form instructions Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. 2013 1040ez form instructions   For more information about the tax on unearned income of children and the parents' election, see chapter 31. 2013 1040ez form instructions Beneficiary of an estate or trust. 2013 1040ez form instructions    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. 2013 1040ez form instructions You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. 2013 1040ez form instructions , from the fiduciary. 2013 1040ez form instructions Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. 2013 1040ez form instructions Social security number (SSN) or individual taxpayer identification number (ITIN). 2013 1040ez form instructions    You must give your SSN or ITIN to any person required by federal tax law to make a return, statement, or other document that relates to you. 2013 1040ez form instructions This includes payers of dividends. 2013 1040ez form instructions If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. 2013 1040ez form instructions For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. 2013 1040ez form instructions Backup withholding. 2013 1040ez form instructions   Your dividend income is generally not subject to regular withholding. 2013 1040ez form instructions However, it may be subject to backup withholding to ensure that income tax is collected on the income. 2013 1040ez form instructions Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. 2013 1040ez form instructions   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. 2013 1040ez form instructions For more information, see Backup Withholding in chapter 4. 2013 1040ez form instructions Stock certificate in two or more names. 2013 1040ez form instructions   If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share of any dividends from the stock is determined by local law. 2013 1040ez form instructions Form 1099-DIV. 2013 1040ez form instructions   Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. 2013 1040ez form instructions Keep this form with your records. 2013 1040ez form instructions You do not have to attach it to your tax return. 2013 1040ez form instructions Dividends not reported on Form 1099-DIV. 2013 1040ez form instructions   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. 2013 1040ez form instructions For example, you may receive distributive shares of dividends from partnerships or S corporations. 2013 1040ez form instructions These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 2013 1040ez form instructions , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. 2013 1040ez form instructions Reporting tax withheld. 2013 1040ez form instructions   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. 2013 1040ez form instructions Nominees. 2013 1040ez form instructions   If someone receives distributions as a nominee for you, that person should give you a Form 1099-DIV, which will show distributions received on your behalf. 2013 1040ez form instructions Form 1099-MISC. 2013 1040ez form instructions   Certain substitute payments in lieu of dividends or tax-exempt interest received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. 2013 1040ez form instructions See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. 2013 1040ez form instructions Incorrect amount shown on a Form 1099. 2013 1040ez form instructions   If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. 2013 1040ez form instructions The new Form 1099 you receive will be marked “Corrected. 2013 1040ez form instructions ” Dividends on stock sold. 2013 1040ez form instructions   If stock is sold, exchanged, or otherwise disposed of after a dividend is declared but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income. 2013 1040ez form instructions Dividends received in January. 2013 1040ez form instructions   If a mutual fund (or other regulated investment company) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. 2013 1040ez form instructions You report the dividend in the year it was declared. 2013 1040ez form instructions Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. 2013 1040ez form instructions They are paid out of earnings and profits and are ordinary income to you. 2013 1040ez form instructions This means they are not capital gains. 2013 1040ez form instructions You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. 2013 1040ez form instructions Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. 2013 1040ez form instructions Qualified Dividends Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. 2013 1040ez form instructions They should be shown in box 1b of the Form 1099-DIV you receive. 2013 1040ez form instructions The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. 2013 1040ez form instructions 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. 2013 1040ez form instructions 6%. 2013 1040ez form instructions 20% on any amount that otherwise would be taxed at a 39. 2013 1040ez form instructions 6% rate. 2013 1040ez form instructions To qualify for the maximum rate, all of the following requirements must be met. 2013 1040ez form instructions The dividends must have been paid by a U. 2013 1040ez form instructions S. 2013 1040ez form instructions corporation or a qualified foreign corporation. 2013 1040ez form instructions (See Qualified foreign corporation , later. 2013 1040ez form instructions ) The dividends are not of the type listed later under Dividends that are not qualified dividends . 2013 1040ez form instructions You meet the holding period (discussed next). 2013 1040ez form instructions Holding period. 2013 1040ez form instructions   You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. 2013 1040ez form instructions The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. 2013 1040ez form instructions Instead, the seller will get the dividend. 2013 1040ez form instructions   When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. 2013 1040ez form instructions See the examples later. 2013 1040ez form instructions Exception for preferred stock. 2013 1040ez form instructions   In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. 2013 1040ez form instructions If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. 2013 1040ez form instructions Example 1. 2013 1040ez form instructions You bought 5,000 shares of XYZ Corp. 2013 1040ez form instructions common stock on July 9, 2013. 2013 1040ez form instructions XYZ Corp. 2013 1040ez form instructions paid a cash dividend of 10 cents per share. 2013 1040ez form instructions The ex-dividend date was July 16, 2013. 2013 1040ez form instructions Your Form 1099-DIV from XYZ Corp. 2013 1040ez form instructions shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). 2013 1040ez form instructions However, you sold the 5,000 shares on August 12, 2013. 2013 1040ez form instructions You held your shares of XYZ Corp. 2013 1040ez form instructions for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). 2013 1040ez form instructions The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. 2013 1040ez form instructions You have no qualified dividends from XYZ Corp. 2013 1040ez form instructions because you held the XYZ stock for less than 61 days. 2013 1040ez form instructions Example 2. 2013 1040ez form instructions Assume the same facts as in Example 1 except that you bought the stock on July 15, 2013 (the day before the ex-dividend date), and you sold the stock on September 16, 2013. 2013 1040ez form instructions You held the stock for 63 days (from July 16, 2013, through September 16, 2013). 2013 1040ez form instructions The $500 of qualified dividends shown in box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 16, 2013, through September 14, 2013). 2013 1040ez form instructions Example 3. 2013 1040ez form instructions You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. 2013 1040ez form instructions ABC Mutual Fund paid a cash dividend of 10 cents a share. 2013 1040ez form instructions The ex-dividend date was July 16, 2013. 2013 1040ez form instructions The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. 2013 1040ez form instructions Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. 2013 1040ez form instructions However, you sold the 10,000 shares on August 12, 2013. 2013 1040ez form instructions You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. 2013 1040ez form instructions Holding period reduced where risk of loss is diminished. 2013 1040ez form instructions   When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions. 2013 1040ez form instructions You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities. 2013 1040ez form instructions You were grantor (writer) of an option to buy substantially identical stock or securities. 2013 1040ez form instructions Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. 2013 1040ez form instructions   For information about how to apply condition (3), see Regulations section 1. 2013 1040ez form instructions 246-5. 2013 1040ez form instructions Qualified foreign corporation. 2013 1040ez form instructions   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. 2013 1040ez form instructions The corporation is incorporated in a U. 2013 1040ez form instructions S. 2013 1040ez form instructions possession. 2013 1040ez form instructions The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. 2013 1040ez form instructions For a list of those treaties, see Table 8-1. 2013 1040ez form instructions The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. 2013 1040ez form instructions See Readily tradable stock , later. 2013 1040ez form instructions Exception. 2013 1040ez form instructions   A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. 2013 1040ez form instructions Readily tradable stock. 2013 1040ez form instructions   Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. 2013 1040ez form instructions For a list of the exchanges that meet these requirements, see www. 2013 1040ez form instructions sec. 2013 1040ez form instructions gov/divisions/marketreg/mrexchanges. 2013 1040ez form instructions shtml. 2013 1040ez form instructions Dividends that are not qualified dividends. 2013 1040ez form instructions   The following dividends are not qualified dividends. 2013 1040ez form instructions They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. 2013 1040ez form instructions Capital gain distributions. 2013 1040ez form instructions Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. 2013 1040ez form instructions S. 2013 1040ez form instructions building and loan associations, U. 2013 1040ez form instructions S. 2013 1040ez form instructions savings and loan associations, federal savings and loan associations, and similar financial institutions. 2013 1040ez form instructions (Report these amounts as interest income. 2013 1040ez form instructions ) Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year. 2013 1040ez form instructions Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation. 2013 1040ez form instructions Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. 2013 1040ez form instructions Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. 2013 1040ez form instructions Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. 2013 1040ez form instructions Table 8-1. 2013 1040ez form instructions Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. 2013 1040ez form instructions Australia Indonesia Romania Austria Ireland Russian Bangladesh Israel Federation Barbados Italy Slovak Belgium Jamaica Republic Bulgaria Japan Slovenia Canada Kazakhstan South Africa China Korea Spain Cyprus Latvia Sri Lanka Czech Lithuania Sweden Republic Luxembourg Switzerland Denmark Malta Thailand Egypt Mexico Trinidad and Estonia Morocco Tobago Finland Netherlands Tunisia France New Zealand Turkey Germany Norway Ukraine Greece Pakistan United Hungary Philippines Kingdom Iceland Poland Venezuela India Portugal     Dividends Used to Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. 2013 1040ez form instructions This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. 2013 1040ez form instructions Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. 2013 1040ez form instructions If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. 2013 1040ez form instructions If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date. 2013 1040ez form instructions You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used to buy the additional stock. 2013 1040ez form instructions But you may be able to deduct the service charge. 2013 1040ez form instructions See chapter 28 for more information about deducting expenses of producing income. 2013 1040ez form instructions In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. 2013 1040ez form instructions If you choose to do this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock you buy. 2013 1040ez form instructions When figuring this amount, use the fair market value of the stock on the dividend payment date. 2013 1040ez form instructions Money Market Funds Report amounts you receive from money market funds as dividend income. 2013 1040ez form instructions Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. 2013 1040ez form instructions Capital Gain Distributions Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). 2013 1040ez form instructions They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. 2013 1040ez form instructions Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. 2013 1040ez form instructions Undistributed capital gains of mutual funds and REITs. 2013 1040ez form instructions    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. 2013 1040ez form instructions You must treat your share of these gains as distributions, even though you did not actually receive them. 2013 1040ez form instructions However, they are not included on Form 1099-DIV. 2013 1040ez form instructions Instead, they are reported to you in box 1a of Form 2439. 2013 1040ez form instructions   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. 2013 1040ez form instructions   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. 2013 1040ez form instructions You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. 2013 1040ez form instructions Attach Copy B of Form 2439 to your return, and keep Copy C for your records. 2013 1040ez form instructions Basis adjustment. 2013 1040ez form instructions   Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid. 2013 1040ez form instructions Additional information. 2013 1040ez form instructions   For more information on the treatment of distributions from mutual funds, see Publication 550. 2013 1040ez form instructions Nondividend Distributions A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. 2013 1040ez form instructions You should receive a Form 1099-DIV or other statement showing the nondividend distribution. 2013 1040ez form instructions On Form 1099-DIV, a nondividend distribution will be shown in box 3. 2013 1040ez form instructions If you do not receive such a statement, you report the distribution as an ordinary dividend. 2013 1040ez form instructions Basis adjustment. 2013 1040ez form instructions   A nondividend distribution reduces the basis of your stock. 2013 1040ez form instructions It is not taxed until your basis in the stock is fully recovered. 2013 1040ez form instructions This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. 2013 1040ez form instructions If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. 2013 1040ez form instructions   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. 2013 1040ez form instructions Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. 2013 1040ez form instructions See Holding Period in chapter 14. 2013 1040ez form instructions Example. 2013 1040ez form instructions You bought stock in 2000 for $100. 2013 1040ez form instructions In 2003, you received a nondividend distribution of $80. 2013 1040ez form instructions You did not include this amount in your income, but you reduced the basis of your stock to $20. 2013 1040ez form instructions You received a nondividend distribution of $30 in 2013. 2013 1040ez form instructions The first $20 of this amount reduced your basis to zero. 2013 1040ez form instructions You report the other $10 as a long-term capital gain for 2013. 2013 1040ez form instructions You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. 2013 1040ez form instructions Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. 2013 1040ez form instructions These distributions are, at least in part, one form of a return of capital. 2013 1040ez form instructions They may be paid in one or more installments. 2013 1040ez form instructions You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. 2013 1040ez form instructions For more information on liquidating distributions, see chapter 1 of Publication 550. 2013 1040ez form instructions Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. 2013 1040ez form instructions Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. 2013 1040ez form instructions Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. 2013 1040ez form instructions Taxable stock dividends and stock rights. 2013 1040ez form instructions   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. 2013 1040ez form instructions You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. 2013 1040ez form instructions The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. 2013 1040ez form instructions The distribution is in convertible preferred stock and has the same result as in (2). 2013 1040ez form instructions The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. 2013 1040ez form instructions The distribution is on preferred stock. 2013 1040ez form instructions (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right. 2013 1040ez form instructions )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. 2013 1040ez form instructions If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. 2013 1040ez form instructions Preferred stock redeemable at a premium. 2013 1040ez form instructions   If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption premium) generally is taxable as a constructive distribution of additional stock on the preferred stock. 2013 1040ez form instructions For more information, see chapter 1 of Publication 550. 2013 1040ez form instructions Basis. 2013 1040ez form instructions   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. 2013 1040ez form instructions If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for information on how to figure their basis. 2013 1040ez form instructions Fractional shares. 2013 1040ez form instructions    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. 2013 1040ez form instructions However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued but instead are sold, and the cash proceeds are given to the shareholders. 2013 1040ez form instructions Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. 2013 1040ez form instructions Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. 2013 1040ez form instructions Enter your gain or loss, the difference between the cash you receive and the basis of the fractional shares sold, in column (h) of Schedule D (Form 1040) in Part I or Part II, whichever is appropriate. 2013 1040ez form instructions    Report these transactions on Form 8949 with the correct box checked. 2013 1040ez form instructions   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. 2013 1040ez form instructions Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). 2013 1040ez form instructions Example. 2013 1040ez form instructions You own one share of common stock that you bought on January 3, 2004, for $100. 2013 1040ez form instructions The corporation declared a common stock dividend of 5% on June 29, 2013. 2013 1040ez form instructions The fair market value of the stock at the time the stock dividend was declared was $200. 2013 1040ez form instructions You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. 2013 1040ez form instructions You figure your gain or loss as follows: Fair market value of old stock $200. 2013 1040ez form instructions 00 Fair market value of stock dividend (cash received) +10. 2013 1040ez form instructions 00 Fair market value of old stock and stock dividend $210. 2013 1040ez form instructions 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. 2013 1040ez form instructions 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. 2013 1040ez form instructions 76 Total $100. 2013 1040ez form instructions 00 Cash received $10. 2013 1040ez form instructions 00 Basis (cost) of stock dividend − 4. 2013 1040ez form instructions 76 Gain $5. 2013 1040ez form instructions 24 Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain. 2013 1040ez form instructions Scrip dividends. 2013 1040ez form instructions   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. 2013 1040ez form instructions The certificate is generally nontaxable when you receive it. 2013 1040ez form instructions If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the portion of your basis in the corporation's stock allocated to the certificate. 2013 1040ez form instructions   However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. 2013 1040ez form instructions You must include its fair market value in income on the date you receive it. 2013 1040ez form instructions Other Distributions You may receive any of the following distributions during the year. 2013 1040ez form instructions Exempt-interest dividends. 2013 1040ez form instructions   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. 2013 1040ez form instructions Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. 2013 1040ez form instructions Information reporting requirement. 2013 1040ez form instructions   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. 2013 1040ez form instructions This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. 2013 1040ez form instructions Alternative minimum tax treatment. 2013 1040ez form instructions   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. 2013 1040ez form instructions See Alternative Minimum Tax (AMT) in chapter 30 for more information. 2013 1040ez form instructions Dividends on insurance policies. 2013 1040ez form instructions    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. 2013 1040ez form instructions However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. 2013 1040ez form instructions    If dividends on an insurance contract (other than a modified endowment contract) are distributed to you, they are a partial return of the premiums you paid. 2013 1040ez form instructions Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. 2013 1040ez form instructions Report any taxable distributions on insurance policies on Form 1040, line 21. 2013 1040ez form instructions Dividends on veterans' insurance. 2013 1040ez form instructions   Dividends you receive on veterans' insurance policies are not taxable. 2013 1040ez form instructions In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. 2013 1040ez form instructions Patronage dividends. 2013 1040ez form instructions   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. 2013 1040ez form instructions   Do not include in your income patronage dividends you receive on: Property bought for your personal use, or Capital assets or depreciable property bought for use in your business. 2013 1040ez form instructions But you must reduce the basis (cost) of the items bought. 2013 1040ez form instructions If the dividend is more than the adjusted basis of the assets, you must report the excess as income. 2013 1040ez form instructions   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. 2013 1040ez form instructions Alaska Permanent Fund dividends. 2013 1040ez form instructions    Do not report these amounts as dividends. 2013 1040ez form instructions Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. 2013 1040ez form instructions How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. 2013 1040ez form instructions Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. 2013 1040ez form instructions Report qualified dividends on line 9b of Form 1040 or Form 1040A. 2013 1040ez form instructions If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. 2013 1040ez form instructions See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. 2013 1040ez form instructions If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. 2013 1040ez form instructions You cannot use Form 1040EZ if you receive any dividend income. 2013 1040ez form instructions Form 1099-DIV. 2013 1040ez form instructions   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. 2013 1040ez form instructions Even if you do not receive Form 1099-DIV, you must report all your dividend income. 2013 1040ez form instructions   See Form 1099-DIV for more information on how to report dividend income. 2013 1040ez form instructions Form 1040A or 1040. 2013 1040ez form instructions    You must complete Schedule B (Form 1040A or 1040), Part II, and attach it to your Form 1040A or 1040, if: Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or You received, as a nominee, dividends that actually belong to someone else. 2013 1040ez form instructions If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. 2013 1040ez form instructions   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. 2013 1040ez form instructions If your securities are held by a brokerage firm (in “street name”), list the name of the brokerage firm shown on Form 1099-DIV as the payer. 2013 1040ez form instructions If your stock is held by a nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee and the dividends you received or for which you were credited. 2013 1040ez form instructions   Enter on line 6 the total of the amounts listed on line 5. 2013 1040ez form instructions Also enter this total on line 9a of Form 1040A or 1040. 2013 1040ez form instructions Qualified dividends. 2013 1040ez form instructions   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. 2013 1040ez form instructions The amount in box 1b is already included in box 1a. 2013 1040ez form instructions Do not add the amount in box 1b to, or substract it from, the amount in box 1a. 2013 1040ez form instructions   Do not include any of the following on line 9b. 2013 1040ez form instructions Qualified dividends you received as a nominee. 2013 1040ez form instructions See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. 2013 1040ez form instructions Dividends on stock for which you did not meet the holding period. 2013 1040ez form instructions See Holding period , earlier under Qualified Dividends. 2013 1040ez form instructions Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. 2013 1040ez form instructions Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. 2013 1040ez form instructions Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. 2013 1040ez form instructions   If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions or the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions, whichever applies. 2013 1040ez form instructions Enter qualified dividends on line 2 of the worksheet. 2013 1040ez form instructions Investment interest deducted. 2013 1040ez form instructions   If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that are eligible for the 0%, 15%, or 20% tax rate. 2013 1040ez form instructions Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. 2013 1040ez form instructions This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. 2013 1040ez form instructions For more information about the limit on investment interest, see Investment expenses in chapter 23. 2013 1040ez form instructions Expenses related to dividend income. 2013 1040ez form instructions   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). 2013 1040ez form instructions See chapter 28 for general information about deducting expenses of producing income. 2013 1040ez form instructions More information. 2013 1040ez form instructions    For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the 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The 2013 1040ez Form Instructions

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