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Amend 2009 Tax Return

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Amend 2009 Tax Return

Amend 2009 tax return Publication 561 - Main Contents Table of Contents What Is Fair Market Value (FMV)?Factors. Amend 2009 tax return Stock. Amend 2009 tax return Options. Amend 2009 tax return Determining Fair Market Value Problems in Determining Fair Market Value Valuation of Various Kinds of PropertyHousehold Goods Used Clothing Jewelry and Gems Paintings, Antiques, and Other Objects of Art Collections Cars, Boats, and Aircraft Inventory Patents Stocks and Bonds Real Estate Interest in a Business Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Certain Life Insurance and Annuity Contracts Partial Interest in Property Not in Trust AppraisalsDeductions of More Than $5,000 Deductions of More Than $500,000 Qualified Appraisal Form 8283 Internal Revenue Service Review of Appraisals Penalty How To Get Tax HelpLow income tax clinics (LITCs). Amend 2009 tax return What Is Fair Market Value (FMV)? To figure how much you may deduct for property that you contribute, you must first determine its fair market value on the date of the contribution. Amend 2009 tax return Fair market value. Amend 2009 tax return   Fair market value (FMV) is the price that property would sell for on the open market. Amend 2009 tax return It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. Amend 2009 tax return If you put a restriction on the use of property you donate, the FMV must reflect that restriction. Amend 2009 tax return Example 1. Amend 2009 tax return If you give used clothing to the Salvation Army, the FMV would be the price that typical buyers actually pay for clothing of this age, condition, style, and use. Amend 2009 tax return Usually, such items are worth far less than what you paid for them. Amend 2009 tax return Example 2. Amend 2009 tax return If you donate land and restrict its use to agricultural purposes, you must value the land at its value for agricultural purposes, even though it would have a higher FMV if it were not restricted. Amend 2009 tax return Factors. Amend 2009 tax return   In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. Amend 2009 tax return These include: The cost or selling price of the item, Sales of comparable properties, Replacement cost, and Opinions of experts. Amend 2009 tax return   These factors are discussed later. Amend 2009 tax return Also, see Table 1 for a summary of questions to ask as you consider each factor. Amend 2009 tax return Date of contribution. Amend 2009 tax return   Ordinarily, the date of a contribution is the date that the transfer of the property takes place. Amend 2009 tax return Stock. Amend 2009 tax return   If you deliver, without any conditions, a properly endorsed stock certificate to a qualified organization or to an agent of the organization, the date of the contribution is the date of delivery. Amend 2009 tax return If the certificate is mailed and received through the regular mail, it is the date of mailing. Amend 2009 tax return If you deliver the certificate to a bank or broker acting as your agent or to the issuing corporation or its agent, for transfer into the name of the organization, the date of the contribution is the date the stock is transferred on the books of the corporation. Amend 2009 tax return Options. Amend 2009 tax return   If you grant an option to a qualified organization to buy real property, you have not made a charitable contribution until the organization exercises the option. Amend 2009 tax return The amount of the contribution is the FMV of the property on the date the option is exercised minus the exercise price. Amend 2009 tax return Example. Amend 2009 tax return You grant an option to a local university, which is a qualified organization, to buy real property. Amend 2009 tax return Under the option, the university could buy the property at any time during a 2-year period for $40,000. Amend 2009 tax return The FMV of the property on the date the option is granted is $50,000. Amend 2009 tax return In the following tax year, the university exercises the option. Amend 2009 tax return The FMV of the property on the date the option is exercised is $55,000. Amend 2009 tax return Therefore, you have made a charitable contribution of $15,000 ($55,000, the FMV, minus $40,000, the exercise price) in the tax year the option is exercised. Amend 2009 tax return Determining Fair Market Value Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. Amend 2009 tax return Usually it is not that simple. Amend 2009 tax return Using such formulas, etc. Amend 2009 tax return , seldom results in an acceptable determination of FMV. Amend 2009 tax return There is no single formula that always applies when determining the value of property. Amend 2009 tax return This is not to say that a valuation is only guesswork. Amend 2009 tax return You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity. Amend 2009 tax return For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. Amend 2009 tax return When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. Amend 2009 tax return On the other hand, it may be an antique, the value of which could not be determined by using any formula. Amend 2009 tax return Cost or Selling Price of the Donated Property The cost of the property to you or the actual selling price received by the qualified organization may be the best indication of its FMV. Amend 2009 tax return However, because conditions in the market change, the cost or selling price of property may have less weight if the property was not bought or sold reasonably close to the date of contribution. Amend 2009 tax return The cost or selling price is a good indication of the property's value if: The purchase or sale took place close to the valuation date in an open market, The purchase or sale was at “arm's-length,” The buyer and seller knew all relevant facts, The buyer and seller did not have to act, and The market did not change between the date of purchase or sale and the valuation date. Amend 2009 tax return Example. Amend 2009 tax return Tom Morgan, who is not a dealer in gems, bought an assortment of gems for $5,000 from a promoter. Amend 2009 tax return The promoter claimed that the price was “wholesale” even though he and other dealers made similar sales at similar prices to other persons who were not dealers. Amend 2009 tax return The promoter said that if Tom kept the gems for more than 1 year and then gave them to charity, Tom could claim a charitable deduction of $15,000, which, according to the promoter, would be the value of the gems at the time of contribution. Amend 2009 tax return Tom gave the gems to a qualified charity 13 months after buying them. Amend 2009 tax return The selling price for these gems had not changed from the date of purchase to the date he donated them to charity. Amend 2009 tax return The best evidence of FMV depends on actual transactions and not on some artificial estimate. Amend 2009 tax return The $5,000 charged Tom and others is, therefore, the best evidence of the maximum FMV of the gems. Amend 2009 tax return Terms of the purchase or sale. Amend 2009 tax return   The terms of the purchase or sale should be considered in determining FMV if they influenced the price. Amend 2009 tax return These terms include any restrictions, understandings, or covenants limiting the use or disposition of the property. Amend 2009 tax return Rate of increase or decrease in value. Amend 2009 tax return   Unless you can show that there were unusual circumstances, it is assumed that the increase or decrease in the value of your donated property from your cost has been at a reasonable rate. Amend 2009 tax return For time adjustments, an appraiser may consider published price indexes for information on general price trends, building costs, commodity costs, securities, and works of art sold at auction in arm's-length sales. Amend 2009 tax return Example. Amend 2009 tax return Bill Brown bought a painting for $10,000. Amend 2009 tax return Thirteen months later he gave it to an art museum, claiming a charitable deduction of $15,000 on his tax return. Amend 2009 tax return The appraisal of the painting should include information showing that there were unusual circumstances that justify a 50% increase in value for the 13 months Bill held the property. Amend 2009 tax return Arm's-length offer. Amend 2009 tax return   An arm's-length offer to buy the property close to the valuation date may help to prove its value if the person making the offer was willing and able to complete the transaction. Amend 2009 tax return To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. Amend 2009 tax return Offers to buy property other than the donated item will help to determine value if the other property is reasonably similar to the donated property. Amend 2009 tax return Sales of Comparable Properties The sales prices of properties similar to the donated property are often important in determining the FMV. Amend 2009 tax return The weight to be given to each sale depends on the following. Amend 2009 tax return The degree of similarity between the property sold and the donated property. Amend 2009 tax return The time of the sale—whether it was close to the valuation date. Amend 2009 tax return The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act. Amend 2009 tax return The conditions of the market in which the sale was made—whether unusually inflated or deflated. Amend 2009 tax return The comparable sales method of valuing real estate is explained later under Valuation of Various Kinds of Property. Amend 2009 tax return Example 1. Amend 2009 tax return Mary Black, who is not a book dealer, paid a promoter $10,000 for 500 copies of a single edition of a modern translation of the Bible. Amend 2009 tax return The promoter had claimed that the price was considerably less than the “retail” price, and gave her a statement that the books had a total retail value of $30,000. Amend 2009 tax return The promoter advised her that if she kept the Bibles for more than 1 year and then gave them to a qualified organization, she could claim a charitable deduction for the “retail” price of $30,000. Amend 2009 tax return Thirteen months later she gave all the Bibles to a church that she selected from a list provided by the promoter. Amend 2009 tax return At the time of her donation, wholesale dealers were selling similar quantities of Bibles to the general public for $10,000. Amend 2009 tax return The FMV of the Bibles is $10,000, the price at which similar quantities of Bibles were being sold to others at the time of the contribution. Amend 2009 tax return Example 2. Amend 2009 tax return The facts are the same as in Example 1, except that the promoter gave Mary Black a second option. Amend 2009 tax return The promoter said that if Mary wanted a charitable deduction within 1 year of the purchase, she could buy the 500 Bibles at the “retail” price of $30,000, paying only $10,000 in cash and giving a promissory note for the remaining $20,000. Amend 2009 tax return The principal and interest on the note would not be due for 12 years. Amend 2009 tax return According to the promoter, Mary could then, within 1 year of the purchase, give the Bibles to a qualified organization and claim the full $30,000 retail price as a charitable contribution. Amend 2009 tax return She purchased the Bibles under the second option and, 3 months later, gave them to a church, which will use the books for church purposes. Amend 2009 tax return At the time of the gift, the promoter was selling similar lots of Bibles for either $10,000 or $30,000. Amend 2009 tax return The difference between the two prices was solely at the discretion of the buyer. Amend 2009 tax return The promoter was a willing seller for $10,000. Amend 2009 tax return Therefore, the value of Mary's contribution of the Bibles is $10,000, the amount at which similar lots of Bibles could be purchased from the promoter by members of the general public. Amend 2009 tax return Replacement Cost The cost of buying, building, or manufacturing property similar to the donated item should be considered in determining FMV. Amend 2009 tax return However, there must be a reasonable relationship between the replacement cost and the FMV. Amend 2009 tax return The replacement cost is the amount it would cost to replace the donated item on the valuation date. Amend 2009 tax return Often there is no relationship between the replacement cost and the FMV. Amend 2009 tax return If the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important. Amend 2009 tax return To determine the replacement cost of the donated property, find the “estimated replacement cost new. Amend 2009 tax return ” Then subtract from this figure an amount for depreciation due to the physical condition and obsolescence of the donated property. Amend 2009 tax return You should be able to show the relationship between the depreciated replacement cost and the FMV, as well as how you arrived at the “estimated replacement cost new. Amend 2009 tax return ” Opinions of Experts Generally, the weight given to an expert's opinion on matters such as the authenticity of a coin or a work of art, or the most profitable and best use of a piece of real estate, depends on the knowledge and competence of the expert and the thoroughness with which the opinion is supported by experience and facts. Amend 2009 tax return For an expert's opinion to deserve much weight, the facts must support the opinion. Amend 2009 tax return For additional information, see Appraisals, later. Amend 2009 tax return Table 1. Amend 2009 tax return Factors That Affect FMV IF the factor you are considering is. Amend 2009 tax return . Amend 2009 tax return . Amend 2009 tax return THEN you should ask these questions. Amend 2009 tax return . Amend 2009 tax return . Amend 2009 tax return     cost or selling price Was the purchase or sale of the property reasonably close to the date of contribution? Was any increase or decrease in value, as compared to your cost, at a reasonable rate? Do the terms of purchase or sale limit what can be done with the property? Was there an arm's-length offer to buy the property close to the valuation date?     sales of comparable properties How similar is the property sold to the property donated? How close is the date of sale to the valuation date? Was the sale at arm's-length? What was the condition of the market at the time of sale?     replacement cost What would it cost to replace the donated property? Is there a reasonable relationship between replacement cost and FMV? Is the supply of the donated property more or less than the demand for it?     opinions of experts Is the expert knowledgeable and competent? Is the opinion thorough and supported by facts and experience? Problems in Determining Fair Market Value There are a number of problems in determining the FMV of donated property. Amend 2009 tax return Unusual Market Conditions The sale price of the property itself in an arm's-length transaction in an open market is often the best evidence of its value. Amend 2009 tax return When you rely on sales of comparable property, the sales must have been made in an open market. Amend 2009 tax return If those sales were made in a market that was artificially supported or stimulated so as not to be truly representative, the prices at which the sales were made will not indicate the FMV. Amend 2009 tax return For example, liquidation sale prices usually do not indicate the FMV. Amend 2009 tax return Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV. Amend 2009 tax return Selection of Comparable Sales Using sales of comparable property is an important method for determining the FMV of donated property. Amend 2009 tax return However, the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. Amend 2009 tax return The degree of similarity must be close enough so that this selling price would have been given consideration by reasonably well-informed buyers or sellers of the property. Amend 2009 tax return Example. Amend 2009 tax return You give a rare, old book to your former college. Amend 2009 tax return The book is a third edition and is in poor condition because of a missing back cover. Amend 2009 tax return You discover that there was a sale for $300, near the valuation date, of a first edition of the book that was in good condition. Amend 2009 tax return Although the contents are the same, the books are not at all similar because of the different editions and their physical condition. Amend 2009 tax return Little consideration would be given to the selling price of the $300 property by knowledgeable buyers or sellers. Amend 2009 tax return Future Events You may not consider unexpected events happening after your donation of property in making the valuation. Amend 2009 tax return You may consider only the facts known at the time of the gift, and those that could be reasonably expected at the time of the gift. Amend 2009 tax return Example. Amend 2009 tax return You give farmland to a qualified charity. Amend 2009 tax return The transfer provides that your mother will have the right to all income and full use of the property for her life. Amend 2009 tax return Even though your mother dies 1 week after the transfer, the value of the property on the date it is given is its present value, subject to the life interest as estimated from actuarial tables. Amend 2009 tax return You may not take a higher deduction because the charity received full use and possession of the land only 1 week after the transfer. Amend 2009 tax return Using Past Events to Predict the Future A common error is to rely too much on past events that do not fairly reflect the probable future earnings and FMV. Amend 2009 tax return Example. Amend 2009 tax return You give all your rights in a successful patent to your favorite charity. Amend 2009 tax return Your records show that before the valuation date there were three stages in the patent's history of earnings. Amend 2009 tax return First, there was rapid growth in earnings when the invention was introduced. Amend 2009 tax return Then, there was a period of high earnings when the invention was being exploited. Amend 2009 tax return Finally, there was a decline in earnings when competing inventions were introduced. Amend 2009 tax return The entire history of earnings may be relevant in estimating the future earnings. Amend 2009 tax return However, the appraiser must not rely too much on the stage of rapid growth in earnings, or of high earnings. Amend 2009 tax return The market conditions at those times do not represent the condition of the market at the valuation date. Amend 2009 tax return What is most significant is the trend of decline in earnings up to the valuation date. Amend 2009 tax return For more information about donations of patents, see Patents, later. Amend 2009 tax return Valuation of Various Kinds of Property This section contains information on determining the FMV of ordinary kinds of donated property. Amend 2009 tax return For information on appraisals, see Appraisals, later. Amend 2009 tax return Household Goods The FMV of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new. Amend 2009 tax return Such used property may have little or no market value because of its worn condition. Amend 2009 tax return It may be out of style or no longer useful. Amend 2009 tax return You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. Amend 2009 tax return A household good that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. Amend 2009 tax return See Deduction over $500 for certain clothing or household items, later. Amend 2009 tax return If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art. Amend 2009 tax return Used Clothing Used clothing and other personal items are usually worth far less than the price you paid for them. Amend 2009 tax return Valuation of items of clothing does not lend itself to fixed formulas or methods. Amend 2009 tax return The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is an indication of the value. Amend 2009 tax return You cannot take a deduction for clothing donated after August 17, 2006, unless it is in good used condition or better. Amend 2009 tax return An item of clothing that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. Amend 2009 tax return See Deduction over $500 for certain clothing or household items, later. Amend 2009 tax return For valuable furs or very expensive gowns, a Form 8283 may have to be sent with your tax return. Amend 2009 tax return Jewelry and Gems Jewelry and gems are of such a specialized nature that it is almost always necessary to get an appraisal by a specialized jewelry appraiser. Amend 2009 tax return The appraisal should describe, among other things, the style of the jewelry, the cut and setting of the gem, and whether it is now in fashion. Amend 2009 tax return If not in fashion, the possibility of having the property redesigned, recut, or reset should be reported in the appraisal. Amend 2009 tax return The stone's coloring, weight, cut, brilliance, and flaws should be reported and analyzed. Amend 2009 tax return Sentimental personal value has no effect on FMV. Amend 2009 tax return But if the jewelry was owned by a famous person, its value might increase. Amend 2009 tax return Paintings, Antiques, and Other Objects of Art Your deduction for contributions of paintings, antiques, and other objects of art, should be supported by a written appraisal from a qualified and reputable source, unless the deduction is $5,000 or less. Amend 2009 tax return Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal. Amend 2009 tax return Art valued at $20,000 or more. Amend 2009 tax return   If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the signed appraisal to your return. Amend 2009 tax return For individual objects valued at $20,000 or more, a photograph of a size and quality fully showing the object, preferably an 8 x 10 inch color photograph or a color transparency no smaller than 4 x 5 inches, must be provided upon request. Amend 2009 tax return Art valued at $50,000 or more. Amend 2009 tax return   If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for that item from the IRS. Amend 2009 tax return You must request the statement before filing the tax return that reports the donation. Amend 2009 tax return Your request must include the following. Amend 2009 tax return A copy of a qualified appraisal of the item. Amend 2009 tax return See Qualified Appraisal, later. Amend 2009 tax return A $2,500 check or money order payable to the Internal Revenue Service for the user fee that applies to your request regarding one, two, or three items of art. Amend 2009 tax return Add $250 for each item in excess of three. Amend 2009 tax return A completed Form 8283, Section B. Amend 2009 tax return The location of the IRS territory that has examination responsibility for your return. Amend 2009 tax return If your request lacks essential information, you will be notified and given 30 days to provide the missing information. Amend 2009 tax return   Send your request to: Internal Revenue Service Attention: Art Appraisal (C:AP:ART) P. Amend 2009 tax return O. Amend 2009 tax return Box 27720 McPherson Station Washington, DC 20038 Refunds. Amend 2009 tax return   You can withdraw your request for a Statement of Value at any time before it is issued. Amend 2009 tax return However, the IRS will not refund the user fee if you do. Amend 2009 tax return   If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee. Amend 2009 tax return Authenticity. Amend 2009 tax return   The authenticity of the donated art must be determined by the appraiser. Amend 2009 tax return Physical condition. Amend 2009 tax return   Important items in the valuation of antiques and art are physical condition and extent of restoration. Amend 2009 tax return These have a significant effect on the value and must be fully reported in an appraisal. Amend 2009 tax return An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition. Amend 2009 tax return Art appraisers. Amend 2009 tax return   More weight will usually be given to an appraisal prepared by an individual specializing in the kind and price range of the art being appraised. Amend 2009 tax return Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. Amend 2009 tax return Their opinions on the authenticity and desirability of such art would usually be given more weight than the opinions of more generalized art dealers or appraisers. Amend 2009 tax return They can report more recent comparable sales to support their opinion. Amend 2009 tax return   To identify and locate experts on unique, specialized items or collections, you may wish to use the current Official Museum Directory of the American Association of Museums. Amend 2009 tax return It lists museums both by state and by category. Amend 2009 tax return   To help you locate a qualified appraiser for your donation, you may wish to ask an art historian at a nearby college or the director or curator of a local museum. Amend 2009 tax return The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. Amend 2009 tax return You may be able to find a qualified appraiser on the Internet. Amend 2009 tax return You may also contact associations of dealers for guidance. Amend 2009 tax return Collections Since many kinds of hobby collections may be the subject of a charitable donation, it is not possible to discuss all of the possible collectibles in this publication. Amend 2009 tax return Most common are rare books, autographs, sports memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and natural history items. Amend 2009 tax return Many of the elements of valuation that apply to paintings and other objects of art, discussed earlier, also apply to miscellaneous collections. Amend 2009 tax return Reference material. Amend 2009 tax return   Publications available to help you determine the value of many kinds of collections include catalogs, dealers' price lists, and specialized hobby periodicals. Amend 2009 tax return When using one of these price guides, you must use the current edition at the date of contribution. Amend 2009 tax return However, these sources are not always reliable indicators of FMV and should be supported by other evidence. Amend 2009 tax return   For example, a dealer may sell an item for much less than is shown on a price list, particularly after the item has remained unsold for a long time. Amend 2009 tax return The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. Amend 2009 tax return The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. Amend 2009 tax return If you are donating a valuable collection, you should get an appraisal. Amend 2009 tax return If your donation appears to be of little value, you may be able to make a satisfactory valuation using reference materials available at a state, city, college, or museum library. Amend 2009 tax return Stamp collections. Amend 2009 tax return   Most libraries have catalogs or other books that report the publisher's estimate of values. Amend 2009 tax return Generally, two price levels are shown for each stamp: the price postmarked and the price not postmarked. Amend 2009 tax return Stamp dealers generally know the value of their merchandise and are able to prepare satisfactory appraisals of valuable collections. Amend 2009 tax return Coin collections. Amend 2009 tax return   Many catalogs and other reference materials show the writer's or publisher's opinion of the value of coins on or near the date of the publication. Amend 2009 tax return Like many other collectors' items, the value of a coin depends on the demand for it, its age, and its rarity. Amend 2009 tax return Another important factor is the coin's condition. Amend 2009 tax return For example, there is a great difference in the value of a coin that is in mint condition and a similar coin that is only in good condition. Amend 2009 tax return   Catalogs usually establish a category for coins, based on their physical condition—mint or uncirculated, extremely fine, very fine, fine, very good, good, fair, or poor—with a different valuation for each category. Amend 2009 tax return Books. Amend 2009 tax return   The value of books is usually determined by selecting comparable sales and adjusting the prices according to the differences between the comparable sales and the item being evaluated. Amend 2009 tax return This is difficult to do and, except for a collection of little value, should be done by a specialized appraiser. Amend 2009 tax return Within the general category of literary property, there are dealers who specialize in certain areas, such as Americana, foreign imports, Bibles, and scientific books. Amend 2009 tax return Modest value of collection. Amend 2009 tax return   If the collection you are donating is of modest value, not requiring a written appraisal, the following information may help you in determining the FMV. Amend 2009 tax return   A book that is very old, or very rare, is not necessarily valuable. Amend 2009 tax return There are many books that are very old or rare, but that have little or no market value. Amend 2009 tax return Condition of book. Amend 2009 tax return   The condition of a book may have a great influence on its value. Amend 2009 tax return Collectors are interested in items that are in fine, or at least good, condition. Amend 2009 tax return When a book has a missing page, a loose binding, tears, stains, or is otherwise in poor condition, its value is greatly lowered. Amend 2009 tax return Other factors. Amend 2009 tax return   Some other factors in the valuation of a book are the kind of binding (leather, cloth, paper), page edges, and illustrations (drawings and photographs). Amend 2009 tax return Collectors usually want first editions of books. Amend 2009 tax return However, because of changes or additions, other editions are sometimes worth as much as, or more than, the first edition. Amend 2009 tax return Manuscripts, autographs, diaries, and similar items. Amend 2009 tax return   When these items are handwritten, or at least signed by famous people, they are often in demand and are valuable. Amend 2009 tax return The writings of unknowns also may be of value if they are of unusual historical or literary importance. Amend 2009 tax return Determining the value of such material is difficult. Amend 2009 tax return For example, there may be a great difference in value between two diaries that were kept by a famous person—one kept during childhood and the other during a later period in his or her life. Amend 2009 tax return The appraiser determines a value in these cases by applying knowledge and judgment to such factors as comparable sales and conditions. Amend 2009 tax return Signatures. Amend 2009 tax return   Signatures, or sets of signatures, that were cut from letters or other papers usually have little or no value. Amend 2009 tax return But complete sets of the signatures of U. Amend 2009 tax return S. Amend 2009 tax return presidents are in demand. Amend 2009 tax return Cars, Boats, and Aircraft If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined. Amend 2009 tax return Certain commercial firms and trade organizations publish monthly or seasonal guides for different regions of the country, containing complete dealer sale prices or dealer average prices for recent model years. Amend 2009 tax return Prices are reported for each make, model, and year. Amend 2009 tax return These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. Amend 2009 tax return The prices are not “official,” and these publications are not considered an appraisal of any specific donated property. Amend 2009 tax return But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. Amend 2009 tax return These publications are sometimes available from public libraries or at a bank, credit union, or finance company. Amend 2009 tax return You can also find pricing information about used cars on the Internet. Amend 2009 tax return An acceptable measure of the FMV of a donated car, boat, or airplane is an amount not in excess of the price listed in a used vehicle pricing guide for a private party sale, not the dealer retail value, of a similar vehicle. Amend 2009 tax return However, the FMV may be less than that amount if the vehicle has engine trouble, body damage, high mileage, or any type of excessive wear. Amend 2009 tax return The FMV of a donated vehicle is the same as the price listed in a used vehicle pricing guide for a private party sale only if the guide lists a sales price for a vehicle that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated vehicle. Amend 2009 tax return Example. Amend 2009 tax return You donate a used car in poor condition to a local high school for use by students studying car repair. Amend 2009 tax return A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. Amend 2009 tax return However, the guide shows the price for a private party sale of the car is only $750. Amend 2009 tax return The FMV of the car is considered to be no more than $750. Amend 2009 tax return Boats. Amend 2009 tax return   Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is so critical to the value. Amend 2009 tax return More information. Amend 2009 tax return   Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. Amend 2009 tax return This rule applies if the claimed value of the donated vehicle is more than $500. Amend 2009 tax return In certain cases, you can deduct the vehicle's FMV. Amend 2009 tax return For details, see Publication 526. Amend 2009 tax return Inventory If you donate any inventory item to a charitable organization, the amount of your deductible contribution generally is the FMV of the item, minus any gain you would have realized if you had sold the item at its FMV on the date of the gift. Amend 2009 tax return For more information, see Publication 526. Amend 2009 tax return Patents To determine the FMV of a patent, you must take into account, among other factors: Whether the patented technology has been made obsolete by other technology; Any restrictions on the donee's use of, or ability to transfer, the patented technology; and The length of time remaining before the patent expires. Amend 2009 tax return However, your deduction for a donation of a patent or other intellectual property is its FMV, minus any gain you would have realized if you had sold the property at its FMV on the date of the gift. Amend 2009 tax return Generally, this means your deduction is the lesser of the property's FMV or its basis. Amend 2009 tax return For details, see Publication 526. Amend 2009 tax return Stocks and Bonds The value of stocks and bonds is the FMV of a share or bond on the valuation date. Amend 2009 tax return See Date of contribution, earlier, under What Is Fair Market Value (FMV). Amend 2009 tax return Selling prices on valuation date. Amend 2009 tax return   If there is an active market for the contributed stocks or bonds on a stock exchange, in an over-the-counter market, or elsewhere, the FMV of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. Amend 2009 tax return For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. Amend 2009 tax return You get the average price by adding $11 and $9 and dividing the sum by 2. Amend 2009 tax return No sales on valuation date. Amend 2009 tax return   If there were no sales on the valuation date, but there were sales within a reasonable period before and after the valuation date, you determine FMV by taking the average price between the highest and lowest sales prices on the nearest date before and on the nearest date after the valuation date. Amend 2009 tax return Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date. Amend 2009 tax return Example. Amend 2009 tax return   On the day you gave stock to a qualified organization, there were no sales of the stock. Amend 2009 tax return Sales of the stock nearest the valuation date took place two trading days before the valuation date at an average selling price of $10 and three trading days after the valuation date at an average selling price of $15. Amend 2009 tax return The FMV on the valuation date was $12, figured as follows: [(3 x $10) + (2 x $15)] ÷ 5 = $12 Listings on more than one stock exchange. Amend 2009 tax return   Stocks or bonds listed on more than one stock exchange are valued based on the prices of the exchange on which they are principally dealt. Amend 2009 tax return This applies if these prices are published in a generally available listing or publication of general circulation. Amend 2009 tax return If this is not applicable, and the stocks or bonds are reported on a composite listing of combined exchanges in a publication of general circulation, use the composite list. Amend 2009 tax return See also Unavailable prices or closely held corporation, later. Amend 2009 tax return Bid and asked prices on valuation date. Amend 2009 tax return   If there were no sales within a reasonable period before and after the valuation date, the FMV is the average price between the bona fide bid and asked prices on the valuation date. Amend 2009 tax return Example. Amend 2009 tax return Although there were no sales of Blue Corporation stock on the valuation date, bona fide bid and asked prices were available on that date of $14 and $16, respectively. Amend 2009 tax return The FMV is $15, the average price between the bid and asked prices. Amend 2009 tax return No prices on valuation date. Amend 2009 tax return   If there were no prices available on the valuation date, you determine FMV by taking the average prices between the bona fide bid and asked prices on the closest trading date before and after the valuation date. Amend 2009 tax return Both dates must be within a reasonable period. Amend 2009 tax return Then you weight these averages in inverse order by the respective number of trading days between the bid and asked dates and the valuation date. Amend 2009 tax return Example. Amend 2009 tax return On the day you gave stock to a qualified organization, no prices were available. Amend 2009 tax return Bona fide bid and asked prices 3 days before the valuation date were $10 and 2 days after the valuation date were $15. Amend 2009 tax return The FMV on the valuation date is $13, figured as follows: [(2 x $10) + (3 x $15)] ÷ 5 = $13 Prices only before or after valuation date, but not both. Amend 2009 tax return   If no selling prices or bona fide bid and asked prices are available on a date within a reasonable period before the valuation date, but are available on a date within a reasonable period after the valuation date, or vice versa, then the average price between the highest and lowest of such available prices may be treated as the value. Amend 2009 tax return Large blocks of stock. Amend 2009 tax return   When a large block of stock is put on the market, it may lower the selling price of the stock if the supply is greater than the demand. Amend 2009 tax return On the other hand, market forces may exist that will afford higher prices for large blocks of stock. Amend 2009 tax return Because of the many factors to be considered, determining the value of large blocks of stock usually requires the help of experts specializing in underwriting large quantities of securities, or in trading in the securities of the industry of which the particular company is a part. Amend 2009 tax return Unavailable prices or closely held corporation. Amend 2009 tax return   If selling prices or bid and asked prices are not available, or if securities of a closely held corporation are involved, determine the FMV by considering the following factors. Amend 2009 tax return For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors. Amend 2009 tax return For shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors. Amend 2009 tax return Other factors. Amend 2009 tax return   Other relevant factors include: The nature and history of the business, especially its recent history, The goodwill of the business, The economic outlook in the particular industry, The company's position in the industry, its competitors, and its management, and The value of securities of corporations engaged in the same or similar business. Amend 2009 tax return For preferred stock, the most important factors are its yield, dividend coverage, and protection of its liquidation preference. Amend 2009 tax return   You should keep complete financial and other information on which the valuation is based. Amend 2009 tax return This includes copies of reports of examinations of the company made by accountants, engineers, or any technical experts on or close to the valuation date. Amend 2009 tax return Restricted securities. Amend 2009 tax return   Some classes of stock cannot be traded publicly because of restrictions imposed by the Securities and Exchange Commission, or by the corporate charter or a trust agreement. Amend 2009 tax return These restricted securities usually trade at a discount in relation to freely traded securities. Amend 2009 tax return   To arrive at the FMV of restricted securities, factors that you must consider include the resale provisions found in the restriction agreements, the relative negotiating strengths of the buyer and seller, and the market experience of freely traded securities of the same class as the restricted securities. Amend 2009 tax return Real Estate Because each piece of real estate is unique and its valuation is complicated, a detailed appraisal by a professional appraiser is necessary. Amend 2009 tax return The appraiser must be thoroughly trained in the application of appraisal principles and theory. Amend 2009 tax return In some instances the opinions of equally qualified appraisers may carry unequal weight, such as when one appraiser has a better knowledge of local conditions. Amend 2009 tax return The appraisal report must contain a complete description of the property, such as street address, legal description, and lot and block number, as well as physical features, condition, and dimensions. Amend 2009 tax return The use to which the property is put, zoning and permitted uses, and its potential use for other higher and better uses are also relevant. Amend 2009 tax return In general, there are three main approaches to the valuation of real estate. Amend 2009 tax return An appraisal may require the combined use of two or three methods rather than one method only. Amend 2009 tax return 1. Amend 2009 tax return Comparable Sales The comparable sales method compares the donated property with several similar properties that have been sold. Amend 2009 tax return The selling prices, after adjustments for differences in date of sale, size, condition, and location, would then indicate the estimated FMV of the donated property. Amend 2009 tax return If the comparable sales method is used to determine the value of unimproved real property (land without significant buildings, structures, or any other improvements that add to its value), the appraiser should consider the following factors when comparing the potential comparable property and the donated property: Location, size, and zoning or use restrictions, Accessibility and road frontage, and available utilities and water rights, Riparian rights (right of access to and use of the water by owners of land on the bank of a river) and existing easements, rights-of-way, leases, etc. Amend 2009 tax return , Soil characteristics, vegetative cover, and status of mineral rights, and Other factors affecting value. Amend 2009 tax return For each comparable sale, the appraisal must include the names of the buyer and seller, the deed book and page number, the date of sale and selling price, a property description, the amount and terms of mortgages, property surveys, the assessed value, the tax rate, and the assessor's appraised FMV. Amend 2009 tax return The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. Amend 2009 tax return Because differences of opinion may arise between appraisers as to the degree of comparability and the amount of the adjustment considered necessary for comparison purposes, an appraiser should document each item of adjustment. Amend 2009 tax return Only comparable sales having the least adjustments in terms of items and/or total dollar adjustments should be considered as comparable to the donated property. Amend 2009 tax return 2. Amend 2009 tax return Capitalization of Income This method capitalizes the net income from the property at a rate that represents a fair return on the particular investment at the particular time, considering the risks involved. Amend 2009 tax return The key elements are the determination of the income to be capitalized and the rate of capitalization. Amend 2009 tax return 3. Amend 2009 tax return Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. Amend 2009 tax return Instead, it generally tends to set the upper limit of value, particularly in periods of rising costs, because it is reasonable to assume that an informed buyer will not pay more for the real estate than it would cost to reproduce a similar property. Amend 2009 tax return Of course, this reasoning does not apply if a similar property cannot be created because of location, unusual construction, or some other reason. Amend 2009 tax return Generally, this method serves to support the value determined from other methods. Amend 2009 tax return When the replacement cost method is applied to improved realty, the land and improvements are valued separately. Amend 2009 tax return The replacement cost of a building is figured by considering the materials, the quality of workmanship, and the number of square feet or cubic feet in the building. Amend 2009 tax return This cost represents the total cost of labor and material, overhead, and profit. Amend 2009 tax return After the replacement cost has been figured, consideration must be given to the following factors: Physical deterioration—the wear and tear on the building itself, Functional obsolescence—usually in older buildings with, for example, inadequate lighting, plumbing, or heating, small rooms, or a poor floor plan, and Economic obsolescence—outside forces causing the whole area to become less desirable. Amend 2009 tax return Interest in a Business The FMV of any interest in a business, whether a sole proprietorship or a partnership, is the amount that a willing buyer would pay for the interest to a willing seller after consideration of all relevant factors. Amend 2009 tax return The relevant factors to be considered in valuing the business are: The FMV of the assets of the business, The demonstrated earnings capacity of the business, based on a review of past and current earnings, and The other factors used in evaluating corporate stock, if they apply. Amend 2009 tax return The value of the goodwill of the business should also be taken into consideration. Amend 2009 tax return You should keep complete financial and other information on which you base the valuation. Amend 2009 tax return This includes copies of reports of examinations of the business made by accountants, engineers, or any technical experts on or close to the valuation date. Amend 2009 tax return Annuities, Interests for Life or Terms of Years, Remainders, and Reversions The value of these kinds of property is their present value, except in the case of annuities under contracts issued by companies regularly engaged in their sale. Amend 2009 tax return The valuation of these commercial annuity contracts and of insurance policies is discussed later under Certain Life Insurance and Annuity Contracts. Amend 2009 tax return To determine present value, you must know the applicable interest rate and use actuarial tables. Amend 2009 tax return Interest rate. Amend 2009 tax return   The applicable interest rate varies. Amend 2009 tax return It is announced monthly in a news release and published in the Internal Revenue Bulletin as a Revenue Ruling. Amend 2009 tax return The interest rate to use is under the heading “Rate Under Section 7520” for a given month and year. Amend 2009 tax return You can call the IRS office at 1-800-829-1040 to obtain this rate. Amend 2009 tax return Actuarial tables. Amend 2009 tax return   You need to refer to actuarial tables to determine a qualified interest in the form of an annuity, any interest for life or a term of years, or any remainder interest to a charitable organization. Amend 2009 tax return   Use the valuation tables set forth in IRS Publications 1457, Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). Amend 2009 tax return Both of these publications provide tables containing actuarial factors to be used in determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest. Amend 2009 tax return For qualified charitable transfers, you can use the factor for the month in which you made the contribution or for either of the 2 months preceding that month. Amend 2009 tax return   Publication 1457 also contains actuarial factors for computing the value of a remainder interest in a charitable remainder annuity trust and a pooled income fund. Amend 2009 tax return Publication 1458 contains the factors for valuing the remainder interest in a charitable remainder unitrust. Amend 2009 tax return You can download Publications 1457 and 1458 from www. Amend 2009 tax return irs. Amend 2009 tax return gov. Amend 2009 tax return In addition, they are available for purchase via the website of the U. Amend 2009 tax return S. Amend 2009 tax return Government Printing Office, by phone at (202) 512-1800, or by mail from the: Superintendent of Documents P. Amend 2009 tax return O. Amend 2009 tax return Box 371954 Pittsburgh, PA 15250-7954 Tables containing actuarial factors for transfers to pooled income funds may also be found in Income Tax Regulation 1. Amend 2009 tax return 642(c)-6(e)(6), transfers to charitable remainder unitrusts in Regulation 1. Amend 2009 tax return 664-4(e), and other transfers in Regulation 20. Amend 2009 tax return 2031-7(d)(6). Amend 2009 tax return Special factors. Amend 2009 tax return   If you need a special factor for an actual transaction, you can request a letter ruling. Amend 2009 tax return Be sure to include the date of birth of each person the duration of whose life may affect the value of the interest. Amend 2009 tax return Also include copies of the relevant instruments. Amend 2009 tax return IRS charges a user fee for providing special factors. Amend 2009 tax return   For more information about requesting a ruling, see Revenue Procedure 2006-1 (or annual update), 2006-1 I. Amend 2009 tax return R. Amend 2009 tax return B. Amend 2009 tax return 1. Amend 2009 tax return Revenue Procedure 2006-1 is available at www. Amend 2009 tax return irs. Amend 2009 tax return gov/irb/2006-01_IRB/ar06. Amend 2009 tax return html. Amend 2009 tax return   For information on the circumstances under which a charitable deduction may be allowed for the donation of a partial interest in property not in trust, see Partial Interest in Property Not in Trust, later. Amend 2009 tax return Certain Life Insurance and Annuity Contracts The value of an annuity contract or a life insurance policy issued by a company regularly engaged in the sale of such contracts or policies is the amount that company would charge for a comparable contract. Amend 2009 tax return But if the donee of a life insurance policy may reasonably be expected to cash the policy rather than hold it as an investment, then the FMV is the cash surrender value rather than the replacement cost. Amend 2009 tax return If an annuity is payable under a combination annuity contract and life insurance policy (for example, a retirement income policy with a death benefit) and there was no insurance element when it was transferred to the charity, the policy is treated as an annuity contract. Amend 2009 tax return Partial Interest in Property Not in Trust Generally, no deduction is allowed for a charitable contribution, not made in trust, of less than your entire interest in property. Amend 2009 tax return However, this does not apply to a transfer of less than your entire interest if it is a transfer of: A remainder interest in your personal residence or farm, An undivided part of your entire interest in property, or A qualified conservation contribution. Amend 2009 tax return Remainder Interest in Real Property The amount of the deduction for a donation of a remainder interest in real property is the FMV of the remainder interest at the time of the contribution. Amend 2009 tax return To determine this value, you must know the FMV of the property on the date of the contribution. Amend 2009 tax return Multiply this value by the appropriate factor. Amend 2009 tax return Publications 1457 and 1458 contain these factors. Amend 2009 tax return You must make an adjustment for depreciation or depletion using the factors shown in Publication 1459, Actuarial Values (Book Gimel). Amend 2009 tax return You can use the factors for the month in which you made the contribution or for either of the two months preceding that month. Amend 2009 tax return See the earlier discussion on Annuities, Interests for Life or Terms of Years, Remainders, and Reversions. Amend 2009 tax return You can download Publication 1459 from www. Amend 2009 tax return irs. Amend 2009 tax return gov. Amend 2009 tax return For this purpose, the term “depreciable property” means any property subject to wear and tear or obsolescence, even if not used in a trade or business or for the production of income. Amend 2009 tax return If the remainder interest includes both depreciable and nondepreciable property, for example a house and land, the FMV must be allocated between each kind of property at the time of the contribution. Amend 2009 tax return This rule also applies to a gift of a remainder interest that includes property that is part depletable and part not depletable. Amend 2009 tax return Take into account depreciation or depletion only for the property that is subject to depreciation or depletion. Amend 2009 tax return For more information, see section 1. Amend 2009 tax return 170A-12 of the Income Tax Regulations. Amend 2009 tax return Undivided Part of Your Entire Interest A contribution of an undivided part of your entire interest in property must consist of a part of each and every substantial interest or right you own in the property. Amend 2009 tax return It must extend over the entire term of your interest in the property. Amend 2009 tax return For example, you are entitled to the income from certain property for your life (life estate) and you contribute 20% of that life estate to a qualified organization. Amend 2009 tax return You can claim a deduction for the contribution if you do not have any other interest in the property. Amend 2009 tax return To figure the value of a contribution involving a partial interest, see Publication 1457. Amend 2009 tax return If the only interest you own in real property is a remainder interest and you transfer part of that interest to a qualified organization, see the previous discussion on valuation of a remainder interest in real property. Amend 2009 tax return Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. Amend 2009 tax return Qualified organization. Amend 2009 tax return   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charitable, religious, scientific, literary, educational, etc. Amend 2009 tax return , organization, or An organization that is controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. Amend 2009 tax return The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. Amend 2009 tax return Conservation purposes. Amend 2009 tax return   Your contribution must be made only for one of the following conservation purposes. Amend 2009 tax return Preserving land areas for outdoor recreation by, or for the education of, the general public. Amend 2009 tax return Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. Amend 2009 tax return Preserving open space, including farmland and forest land, if it yields a significant public benefit. Amend 2009 tax return It must be either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. Amend 2009 tax return Preserving a historically important land area or a certified historic structure. Amend 2009 tax return There must be some visual public access to the property. Amend 2009 tax return Factors used in determining the type and amount of public access required include the historical significance of the property, the remoteness or accessibility of the site, and the extent to which intrusions on the privacy of individuals living on the property would be unreasonable. Amend 2009 tax return Building in registered historic district. Amend 2009 tax return   A contribution after July 25, 2006, of a qualified real property interest that is an easement or other restriction on the exterior of a building in a registered historic district is deductible only if it meets all of the following three conditions. Amend 2009 tax return The restriction must preserve the entire exterior of the building and must prohibit any change to the exterior of the building that is inconsistent with its historical character. Amend 2009 tax return You and the organization receiving the contribution must enter into a written agreement certifying, that the organization is a qualified organization and that it has the resources and commitment to maintain the property as donated. Amend 2009 tax return If you make the contribution in a tax year beginning after August 17, 2006, you must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. Amend 2009 tax return   If you make this type of contribution after February 12, 2007, and claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. Amend 2009 tax return See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. Amend 2009 tax return Qualified real property interest. Amend 2009 tax return   This is any of the following interests in real property. Amend 2009 tax return Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). Amend 2009 tax return A remainder interest. Amend 2009 tax return A restriction (granted in perpetuity) on the use that may be made of the real property. Amend 2009 tax return Valuation. Amend 2009 tax return   A qualified real property interest described in (1) should be valued in a manner that is consistent with the type of interest transferred. Amend 2009 tax return If you transferred all the interest in the property, the FMV of the property is the amount of the contribution. Amend 2009 tax return If you do not transfer the mineral interest, the FMV of the surface rights in the property is the amount of the contribution. Amend 2009 tax return   If you owned only a remainder interest or an income interest (life estate), see Undivided Part of Your Entire Interest, earlier. Amend 2009 tax return If you owned the entire property but transferred only a remainder interest (item (2)), see Remainder Interest in Real Property, earlier. Amend 2009 tax return   In determining the value of restrictions, you should take into account the selling price in arm's-length transactions of other properties that have comparable restrictions. Amend 2009 tax return If there are no comparable sales, the restrictions are valued indirectly as the difference between the FMVs of the property involved before and after the grant of the restriction. Amend 2009 tax return   The FMV of the property before contribution of the restriction should take into account not only current use but the likelihood that the property, without the restriction, would be developed. Amend 2009 tax return You should also consider any zoning, conservation, or historical preservation laws that would restrict development. Amend 2009 tax return Granting an easement may increase, rather than reduce, the value of property, and in such a situation no deduction would be allowed. Amend 2009 tax return Example. Amend 2009 tax return   You own 10 acres of farmland. Amend 2009 tax return Similar land in the area has an FMV of $2,000 an acre. Amend 2009 tax return However, land in the general area that is restricted solely to farm use has an FMV of $1,500 an acre. Amend 2009 tax return Your county wants to preserve open space and prevent further development in your area. Amend 2009 tax return   You grant to the county an enforceable open space easement in perpetuity on 8 of the 10 acres, restricting its use to farmland. Amend 2009 tax return The value of this easement is $4,000, determined as follows: FMV of the property before granting easement:   $2,000 × 10 acres $20,000 FMV of the property after granting easement:   $1,500 × 8 acres $12,000   $2,000 × 2 acres 4,000 16,000 Value of easement   $4,000   If you later transfer in fee your remaining interest in the 8 acres to another qualified organization, the FMV of your remaining interest is the FMV of the 8 acres reduced by the FMV of the easement granted to the first organization. Amend 2009 tax return More information. Amend 2009 tax return   For more information about qualified conservation contributions, see Publication 526. Amend 2009 tax return Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. Amend 2009 tax return (There is one exception, described next, for certain clothing and household items. Amend 2009 tax return ) However, you generally will need an appraisal for donated property for which you claim a deduction of more than $5,000. Amend 2009 tax return There are exceptions. Amend 2009 tax return See Deductions of More Than $5,000, later. Amend 2009 tax return The weight given an appraisal depends on the completeness of the report, the qualifications of the appraiser, and the appraiser's demonstrated knowledge of the donated property. Amend 2009 tax return An appraisal must give all the facts on which to base an intelligent judgment of the value of the property. Amend 2009 tax return The appraisal will not be given much weight if: All the factors that apply are not considered, The opinion is not supported with facts, such as purchase price and comparable sales, or The opinion is not consistent with known facts. Amend 2009 tax return The appraiser's opinion is never more valid than the facts on which it is based; without these facts it is simply a guess. Amend 2009 tax return The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service. Amend 2009 tax return All facts associated with the donation must be considered. Amend 2009 tax return Deduction over $500 for certain clothing or household items. Amend 2009 tax return   You must include with your return a qualified appraisal of any single item of clothing or any household item that is not in good used condition or better, that you donated after August 17, 2006, and for which you deduct more than $500. Amend 2009 tax return See Household Goods and Used Clothing, earlier. Amend 2009 tax return Cost of appraisals. Amend 2009 tax return   You may not take a charitable contribution deduction for fees you pay for appraisals of your donated property. Amend 2009 tax return However, these fees may qualify as a miscellaneous deduction, subject to the 2% limit, on Schedule A (Form 1040) if paid to determine the amount allowable as a charitable contribution. Amend 2009 tax return Deductions of More Than $5,000 Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser, and you must attach Section B of Form 8283 to your tax return. Amend 2009 tax return There are exceptions, discussed later. Amend 2009 tax return You should keep the appraiser's report with your written records. Amend 2009 tax return Records are discussed in Publication 526. Amend 2009 tax return The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. Amend 2009 tax return For example, if you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. Amend 2009 tax return You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return. Amend 2009 tax return Exceptions. Amend 2009 tax return   You do not need an appraisal if the property is: Nonpublicly traded stock of $10,000 or less, A vehicle (including a car, boat, or airplane) for which your deduction is limited to the gross proceeds from its sale, Qualified intellectual property, such as a patent, Certain publicly traded securities described next, Inventory and other property donated by a corporation that are “qualified contributions” for the care of the ill, the needy, or infants, within the meaning of section 170(e)(3)(A) of the Internal Revenue Code, or Stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business. Amend 2009 tax return   Although an appraisal is not required for the types of property just listed, you must provide certain information about a donation of any of these types of property on Form 8283. Amend 2009 tax return Publicly traded securities. Amend 2009 tax return   Even if your claimed deduction is more than $5,000, neither a qualified appraisal nor Section B of Form 8283 is required for publicly traded securities that are: Listed on a stock exchange in which quotations are published on a daily basis, Regularly traded in a national or regional over-the-counter market for which published quotations are available, or Shares of an open-end investment company (mutual fund) for which quotations are published on a daily basis in a newspaper of general circulation throughout the United States. Amend 2009 tax return Publicly traded securities that meet these requirements must be reported on Form 8283, Section A. Amend 2009 tax return   A qualified appraisal is not required, but Form 8283, Section B, Parts I and IV, must be completed, for an issue of a security that does not meet the requirements just listed but does meet these requirements: The issue is regularly traded during the computation period (defined later) in a market for which there is an “interdealer quotation system” (defined later), The issuer or agent computes the “average trading price” (defined later) for the same issue for the computation period, The average trading price and total volume of the issue during the computation period are published in a newspaper of general circulation throughout the United States, not later than the last day of the month following the end of the calendar quarter in which the computation period ends, The issuer or agent keeps books and records that list for each transaction during the computation period the date of settlement of the transaction, the name and address of the broker or dealer making the market in which the transaction occurred, and the trading price and volume, and The issuer or agent permits the Internal Revenue Service to review the books and records described in item (4) with respect to transactions during the computation period upon receiving reasonable notice. Amend 2009 tax return   An interdealer quotation system is any system of general circulation to brokers and dealers that regularly disseminates quotations of obligations by two or more identified brokers or dealers who are not related to either the issuer or agent who computes the average trading price of the security. Amend 2009 tax return A quotation sheet prepared and distributed by a broker or dealer in the regular course of business and containing only quotations of that broker or dealer is not an interdealer quotation system. Amend 2009 tax return   The average trading price is the average price of all transactions (weighted by volume), other than original issue or redemption transactions, conducted through a United States office of a broker or dealer who maintains a market in the issue of the security during the computation period. Amend 2009 tax return Bid and asked quotations are not taken into account. Amend 2009 tax return   The computation period is weekly during October through December and monthly during January through September. Amend 2009 tax return The weekly computation periods during October through December begin with the first Monday in October and end with the first Sunday following the last Monday in December. Amend 2009 tax return Nonpublicly traded stock. Amend 2009 tax return   If you contribute nonpublicly traded stock, for which you claim a deduction of $10,000 or less, a qualified appraisal is not required. Amend 2009 tax return However, you must attach Form 8283 to your tax return, with Section B, Parts I and IV, completed. Amend 2009 tax return Deductions of More Than $500,000 If you claim a deduction of more than $500,000 for a donation of property, you must attach a qualified appraisal of the property to your return. Amend 2009 tax return This does not apply to contributions of cash, inventory, publicly traded stock, or intellectual property. Amend 2009 tax return If you do not attach the appraisal, you cannot deduct your contribution, unless your failure to attach the appraisal is due to reasonable cause and not to willful neglect. Amend 2009 tax return Qualified Appraisal Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser. Amend 2009 tax return You must also complete Form 8283, Section B, and attach it to your tax return. Amend 2009 tax return See Deductions of More Than $5,000, earlier. Amend 2009 tax return A qualified appraisal is an appraisal document that: Is made, signed, and dated by a qualified appraiser (defined later) in accordance with generally accepted appraisal standards, Meets the relevant requirements of Regulations section 1. Amend 2009 tax return 170A-13(c)(3) and Notice 2006-96, 2006-46 I. Amend 2009 tax return R. Amend 2009 tax return B. Amend 2009 tax return 902 (available at www. Amend 2009 tax return irs. Amend 2009 tax return gov/irb/2006-46_IRB/ar13. Amend 2009 tax return html), Relates to an appraisal made not earlier than 60 days before the date of contribution of the appraised property, Does not involve a prohibited appraisal fee, and Includes certain information (covered later). Amend 2009 tax return You must receive the qualified appraisal before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property. Amend 2009 tax return If the deduction is first claimed on an amended return, the qualified appraisal must be received before the date on which the amended return is filed. Amend 2009 tax return Form 8283, Section B, must be attached to your tax return. Amend 2009 tax return Generally, you do not need to attach the qualified appraisal itself, but you should keep a copy as long as it may be relevant under the tax law. Amend 2009 tax return There are four exceptions. Amend 2009 tax return If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the appraisal. Amend 2009 tax return See Paintings, Antiques, and Other Objects of Art, earlier. Amend 2009 tax return If you claim a deduction of more than $500,000 for a donation of property, you must attach the appraisal. Amend 2009 tax return See Deductions of More Than $500,000, earlier. Amend 2009 tax return If you claim a deduction of more than $500 for an article of clothing, or a household item, that is not in good used condition or better, that you donated after August 17, 2006, you must attach the appraisal. Amend 2009 tax return See Deduction over $500 for certain clothing or household items, earlier. Amend 2009 tax return If you claim a deduction in a tax year beginning after August 17, 2006, for an easement or other restriction on the exterior of a building in a historic district, you must attach the appraisal. Amend 2009 tax return See Building in registered historic district, earlier. Amend 2009 tax return Prohibited appraisal fee. Amend 2009 tax return   Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. Amend 2009 tax return If a fee arrangement is based on what is allowed as a deduction, after Internal Revenue Service examination or otherwise, it is treated as a fee based on a percentage of appraised value. Amend 2009 tax return However, appraisals are not disqualified when an otherwise prohi
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The Amend 2009 Tax Return

Amend 2009 tax return 9. Amend 2009 tax return   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Amend 2009 tax return Depletion unit. Amend 2009 tax return Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Amend 2009 tax return The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Amend 2009 tax return There are two ways of figuring depletion: cost depletion and percentage depletion. Amend 2009 tax return For mineral property, you generally must use the method that gives you the larger deduction. Amend 2009 tax return For standing timber, you must use cost depletion. Amend 2009 tax return Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Amend 2009 tax return More than one person can have an economic interest in the same mineral deposit or timber. Amend 2009 tax return In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Amend 2009 tax return You have an economic interest if both the following apply. Amend 2009 tax return You have acquired by investment any interest in mineral deposits or standing timber. Amend 2009 tax return You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Amend 2009 tax return A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Amend 2009 tax return A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Amend 2009 tax return Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Amend 2009 tax return Basis adjustment for depletion. Amend 2009 tax return   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Amend 2009 tax return Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Amend 2009 tax return For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Amend 2009 tax return You can treat two or more separate interests as one property or as separate properties. Amend 2009 tax return See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Amend 2009 tax return There are two ways of figuring depletion on mineral property. Amend 2009 tax return Cost depletion. Amend 2009 tax return Percentage depletion. Amend 2009 tax return Generally, you must use the method that gives you the larger deduction. Amend 2009 tax return However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Amend 2009 tax return See Oil and Gas Wells , later. Amend 2009 tax return Cost Depletion To figure cost depletion you must first determine the following. Amend 2009 tax return The property's basis for depletion. Amend 2009 tax return The total recoverable units of mineral in the property's natural deposit. Amend 2009 tax return The number of units of mineral sold during the tax year. Amend 2009 tax return Basis for depletion. Amend 2009 tax return   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Amend 2009 tax return Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Amend 2009 tax return The residual value of land and improvements at the end of operations. Amend 2009 tax return The cost or value of land acquired for purposes other than mineral production. Amend 2009 tax return Adjusted basis. Amend 2009 tax return   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Amend 2009 tax return Your adjusted basis can never be less than zero. Amend 2009 tax return See Publication 551, Basis of Assets, for more information on adjusted basis. Amend 2009 tax return Total recoverable units. Amend 2009 tax return   The total recoverable units is the sum of the following. Amend 2009 tax return The number of units of mineral remaining at the end of the year (including units recovered but not sold). Amend 2009 tax return The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Amend 2009 tax return   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Amend 2009 tax return You must include ores and minerals that are developed, in sight, blocked out, or assured. Amend 2009 tax return You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Amend 2009 tax return But see Elective safe harbor for owners of oil and gas property , later. Amend 2009 tax return Number of units sold. Amend 2009 tax return   You determine the number of units sold during the tax year based on your method of accounting. Amend 2009 tax return Use the following table to make this determination. Amend 2009 tax return    IF you  use . Amend 2009 tax return . Amend 2009 tax return . Amend 2009 tax return THEN the units sold during the year are . Amend 2009 tax return . Amend 2009 tax return . Amend 2009 tax return The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Amend 2009 tax return An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Amend 2009 tax return   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Amend 2009 tax return Figuring the cost depletion deduction. Amend 2009 tax return   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Amend 2009 tax return Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Amend 2009 tax return Rate per unit. Amend 2009 tax return 2 Multiply the rate per unit by units sold during the tax year. Amend 2009 tax return Cost depletion deduction. Amend 2009 tax return You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Amend 2009 tax return Elective safe harbor for owners of oil and gas property. Amend 2009 tax return   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Amend 2009 tax return If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Amend 2009 tax return For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Amend 2009 tax return irs. Amend 2009 tax return gov/pub/irs-irbs/irb04-10. Amend 2009 tax return pdf. Amend 2009 tax return   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Amend 2009 tax return The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Amend 2009 tax return The election, if made, is effective for the tax year in which it is made and all later years. Amend 2009 tax return It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Amend 2009 tax return Once revoked, it cannot be re-elected for the next 5 years. Amend 2009 tax return Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Amend 2009 tax return The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Amend 2009 tax return Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Amend 2009 tax return Gross income. Amend 2009 tax return   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Amend 2009 tax return Any rents or royalties you paid or incurred for the property. Amend 2009 tax return The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Amend 2009 tax return A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Amend 2009 tax return   Use the following fraction to figure the part of the bonus you must subtract. Amend 2009 tax return No. Amend 2009 tax return of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Amend 2009 tax return For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Amend 2009 tax return Taxable income limit. Amend 2009 tax return   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Amend 2009 tax return   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Amend 2009 tax return These deductible items include, but are not limited to, the following. Amend 2009 tax return Operating expenses. Amend 2009 tax return Certain selling expenses. Amend 2009 tax return Administrative and financial overhead. Amend 2009 tax return Depreciation. Amend 2009 tax return Intangible drilling and development costs. Amend 2009 tax return Exploration and development expenditures. Amend 2009 tax return Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Amend 2009 tax return Losses sustained. Amend 2009 tax return   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Amend 2009 tax return Do not deduct any net operating loss deduction from the gross income from the property. Amend 2009 tax return Corporations do not deduct charitable contributions from the gross income from the property. Amend 2009 tax return If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Amend 2009 tax return See section 1. Amend 2009 tax return 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Amend 2009 tax return Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Amend 2009 tax return You are either an independent producer or a royalty owner. Amend 2009 tax return The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Amend 2009 tax return If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Amend 2009 tax return For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Amend 2009 tax return Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Amend 2009 tax return However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Amend 2009 tax return For information on figuring the deduction, see Figuring percentage depletion , later. Amend 2009 tax return Refiners who cannot claim percentage depletion. Amend 2009 tax return   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Amend 2009 tax return The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Amend 2009 tax return Related person. Amend 2009 tax return   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Amend 2009 tax return For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Amend 2009 tax return A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Amend 2009 tax return For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Amend 2009 tax return The value of the outstanding stock of a corporation. Amend 2009 tax return The interest in the profits or capital of a partnership. Amend 2009 tax return The beneficial interests in an estate or trust. Amend 2009 tax return Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Amend 2009 tax return Retailers who cannot claim percentage depletion. Amend 2009 tax return   You cannot claim percentage depletion if both the following apply. Amend 2009 tax return You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Amend 2009 tax return Through a retail outlet operated by you or a related person. Amend 2009 tax return To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Amend 2009 tax return To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Amend 2009 tax return The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Amend 2009 tax return   For the purpose of determining if this rule applies, do not count the following. Amend 2009 tax return Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Amend 2009 tax return Bulk sales of aviation fuels to the Department of Defense. Amend 2009 tax return Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Amend 2009 tax return Related person. Amend 2009 tax return   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Amend 2009 tax return Sales through a related person. Amend 2009 tax return   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Amend 2009 tax return   You are not considered to be selling through a related person who is a retailer if all the following apply. Amend 2009 tax return You do not have a significant ownership interest in the retailer. Amend 2009 tax return You sell your production to persons who are not related to either you or the retailer. Amend 2009 tax return The retailer does not buy oil or natural gas from your customers or persons related to your customers. Amend 2009 tax return There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Amend 2009 tax return Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Amend 2009 tax return Transferees who cannot claim percentage depletion. Amend 2009 tax return   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Amend 2009 tax return For a definition of the term “transfer,” see section 1. Amend 2009 tax return 613A-7(n) of the regulations. Amend 2009 tax return For a definition of the term “interest in proven oil or gas property,” see section 1. Amend 2009 tax return 613A-7(p) of the regulations. Amend 2009 tax return Figuring percentage depletion. Amend 2009 tax return   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Amend 2009 tax return If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Amend 2009 tax return If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Amend 2009 tax return   In addition, there is a limit on the percentage depletion deduction. Amend 2009 tax return See Taxable income limit , later. Amend 2009 tax return Average daily production. Amend 2009 tax return   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Amend 2009 tax return Partial interest. Amend 2009 tax return   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Amend 2009 tax return   You have a partial interest in the production from a property if you have a net profits interest in the property. Amend 2009 tax return To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Amend 2009 tax return To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Amend 2009 tax return Then multiply the total production from the property by your percentage participation to figure your share of the production. Amend 2009 tax return Example. Amend 2009 tax return Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Amend 2009 tax return During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Amend 2009 tax return Javier had expenses of $90,000 attributable to the property. Amend 2009 tax return The property generated a net profit of $110,000 ($200,000 − $90,000). Amend 2009 tax return Pablo received income of $22,000 ($110,000 × . Amend 2009 tax return 20) for his net profits interest. Amend 2009 tax return Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Amend 2009 tax return Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Amend 2009 tax return Depletable oil or natural gas quantity. Amend 2009 tax return   Generally, your depletable oil quantity is 1,000 barrels. Amend 2009 tax return Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Amend 2009 tax return If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Amend 2009 tax return Example. Amend 2009 tax return You have both oil and natural gas production. Amend 2009 tax return To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Amend 2009 tax return Your depletable natural gas quantity is 2. Amend 2009 tax return 16 million cubic feet of gas (360 × 6000). Amend 2009 tax return You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Amend 2009 tax return If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Amend 2009 tax return Also, see Notice 2012-50, available at www. Amend 2009 tax return irs. Amend 2009 tax return gov/irb/2012–31_IRB/index. Amend 2009 tax return html. Amend 2009 tax return Business entities and family members. Amend 2009 tax return   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Amend 2009 tax return Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Amend 2009 tax return You and your spouse and minor children. Amend 2009 tax return A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Amend 2009 tax return Controlled group of corporations. Amend 2009 tax return   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Amend 2009 tax return They share the depletable quantity. Amend 2009 tax return A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Amend 2009 tax return ” Gross income from the property. Amend 2009 tax return   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Amend 2009 tax return If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Amend 2009 tax return   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Amend 2009 tax return   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Amend 2009 tax return Average daily production exceeds depletable quantities. Amend 2009 tax return   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Amend 2009 tax return Figure your average daily production of oil or natural gas for the year. Amend 2009 tax return Figure your depletable oil or natural gas quantity for the year. Amend 2009 tax return Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Amend 2009 tax return Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Amend 2009 tax return This is your depletion allowance for that property for the year. Amend 2009 tax return Taxable income limit. Amend 2009 tax return   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Amend 2009 tax return 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Amend 2009 tax return For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Amend 2009 tax return 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Amend 2009 tax return You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Amend 2009 tax return Add it to your depletion allowance (before applying any limits) for the following year. Amend 2009 tax return Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Amend 2009 tax return (However, see Electing large partnerships must figure depletion allowance , later. Amend 2009 tax return ) Each partner or shareholder must decide whether to use cost or percentage depletion. Amend 2009 tax return If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Amend 2009 tax return Partner's or shareholder's adjusted basis. Amend 2009 tax return   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Amend 2009 tax return The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Amend 2009 tax return   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Amend 2009 tax return However, in some cases, it is figured according to the partner's interest in partnership income. Amend 2009 tax return   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Amend 2009 tax return Recordkeeping. Amend 2009 tax return Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Amend 2009 tax return The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Amend 2009 tax return The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Amend 2009 tax return Reporting the deduction. Amend 2009 tax return   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Amend 2009 tax return Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Amend 2009 tax return The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Amend 2009 tax return The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Amend 2009 tax return Form 6198, At-Risk Limitations. Amend 2009 tax return Form 8582, Passive Activity Loss Limitations. Amend 2009 tax return Electing large partnerships must figure depletion allowance. Amend 2009 tax return   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Amend 2009 tax return The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Amend 2009 tax return Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Amend 2009 tax return   An electing large partnership is one that meets both the following requirements. Amend 2009 tax return The partnership had 100 or more partners in the preceding year. Amend 2009 tax return The partnership chooses to be an electing large partnership. Amend 2009 tax return Disqualified persons. Amend 2009 tax return   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Amend 2009 tax return Disqualified persons must figure it themselves, as explained earlier. Amend 2009 tax return   All the following are disqualified persons. Amend 2009 tax return Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Amend 2009 tax return Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Amend 2009 tax return Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Amend 2009 tax return Average daily production is discussed earlier. Amend 2009 tax return Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Amend 2009 tax return Natural gas sold under a fixed contract. Amend 2009 tax return   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Amend 2009 tax return This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Amend 2009 tax return The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Amend 2009 tax return Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Amend 2009 tax return Natural gas from geopressured brine. Amend 2009 tax return   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Amend 2009 tax return This is natural gas that is both the following. Amend 2009 tax return Produced from a well you began to drill after September 1978 and before 1984. Amend 2009 tax return Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Amend 2009 tax return Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Amend 2009 tax return Mines and other natural deposits. Amend 2009 tax return   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Amend 2009 tax return   The following is a list of the percentage depletion rates for the more common minerals. Amend 2009 tax return DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Amend 2009 tax return Corporate deduction for iron ore and coal. Amend 2009 tax return   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Amend 2009 tax return Gross income from the property. Amend 2009 tax return   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Amend 2009 tax return Mining includes all the following. Amend 2009 tax return Extracting ores or minerals from the ground. Amend 2009 tax return Applying certain treatment processes described later. Amend 2009 tax return Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Amend 2009 tax return Excise tax. Amend 2009 tax return   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Amend 2009 tax return Extraction. Amend 2009 tax return   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Amend 2009 tax return This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Amend 2009 tax return Treatment processes. Amend 2009 tax return   The processes included as mining depend on the ore or mineral mined. Amend 2009 tax return To qualify as mining, the treatment processes must be applied by the mine owner or operator. Amend 2009 tax return For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Amend 2009 tax return Transportation of more than 50 miles. Amend 2009 tax return   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Amend 2009 tax return    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Amend 2009 tax return Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Amend 2009 tax return For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Amend 2009 tax return irs. Amend 2009 tax return gov/irb/2013-01_IRB/ar11. Amend 2009 tax return html. Amend 2009 tax return Disposal of coal or iron ore. Amend 2009 tax return   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Amend 2009 tax return You disposed of it after holding it for more than 1 year. Amend 2009 tax return You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Amend 2009 tax return Treat any gain on the disposition as a capital gain. Amend 2009 tax return Disposal to related person. Amend 2009 tax return   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Amend 2009 tax return A related person (as listed in chapter 2 of Publication 544). Amend 2009 tax return A person owned or controlled by the same interests that own or control you. Amend 2009 tax return Geothermal deposits. Amend 2009 tax return   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Amend 2009 tax return A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Amend 2009 tax return For percentage depletion purposes, a geothermal deposit is not considered a gas well. Amend 2009 tax return   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Amend 2009 tax return See Gross income from the property , earlier, under Oil and Gas Wells. Amend 2009 tax return Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Amend 2009 tax return Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Amend 2009 tax return A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Amend 2009 tax return Bonuses and advanced royalties. Amend 2009 tax return   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Amend 2009 tax return If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Amend 2009 tax return Figuring cost depletion. Amend 2009 tax return   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Amend 2009 tax return To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Amend 2009 tax return Figuring percentage depletion. Amend 2009 tax return   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Amend 2009 tax return Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Amend 2009 tax return However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Amend 2009 tax return Ending the lease. Amend 2009 tax return   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Amend 2009 tax return Do this for the year the lease ends or is abandoned. Amend 2009 tax return Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Amend 2009 tax return   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Amend 2009 tax return Include this amount in income for the year the lease ends. Amend 2009 tax return Increase your adjusted basis in the property by the amount you include in income. Amend 2009 tax return Delay rentals. Amend 2009 tax return   These are payments for deferring development of the property. Amend 2009 tax return Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Amend 2009 tax return These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Amend 2009 tax return Timber You can figure timber depletion only by the cost method. Amend 2009 tax return Percentage depletion does not apply to timber. Amend 2009 tax return Base your depletion on your cost or other basis in the timber. Amend 2009 tax return Your cost does not include the cost of land or any amounts recoverable through depreciation. Amend 2009 tax return Depletion takes place when you cut standing timber. Amend 2009 tax return You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Amend 2009 tax return Figuring cost depletion. Amend 2009 tax return   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Amend 2009 tax return Timber units. Amend 2009 tax return   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Amend 2009 tax return You measure the timber using board feet, log scale, cords, or other units. Amend 2009 tax return If you later determine that you have more or less units of timber, you must adjust the original estimate. Amend 2009 tax return   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Amend 2009 tax return Depletion unit. Amend 2009 tax return   You figure your depletion unit each year by taking the following steps. Amend 2009 tax return Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Amend 2009 tax return Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Amend 2009 tax return Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Amend 2009 tax return Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Amend 2009 tax return Divide the result of (2) by the result of (3). Amend 2009 tax return This is your depletion unit. Amend 2009 tax return Example. Amend 2009 tax return You bought a timber tract for $160,000 and the land was worth as much as the timber. Amend 2009 tax return Your basis for the timber is $80,000. Amend 2009 tax return Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Amend 2009 tax return If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Amend 2009 tax return When to claim depletion. Amend 2009 tax return   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Amend 2009 tax return Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Amend 2009 tax return The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Amend 2009 tax return Example. Amend 2009 tax return The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Amend 2009 tax return You would deduct $20,000 of the $40,000 depletion that year. Amend 2009 tax return You would add the remaining $20,000 depletion to your closing inventory of timber products. Amend 2009 tax return Electing to treat the cutting of timber as a sale or exchange. Amend 2009 tax return   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Amend 2009 tax return You must make the election on your income tax return for the tax year to which it applies. Amend 2009 tax return If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Amend 2009 tax return You generally report the gain as long-term capital gain. Amend 2009 tax return The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Amend 2009 tax return For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amend 2009 tax return   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Amend 2009 tax return The prior election (and revocation) is disregarded for purposes of making a subsequent election. Amend 2009 tax return See Form T (Timber), Forest Activities Schedule, for more information. Amend 2009 tax return Form T. Amend 2009 tax return   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Amend 2009 tax return Prev  Up  Next   Home   More Online Publications