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Amendment Tax Return 2012

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Amendment Tax Return 2012

Amendment tax return 2012 11. Amendment tax return 2012   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Amendment tax return 2012 Nondeductible losses. Amendment tax return 2012 Family pet. Amendment tax return 2012 Progressive deterioration. Amendment tax return 2012 Decline in market value of stock. Amendment tax return 2012 Mislaid or lost property. Amendment tax return 2012 Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. Amendment tax return 2012 Related persons. Amendment tax return 2012 Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Amendment tax return 2012 Covered disaster area. Amendment tax return 2012 Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Amendment tax return 2012 A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Amendment tax return 2012 A theft occurs when property is stolen. Amendment tax return 2012 A condemnation occurs when private property is legally taken for public use without the owner's consent. Amendment tax return 2012 A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Amendment tax return 2012 You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. Amendment tax return 2012 An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. Amendment tax return 2012 If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. Amendment tax return 2012 For more information, see Postponing Gain , later. Amendment tax return 2012 Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Amendment tax return 2012 Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Amendment tax return 2012 If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. Amendment tax return 2012 Casualty. Amendment tax return 2012   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Amendment tax return 2012 A sudden event is one that is swift, not gradual or progressive. Amendment tax return 2012 An unexpected event is one that is ordinarily unanticipated and unintended. Amendment tax return 2012 An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Amendment tax return 2012 Deductible losses. Amendment tax return 2012   Deductible casualty losses can result from a number of different causes, including the following. Amendment tax return 2012 Airplane crashes. Amendment tax return 2012 Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Amendment tax return 2012 Earthquakes. Amendment tax return 2012 Fires (but see Nondeductible losses next for exceptions). Amendment tax return 2012 Floods. Amendment tax return 2012 Freezing. Amendment tax return 2012 Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses, in Publication 547. Amendment tax return 2012 Lightning. Amendment tax return 2012 Storms, including hurricanes and tornadoes. Amendment tax return 2012 Terrorist attacks. Amendment tax return 2012 Vandalism. Amendment tax return 2012 Volcanic eruptions. Amendment tax return 2012 Nondeductible losses. Amendment tax return 2012   A casualty loss is not deductible if the damage or destruction is caused by the following. Amendment tax return 2012 Accidentally breaking articles such as glassware or china under normal conditions. Amendment tax return 2012 A family pet (explained below). Amendment tax return 2012 A fire if you willfully set it, or pay someone else to set it. Amendment tax return 2012 A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Amendment tax return 2012 The same is true if the willful act or willful negligence of someone acting for you caused the accident. Amendment tax return 2012 Progressive deterioration (explained below). Amendment tax return 2012 Family pet. Amendment tax return 2012   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. Amendment tax return 2012 Example. Amendment tax return 2012 You keep your horse in your yard. Amendment tax return 2012 The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Amendment tax return 2012 Some of the trees were completely girdled and died. Amendment tax return 2012 Because the damage was not unexpected or unusual, the loss is not deductible. Amendment tax return 2012 Progressive deterioration. Amendment tax return 2012   Loss of property due to progressive deterioration is not deductible as a casualty loss. Amendment tax return 2012 This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Amendment tax return 2012 Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Amendment tax return 2012 However, weather-related conditions or disease may cause another type of involuntary conversion. Amendment tax return 2012 See Other Involuntary Conversions , later. Amendment tax return 2012 Theft. Amendment tax return 2012   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Amendment tax return 2012 The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. Amendment tax return 2012 You do not need to show a conviction for theft. Amendment tax return 2012   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Amendment tax return 2012 The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Amendment tax return 2012 Decline in market value of stock. Amendment tax return 2012   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Amendment tax return 2012 However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Amendment tax return 2012 You report a capital loss on Schedule D (Form 1040). Amendment tax return 2012 For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Amendment tax return 2012 Mislaid or lost property. Amendment tax return 2012   The simple disappearance of money or property is not a theft. Amendment tax return 2012 However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Amendment tax return 2012 Example. Amendment tax return 2012 A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Amendment tax return 2012 The diamond falls from the ring and is never found. Amendment tax return 2012 The loss of the diamond is a casualty. Amendment tax return 2012 Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Amendment tax return 2012 The following is a discussion of some losses you can deduct and some you cannot deduct. Amendment tax return 2012 Livestock or produce bought for resale. Amendment tax return 2012   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Amendment tax return 2012 If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. Amendment tax return 2012 You cannot take a separate deduction. Amendment tax return 2012 Livestock, plants, produce, and crops raised for sale. Amendment tax return 2012   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Amendment tax return 2012 You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Amendment tax return 2012   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. Amendment tax return 2012 You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Amendment tax return 2012 The uniform capitalization rules are discussed in chapter 6. Amendment tax return 2012   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. Amendment tax return 2012 You get the deduction by omitting the item from your inventory at the close of your tax year. Amendment tax return 2012 You cannot take a separate casualty or theft deduction. Amendment tax return 2012 Income loss. Amendment tax return 2012   A loss of future income is not deductible. Amendment tax return 2012 Example. Amendment tax return 2012 A severe flood destroyed your crops. Amendment tax return 2012 Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . Amendment tax return 2012 You estimate that the crop loss will reduce your farm income by $25,000. Amendment tax return 2012 This loss of future income is also not deductible. Amendment tax return 2012 Loss of timber. Amendment tax return 2012   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Amendment tax return 2012 If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Amendment tax return 2012 See Postponing Gain , later. Amendment tax return 2012 Property used in farming. Amendment tax return 2012   Casualty and theft losses of property used in your farm business usually result in deductible losses. Amendment tax return 2012 If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. Amendment tax return 2012 See How To Figure a Loss , later. Amendment tax return 2012 Raised draft, breeding, dairy, or sporting animals. Amendment tax return 2012   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. Amendment tax return 2012 However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. Amendment tax return 2012 You use inventories to determine your income and you included the animals in your inventory. Amendment tax return 2012 You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. Amendment tax return 2012 When you include livestock in inventory, its last inventory value is its basis. Amendment tax return 2012 When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. Amendment tax return 2012 You cannot take a separate deduction. Amendment tax return 2012 How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. Amendment tax return 2012 Farm property. Amendment tax return 2012   Farm property is the property you use in your farming business. Amendment tax return 2012 If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. Amendment tax return 2012   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Amendment tax return 2012 However, the deduction limits, discussed later, do not apply to farm property. Amendment tax return 2012 Personal-use property. Amendment tax return 2012   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. Amendment tax return 2012 The following items are examples of personal-use property: Your main home. Amendment tax return 2012 Furniture and electronics used in your main home and not used in a home office or for business purposes. Amendment tax return 2012 Clothing and jewelry. Amendment tax return 2012 An automobile used for nonbusiness purposes. Amendment tax return 2012 You figure the casualty or theft loss on this property by taking the following steps. Amendment tax return 2012 Determine your adjusted basis in the property before the casualty or theft. Amendment tax return 2012 Determine the decrease in fair market value of the property as a result of the casualty or theft. Amendment tax return 2012 From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Amendment tax return 2012 You must apply the deduction limits, discussed later, to determine your deductible loss. Amendment tax return 2012    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Amendment tax return 2012 It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Amendment tax return 2012 Adjusted basis. Amendment tax return 2012   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Amendment tax return 2012 For more information about adjusted basis, see chapter 6. Amendment tax return 2012 Decrease in fair market value (FMV). Amendment tax return 2012   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Amendment tax return 2012 FMV is defined in chapter 10 under Payments Received or Considered Received . Amendment tax return 2012 Appraisal. Amendment tax return 2012   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Amendment tax return 2012 But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Amendment tax return 2012   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Amendment tax return 2012 The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Amendment tax return 2012 This information is needed to limit any deduction to the actual loss resulting from damage to the property. Amendment tax return 2012 Cost of cleaning up or making repairs. Amendment tax return 2012   The cost of cleaning up after a casualty is not part of a casualty loss. Amendment tax return 2012 Neither is the cost of repairing damaged property after a casualty. Amendment tax return 2012 But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Amendment tax return 2012 The repairs are actually made. Amendment tax return 2012 The repairs are necessary to bring the property back to its condition before the casualty. Amendment tax return 2012 The amount spent for repairs is not excessive. Amendment tax return 2012 The repairs fix the damage only. Amendment tax return 2012 The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Amendment tax return 2012 Related expenses. Amendment tax return 2012   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. Amendment tax return 2012 However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Amendment tax return 2012 Separate computations for more than one item of property. Amendment tax return 2012   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Amendment tax return 2012 Then combine the losses to determine your total loss. Amendment tax return 2012    There is an exception to this rule for personal-use real property. Amendment tax return 2012 See Exception for personal-use real property, later. Amendment tax return 2012 Example. Amendment tax return 2012 A fire on your farm damaged a tractor and the barn in which it was stored. Amendment tax return 2012 The tractor had an adjusted basis of $3,300. Amendment tax return 2012 Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Amendment tax return 2012 The barn had an adjusted basis of $28,000. Amendment tax return 2012 Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Amendment tax return 2012 You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Amendment tax return 2012 Figure your deductible casualty loss separately for the two items of property. Amendment tax return 2012     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. Amendment tax return 2012   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Amendment tax return 2012 Figure the loss using the smaller of the following. Amendment tax return 2012 The decrease in FMV of the entire property. Amendment tax return 2012 The adjusted basis of the entire property. Amendment tax return 2012 Example. Amendment tax return 2012 You bought a farm in 1990 for $160,000. Amendment tax return 2012 The adjusted basis of the residential part is now $128,000. Amendment tax return 2012 In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Amendment tax return 2012 The adjusted basis of the residential part includes the $7,500. Amendment tax return 2012 The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Amendment tax return 2012 The trees were not covered by insurance. Amendment tax return 2012 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. Amendment tax return 2012   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Amendment tax return 2012 You do not have a casualty or theft loss to the extent you are reimbursed. Amendment tax return 2012   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Amendment tax return 2012 You must reduce your loss even if you do not receive payment until a later tax year. Amendment tax return 2012    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. Amendment tax return 2012 You may have to include a portion of these payments in your income. Amendment tax return 2012 See Insurance payments for living expenses in Publication 547 for details. Amendment tax return 2012 Disaster relief. Amendment tax return 2012   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. Amendment tax return 2012 Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Amendment tax return 2012   Generally, disaster relief grants received under the Robert T. Amendment tax return 2012 Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Amendment tax return 2012 See Federal disaster relief grants , later, under Disaster Area Losses . Amendment tax return 2012   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Amendment tax return 2012 See Qualified disaster relief payments , later, under Disaster Area Losses . Amendment tax return 2012 Reimbursement received after deducting loss. Amendment tax return 2012   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Amendment tax return 2012 Actual reimbursement less than expected. Amendment tax return 2012   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Amendment tax return 2012 Actual reimbursement more than expected. Amendment tax return 2012   If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Amendment tax return 2012 However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Amendment tax return 2012 Do not refigure your tax for the year you claimed the deduction. Amendment tax return 2012 See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Amendment tax return 2012 If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Amendment tax return 2012 See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. Amendment tax return 2012 Actual reimbursement same as expected. Amendment tax return 2012   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Amendment tax return 2012 Lump-sum reimbursement. Amendment tax return 2012   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. Amendment tax return 2012 Figure the gain or loss separately for each asset that has a separate basis. Amendment tax return 2012 Adjustments to basis. Amendment tax return 2012   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. Amendment tax return 2012 The result is your adjusted basis in the property. Amendment tax return 2012 Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Amendment tax return 2012 See Adjusted Basis in chapter 6 for more information. Amendment tax return 2012 Example. Amendment tax return 2012 You built a new silo for $25,000. Amendment tax return 2012 This is the basis in your silo because that is the total cost you incurred to build it. Amendment tax return 2012 During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Amendment tax return 2012 In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. Amendment tax return 2012 Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Amendment tax return 2012 Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). Amendment tax return 2012 There are two limits on the deduction for casualty or theft loss of personal-use property. Amendment tax return 2012 You figure these limits on Form 4684. Amendment tax return 2012 $100 rule. Amendment tax return 2012   You must reduce each casualty or theft loss on personal-use property by $100. Amendment tax return 2012 This rule applies after you have subtracted any reimbursement. Amendment tax return 2012 10% rule. Amendment tax return 2012   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Amendment tax return 2012 Apply this rule after you reduce each loss by $100. Amendment tax return 2012 Adjusted gross income is on line 38 of Form 1040. Amendment tax return 2012 Example. Amendment tax return 2012 In June, you discovered that your house had been burglarized. Amendment tax return 2012 Your loss after insurance reimbursement was $2,000. Amendment tax return 2012 Your adjusted gross income for the year you discovered the burglary is $57,000. Amendment tax return 2012 Figure your theft loss deduction as follows: 1. Amendment tax return 2012 Loss after insurance $2,000 2. Amendment tax return 2012 Subtract $100 100 3. Amendment tax return 2012 Loss after $100 rule $1,900 4. Amendment tax return 2012 Subtract 10% (. Amendment tax return 2012 10) × $57,000 AGI $5,700 5. Amendment tax return 2012 Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). Amendment tax return 2012    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. Amendment tax return 2012 See 10% Rule in Publication 547. Amendment tax return 2012 When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Amendment tax return 2012 You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Amendment tax return 2012 However, losses in federally declared disaster areas are subject to different rules. Amendment tax return 2012 See Disaster Area Losses , later, for an exception. Amendment tax return 2012 If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Amendment tax return 2012 Leased property. Amendment tax return 2012   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. Amendment tax return 2012 This is true even if the loss occurred or the liability was paid in a different year. Amendment tax return 2012 You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Amendment tax return 2012 Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Amendment tax return 2012 Example. Amendment tax return 2012 Robert leased a tractor from First Implement, Inc. Amendment tax return 2012 , for use in his farm business. Amendment tax return 2012 The tractor was destroyed by a tornado in June 2012. Amendment tax return 2012 The loss was not insured. Amendment tax return 2012 First Implement billed Robert for the fair market value of the tractor on the date of the loss. Amendment tax return 2012 Robert disagreed with the bill and refused to pay it. Amendment tax return 2012 First Implement later filed suit in court against Robert. Amendment tax return 2012 In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. Amendment tax return 2012 Robert paid $20,000 in June 2013. Amendment tax return 2012 He can claim the $20,000 as a loss on his 2013 tax return. Amendment tax return 2012 Net operating loss (NOL). Amendment tax return 2012   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Amendment tax return 2012 An NOL can be carried back or carried forward and deducted from income in other years. Amendment tax return 2012 See Publication 536 for more information on NOLs. Amendment tax return 2012 Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Amendment tax return 2012 You must have records to support the amount you claim for the loss. Amendment tax return 2012 Casualty loss proof. Amendment tax return 2012   For a casualty loss, your records should show all the following information. Amendment tax return 2012 The type of casualty (car accident, fire, storm, etc. Amendment tax return 2012 ) and when it occurred. Amendment tax return 2012 That the loss was a direct result of the casualty. Amendment tax return 2012 That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Amendment tax return 2012 Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Amendment tax return 2012 Theft loss proof. Amendment tax return 2012   For a theft loss, your records should show all the following information. Amendment tax return 2012 When you discovered your property was missing. Amendment tax return 2012 That your property was stolen. Amendment tax return 2012 That you were the owner of the property. Amendment tax return 2012 Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Amendment tax return 2012 Figuring a Gain A casualty or theft may result in a taxable gain. Amendment tax return 2012 If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. Amendment tax return 2012 You generally report your gain as income in the year you receive the reimbursement. Amendment tax return 2012 However, depending on the type of property you receive, you may not have to report your gain. Amendment tax return 2012 See Postponing Gain , later. Amendment tax return 2012 Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. Amendment tax return 2012 Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. Amendment tax return 2012 Amount you receive. Amendment tax return 2012   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Amendment tax return 2012 It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Amendment tax return 2012 Example. Amendment tax return 2012 A tornado severely damaged your barn. Amendment tax return 2012 The adjusted basis of the barn was $25,000. Amendment tax return 2012 Your insurance company reimbursed you $40,000 for the damaged barn. Amendment tax return 2012 However, you had legal expenses of $2,000 to collect that insurance. Amendment tax return 2012 Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Amendment tax return 2012 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. Amendment tax return 2012 Some of these are discussed in the following paragraphs. Amendment tax return 2012 Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Amendment tax return 2012 You report the gain or deduct the loss on your tax return for the year you realize it. Amendment tax return 2012 However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Amendment tax return 2012 See Postponing Gain , later. Amendment tax return 2012 Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Amendment tax return 2012 The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. Amendment tax return 2012 The owner receives a condemnation award (money or property) in exchange for the property taken. Amendment tax return 2012 A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Amendment tax return 2012 Threat of condemnation. Amendment tax return 2012   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. Amendment tax return 2012 Main home condemned. Amendment tax return 2012   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Amendment tax return 2012 For information on this exclusion, see Publication 523. Amendment tax return 2012 If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. Amendment tax return 2012 See Postponing Gain , later. Amendment tax return 2012 (You cannot deduct a loss from the condemnation of your main home. Amendment tax return 2012 ) More information. Amendment tax return 2012   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Amendment tax return 2012 Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Amendment tax return 2012 Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. Amendment tax return 2012 Livestock Losses Diseased livestock. Amendment tax return 2012   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. Amendment tax return 2012 If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Amendment tax return 2012 Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Amendment tax return 2012 If you replace the livestock, you may be able to postpone reporting the gain. Amendment tax return 2012 See Postponing Gain below. Amendment tax return 2012 Reporting dispositions of diseased livestock. Amendment tax return 2012   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. Amendment tax return 2012 You must also include other information on this statement. Amendment tax return 2012 See How To Postpone Gain , later, under Postponing Gain . Amendment tax return 2012 Weather-related sales of livestock. Amendment tax return 2012   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. Amendment tax return 2012 Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. Amendment tax return 2012 Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Amendment tax return 2012 If you replace the livestock, you may be able to postpone reporting the gain. Amendment tax return 2012 See Postponing Gain below. Amendment tax return 2012 Example. Amendment tax return 2012 It is your usual business practice to sell five of your dairy animals during the year. Amendment tax return 2012 This year you sold 20 dairy animals because of drought. Amendment tax return 2012 The sale of 15 animals is treated as an involuntary conversion. Amendment tax return 2012    If you do not replace the livestock, you may be able to report the gain in the following year's income. Amendment tax return 2012 This rule also applies to other livestock (including poultry). Amendment tax return 2012 See Sales Caused by Weather-Related Conditions in chapter 3. Amendment tax return 2012 Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. Amendment tax return 2012 Treat the loss as a loss from an involuntary conversion. Amendment tax return 2012 The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Amendment tax return 2012 You deduct the loss on the return for the year the seedlings died. Amendment tax return 2012 Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. Amendment tax return 2012 Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Amendment tax return 2012 You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Amendment tax return 2012 However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. Amendment tax return 2012 If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Amendment tax return 2012 To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Amendment tax return 2012 If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. Amendment tax return 2012 Example 1. Amendment tax return 2012 In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Amendment tax return 2012 In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Amendment tax return 2012 In May of this year, the property was worth $100,000. Amendment tax return 2012 In June the barn and silo were destroyed by a tornado. Amendment tax return 2012 At the time of the tornado, you had an adjusted basis of $0 in the property. Amendment tax return 2012 You received $85,000 from the insurance company. Amendment tax return 2012 You had a gain of $85,000 ($85,000 – $0). Amendment tax return 2012 You spent $80,000 to rebuild the barn and silo. Amendment tax return 2012 Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Amendment tax return 2012 Example 2. Amendment tax return 2012 In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Amendment tax return 2012 You made no further improvements or additions to it. Amendment tax return 2012 When a storm destroyed the cabin this January, the cabin was worth $250,000. Amendment tax return 2012 You received $146,000 from the insurance company in March. Amendment tax return 2012 You had a gain of $128,000 ($146,000 − $18,000). Amendment tax return 2012 You spent $144,000 to rebuild the cabin. Amendment tax return 2012 Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Amendment tax return 2012 Buying replacement property from a related person. Amendment tax return 2012   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). Amendment tax return 2012 This rule applies to the following taxpayers. Amendment tax return 2012 C corporations. Amendment tax return 2012 Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Amendment tax return 2012 Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. Amendment tax return 2012 For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Amendment tax return 2012 If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Amendment tax return 2012 If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Amendment tax return 2012 Exception. Amendment tax return 2012   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. Amendment tax return 2012 Related persons. Amendment tax return 2012   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. Amendment tax return 2012 For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Amendment tax return 2012 Death of a taxpayer. Amendment tax return 2012   If a taxpayer dies after having a gain, but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. Amendment tax return 2012 The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. Amendment tax return 2012 Replacement Property You must buy replacement property for the specific purpose of replacing your property. Amendment tax return 2012 Your replacement property must be similar or related in service or use to the property it replaces. Amendment tax return 2012 You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Amendment tax return 2012 If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. Amendment tax return 2012 Property you acquire by gift or inheritance does not qualify as replacement property. Amendment tax return 2012 Owner-user. Amendment tax return 2012   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Amendment tax return 2012 Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. Amendment tax return 2012 A grinding mill that replaces a tractor does not qualify. Amendment tax return 2012 Neither does a breeding or draft animal that replaces a dairy cow. Amendment tax return 2012 Soil or other environmental contamination. Amendment tax return 2012   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. Amendment tax return 2012 Weather-related conditions. Amendment tax return 2012   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. Amendment tax return 2012 Example. Amendment tax return 2012 Each year you normally sell 25 cows from your beef herd. Amendment tax return 2012 However, this year you had to sell 50 cows. Amendment tax return 2012 This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. Amendment tax return 2012 Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. Amendment tax return 2012 Standing crop destroyed by casualty. Amendment tax return 2012   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. Amendment tax return 2012 The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). Amendment tax return 2012 In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. Amendment tax return 2012 Timber loss. Amendment tax return 2012   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. Amendment tax return 2012 If you bought the standing timber within the replacement period, you can postpone reporting the gain. Amendment tax return 2012 Business or income-producing property located in a federally declared disaster area. Amendment tax return 2012   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. Amendment tax return 2012 For more information, see Disaster Area Losses in Publication 547. Amendment tax return 2012 Substituting replacement property. Amendment tax return 2012   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. Amendment tax return 2012 This is true even if you acquire the other property within the replacement period. Amendment tax return 2012 However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. Amendment tax return 2012 Basis of replacement property. Amendment tax return 2012   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Amendment tax return 2012 In this way, tax on the gain is postponed until you dispose of the replacement property. Amendment tax return 2012 Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Amendment tax return 2012 This is the replacement period. Amendment tax return 2012 The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Amendment tax return 2012 The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Amendment tax return 2012 Example. Amendment tax return 2012 You are a calendar year taxpayer. Amendment tax return 2012 While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Amendment tax return 2012 You discovered the theft when you returned to your farm on November 11, 2012. Amendment tax return 2012 Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Amendment tax return 2012 You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Amendment tax return 2012 Main home in disaster area. Amendment tax return 2012   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Amendment tax return 2012 See Disaster Area Losses , later. Amendment tax return 2012 Property in the Midwestern disaster areas. Amendment tax return 2012   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Amendment tax return 2012 This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Amendment tax return 2012 Property in the Kansas disaster area. Amendment tax return 2012   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Amendment tax return 2012 This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Amendment tax return 2012 Property in the Hurricane Katrina disaster area. Amendment tax return 2012   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Amendment tax return 2012 This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Amendment tax return 2012 Weather-related sales of livestock in an area eligible for federal assistance. Amendment tax return 2012   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Amendment tax return 2012 The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Amendment tax return 2012   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Amendment tax return 2012 R. Amendment tax return 2012 B. Amendment tax return 2012 529, available at  www. Amendment tax return 2012 irs. Amendment tax return 2012 gov/irb/2006-39_IRB/ar11. Amendment tax return 2012 html. Amendment tax return 2012 For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. Amendment tax return 2012 gov. Amendment tax return 2012 Condemnation. Amendment tax return 2012   The replacement period for a condemnation begins on the earlier of the following dates. Amendment tax return 2012 The date on which you disposed of the condemned property. Amendment tax return 2012 The date on which the threat of condemnation began. Amendment tax return 2012 The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Amendment tax return 2012 But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. Amendment tax return 2012 Business or investment real property. Amendment tax return 2012   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Amendment tax return 2012 Extension. Amendment tax return 2012   You can apply for an extension of the replacement period. Amendment tax return 2012 Send your written application to the Internal Revenue Service Center where you file your tax return. Amendment tax return 2012 See your tax return instructions for the address. Amendment tax return 2012 Include all the details about your need for an extension. Amendment tax return 2012 Make your application before the end of the replacement period. Amendment tax return 2012 However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. Amendment tax return 2012 You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Amendment tax return 2012 How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Amendment tax return 2012 You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Amendment tax return 2012 Required statement. Amendment tax return 2012   You should attach a statement to your return for the year you have the gain. Amendment tax return 2012 This statement should include all the following information. Amendment tax return 2012 The date and details of the casualty, theft, or other involuntary conversion. Amendment tax return 2012 The insurance or other reimbursement you received. Amendment tax return 2012 How you figured the gain. Amendment tax return 2012 Replacement property acquired before return filed. Amendment tax return 2012   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. Amendment tax return 2012 The replacement property. Amendment tax return 2012 The postponed gain. Amendment tax return 2012 The basis adjustment that reflects the postponed gain. Amendment tax return 2012 Any gain you are reporting as income. Amendment tax return 2012 Replacement property acquired after return filed. Amendment tax return 2012   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. Amendment tax return 2012   You should then attach another statement to your return for the year in which you buy the replacement property. Amendment tax return 2012 This statement should contain detailed information on the replacement property. Amendment tax return 2012 If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. Amendment tax return 2012 Include in the statement detailed information on the replacement property bought in that year. Amendment tax return 2012 Reporting weather-related sales of livestock. Amendment tax return 2012   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. Amendment tax return 2012 Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Amendment tax return 2012 The gain realized on the sale or exchange. Amendment tax return 2012 The number and kind of livestock sold or exchanged. Amendment tax return 2012 The number of livestock of each kind you would have sold or exchanged under your usual business practice. Amendment tax return 2012   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Amendment tax return 2012 The dates you bought the replacement property. Amendment tax return 2012 The cost of the replacement property. Amendment tax return 2012 Description of the replacement property (for example, the number and kind of the replacement livestock). Amendment tax return 2012 Amended return. Amendment tax return 2012   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Amendment tax return 2012 You do not acquire replacement property within the replacement period, plus extensions. Amendment tax return 2012 On this amended return, you must report the gain and pay any additional tax due. Amendment tax return 2012 You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. Amendment tax return 2012 On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Amendment tax return 2012 Disaster Area Losses Special rules apply to federally declared disaster area losses. Amendment tax return 2012 A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Amendment tax return 2012 Stafford Disaster Relief and Emergency Assistance Act. Amendment tax return 2012 It includes a major disaster or emergency declaration under the act. Amendment tax return 2012 A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. Amendment tax return 2012 fema. Amendment tax return 2012 gov. Amendment tax return 2012 This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Amendment tax return 2012 For other special rules, see Disaster Area Losses in Publication 547. Amendment tax return 2012 When to deduct the loss. Amendment tax return 2012   You generally must deduct a casualty loss in the year it occurred. Amendment tax return 2012 However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. Amendment tax return 2012 If you make this choice, the loss is treated as having occurred in the preceding year. Amendment tax return 2012    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. Amendment tax return 2012   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Amendment tax return 2012 The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Amendment tax return 2012 The due date (with extensions) for the return for the preceding tax year. Amendment tax return 2012 Federal disaster relief grants. Amendment tax return 2012   Do not include post-disaster relief grants received under the Robert T. Amendment tax return 2012 Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Amendment tax return 2012 Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Amendment tax return 2012 If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. Amendment tax return 2012 Unemployment assistance payments under the Act are taxable unemployment compensation. Amendment tax return 2012 Qualified disaster relief payments. Amendment tax return 2012   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. Amendment tax return 2012 These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Amendment tax return 2012 No withholding applies to these payments. Amendment tax return 2012   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Amendment tax return 2012 Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Amendment tax return 2012 Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Amendment tax return 2012 (A personal residence can be a rented residence or one you own. Amendment tax return 2012 ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Amendment tax return 2012   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. Amendment tax return 2012    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Amendment tax return 2012 Qualified disaster mitigation payments. Amendment tax return 2012   Qualified disaster mitigation payments made under the Robert T. Amendment tax return 2012 Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. Amendment tax return 2012 These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Amendment tax return 2012 You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Amendment tax return 2012 Sale of property under hazard mitigation program. Amendment tax return 2012   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. Amendment tax return 2012 You report the gain or deduct the loss on your tax return for the year you realize it. Amendment tax return 2012 (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Amendment tax return 2012 ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. Amendment tax return 2012 See Postponing Gain , earlier, for the rules that apply. Amendment tax return 2012 Other federal assistance programs. Amendment tax return 2012    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Amendment tax return 2012 Postponed tax deadlines. Amendment tax return 2012   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Amendment tax return 2012 The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. Amendment tax return 2012   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Amendment tax return 2012 Go to http://www. Amendment tax return 2012 irs. Amendment tax return 2012 gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Amendment tax return 2012 Who is eligible. Amendment tax return 2012   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Amendment tax return 2012 Any individual whose main home is located in a covered disaster area (defined next). Amendment tax return 2012 Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Amendment tax return 2012 Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Amendment tax return 2012 Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Amendment tax return 2012 The main home or principal place of business does not have to be located in the covered disaster area. Amendment tax return 2012 Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Amendment tax return 2012 The spouse on a joint return with a taxpayer who is eligible for postponements. Amendment tax return 2012 Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. Amendment tax return 2012 Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Amendment tax return 2012 Any other person determined by the IRS to be affected by a federally declared disaster. Amendment tax return 2012 Covered disaster area. Amendment tax return 2012   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. Amendment tax return 2012 Abatement of interest and penalties. Amendment tax return 2012   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Amendment tax return 2012 Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. Amendment tax return 2012 Form 4684. Amendment tax return 2012   Use this form to report your gains and losses from casualties and thefts. Amendment tax return 2012 Form 4797. Amendment tax return 2012   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Amendment tax return 2012 Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. Amendment tax return 2012 Form 8949. Amendment tax return 2012   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Amendment tax return 2012 Schedule A (Form 1040). Amendment tax return 2012   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. Amendment tax return 2012 Schedule D (Form 1040). Amendment tax return 2012   Use this form to carry over the following gains. Amendment tax return 2012 Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Amendment tax return 2012 Net gain shown on Form 4684 from the casualty or theft of personal-use property. Amendment tax return 2012    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Amendment tax return 2012 Schedule F (Form 1040). Amendment tax return 2012   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. Amendment tax return 2012 Prev  Up  Next   Home   More Online Publications
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Publication 15 (Circular E), Employer's Tax Guide

This publication explains your tax responsibilities as an employer. 


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The Amendment Tax Return 2012

Amendment tax return 2012 4. Amendment tax return 2012   Sales and Trades of Investment Property Table of Contents IntroductionNominees. Amendment tax return 2012 Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. Amendment tax return 2012 Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. Amendment tax return 2012 Debt paid off. Amendment tax return 2012 Payment of cash. Amendment tax return 2012 Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. Amendment tax return 2012 S. Amendment tax return 2012 Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. Amendment tax return 2012 Exception 2. Amendment tax return 2012 Section 1256 contracts and straddles. Amendment tax return 2012 Market discount bonds. Amendment tax return 2012 File Form 1099-B or Form 1099-S with the IRS. Amendment tax return 2012 Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. Amendment tax return 2012 Investment property. Amendment tax return 2012   This is property that produces investment income. Amendment tax return 2012 Examples include stocks, bonds, and Treasury bills and notes. Amendment tax return 2012 Property used in a trade or business is not investment property. Amendment tax return 2012 Form 1099-B. Amendment tax return 2012   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Amendment tax return 2012 You should receive the statement by February 15 of the next year. Amendment tax return 2012 It will show the gross proceeds from the sale. Amendment tax return 2012 The IRS will also get a copy of Form 1099-B from the broker. Amendment tax return 2012   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Amendment tax return 2012 If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. Amendment tax return 2012 This will help you complete Form 8949. Amendment tax return 2012 Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. Amendment tax return 2012    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. Amendment tax return 2012 Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Amendment tax return 2012 Nominees. Amendment tax return 2012   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. Amendment tax return 2012   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. Amendment tax return 2012 Other property transactions. Amendment tax return 2012   Certain transfers of property are discussed in other IRS publications. Amendment tax return 2012 These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. Amendment tax return 2012 Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . Amendment tax return 2012 Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Amendment tax return 2012 What Is a Sale or Trade? This section explains what is a sale or trade. Amendment tax return 2012 It also explains certain transactions and events that are treated as sales or trades. Amendment tax return 2012 A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Amendment tax return 2012 A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. Amendment tax return 2012 Sale and purchase. Amendment tax return 2012   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Amendment tax return 2012 The sale and purchase are two separate transactions. Amendment tax return 2012 But see Like-Kind Exchanges under Nontaxable Trades, later. Amendment tax return 2012 Redemption of stock. Amendment tax return 2012   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Amendment tax return 2012 Dividend versus sale or trade. Amendment tax return 2012   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Amendment tax return 2012 Both direct and indirect ownership of stock will be considered. Amendment tax return 2012 The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Amendment tax return 2012 Redemption or retirement of bonds. Amendment tax return 2012   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. Amendment tax return 2012 See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. Amendment tax return 2012   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Amendment tax return 2012 For details, see Regulations section 1. Amendment tax return 2012 1001-3. Amendment tax return 2012 Surrender of stock. Amendment tax return 2012   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Amendment tax return 2012 The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Amendment tax return 2012 Trade of investment property for an annuity. Amendment tax return 2012   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. Amendment tax return 2012 If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. Amendment tax return 2012 Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. Amendment tax return 2012 Transfer by inheritance. Amendment tax return 2012   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. Amendment tax return 2012 No taxable gain or deductible loss results from the transfer. Amendment tax return 2012 Termination of certain rights and obligations. Amendment tax return 2012   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. Amendment tax return 2012 Any gain or loss is treated as a capital gain or loss. Amendment tax return 2012   This rule does not apply to the retirement of a debt instrument. Amendment tax return 2012 See Redemption or retirement of bonds , earlier. Amendment tax return 2012 Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Amendment tax return 2012 This affects whether your capital loss is long term or short term. Amendment tax return 2012 See Holding Period , later. Amendment tax return 2012 Worthless securities also include securities that you abandon after March 12, 2008. Amendment tax return 2012 To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Amendment tax return 2012 All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Amendment tax return 2012 If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Amendment tax return 2012 Do not deduct them in the year the stock became worthless. Amendment tax return 2012 How to report loss. Amendment tax return 2012   Report worthless securities in Form 8949, Part I or Part II, whichever applies. Amendment tax return 2012    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Amendment tax return 2012 See Form 8949 and the Instructions for Form 8949. Amendment tax return 2012 Filing a claim for refund. Amendment tax return 2012   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Amendment tax return 2012 You must use Form 1040X, Amended U. Amendment tax return 2012 S. Amendment tax return 2012 Individual Income Tax Return, to amend your return for the year the security became worthless. Amendment tax return 2012 You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Amendment tax return 2012 (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. Amendment tax return 2012 ) For more information about filing a claim, see Publication 556. Amendment tax return 2012 Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. Amendment tax return 2012 You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. Amendment tax return 2012 This gives you a new holding period for the position that begins on the date of the constructive sale. Amendment tax return 2012 Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. Amendment tax return 2012 Constructive sale. Amendment tax return 2012   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). Amendment tax return 2012   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. Amendment tax return 2012 For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. Amendment tax return 2012 Exception for nonmarketable securities. Amendment tax return 2012   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. Amendment tax return 2012 Exception for certain closed transactions. Amendment tax return 2012   Do not treat a transaction as a constructive sale if all of the following are true. Amendment tax return 2012 You closed the transaction on or before the 30th day after the end of your tax year. Amendment tax return 2012 You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. Amendment tax return 2012 Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. Amendment tax return 2012   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. Amendment tax return 2012   This exception also applies to successive short sales of an entire appreciated financial position. Amendment tax return 2012 For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. Amendment tax return 2012 This bulletin is available at www. Amendment tax return 2012 irs. Amendment tax return 2012 gov/pub/irs-irbs/irb03-03. Amendment tax return 2012 pdf. Amendment tax return 2012 Appreciated financial position. Amendment tax return 2012   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. Amendment tax return 2012 Exceptions. Amendment tax return 2012   An appreciated financial position does not include the following. Amendment tax return 2012 Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). Amendment tax return 2012 Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. Amendment tax return 2012 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). Amendment tax return 2012 Any hedge with respect to a position described in (2). Amendment tax return 2012 Certain trust instruments treated as stock. Amendment tax return 2012   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). Amendment tax return 2012 Sale of appreciated financial position. Amendment tax return 2012   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. Amendment tax return 2012 However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. Amendment tax return 2012 Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. Amendment tax return 2012 Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Amendment tax return 2012 Exceptions. Amendment tax return 2012   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. Amendment tax return 2012 For more details, including definitions of these terms, see section 1256. Amendment tax return 2012 Regulated futures contract. Amendment tax return 2012   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. Amendment tax return 2012 A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. Amendment tax return 2012 Foreign currency contract. Amendment tax return 2012   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. Amendment tax return 2012   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. Amendment tax return 2012   Special rules apply to certain foreign currency transactions. Amendment tax return 2012 These transactions may result in ordinary gain or loss treatment. Amendment tax return 2012 For details, see Internal Revenue Code section 988 and Regulations sections 1. Amendment tax return 2012 988-1(a)(7) and 1. Amendment tax return 2012 988-3. Amendment tax return 2012 Nonequity option. Amendment tax return 2012   This is any listed option (defined later) that is not an equity option. Amendment tax return 2012 Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. Amendment tax return 2012 A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). Amendment tax return 2012 Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. Amendment tax return 2012 Cash-settled options. Amendment tax return 2012   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. Amendment tax return 2012   This rule does not apply to options established before the SEC determines that the stock index is broad based. Amendment tax return 2012 Listed option. Amendment tax return 2012   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). Amendment tax return 2012 A listed option, however, does not include an option that is a right to acquire stock from the issuer. Amendment tax return 2012 Dealer equity option. Amendment tax return 2012   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. Amendment tax return 2012   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. Amendment tax return 2012 Equity option. Amendment tax return 2012   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. Amendment tax return 2012  Equity options include options on a group of stocks only if the group is a narrow-based stock index. Amendment tax return 2012 Dealer securities futures contract. Amendment tax return 2012   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). Amendment tax return 2012 A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . Amendment tax return 2012 Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. Amendment tax return 2012 That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. Amendment tax return 2012 Hedging exception. Amendment tax return 2012   The marked-to-market rules do not apply to hedging transactions. Amendment tax return 2012 See Hedging Transactions , later. Amendment tax return 2012 60/40 rule. Amendment tax return 2012   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. Amendment tax return 2012 This is true regardless of how long you actually held the property. Amendment tax return 2012 Example. Amendment tax return 2012 On June 22, 2012, you bought a regulated futures contract for $50,000. Amendment tax return 2012 On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. Amendment tax return 2012 You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. Amendment tax return 2012 On February 1, 2013, you sold the contract for $56,000. Amendment tax return 2012 Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. Amendment tax return 2012 Limited partners or entrepreneurs. Amendment tax return 2012   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). Amendment tax return 2012 Instead, these gains or losses are treated as short term. Amendment tax return 2012 Terminations and transfers. Amendment tax return 2012   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. Amendment tax return 2012 In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. Amendment tax return 2012 Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. Amendment tax return 2012 Loss carryback election. Amendment tax return 2012   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. Amendment tax return 2012 See How To Report , later, for information about reporting this election on your return. Amendment tax return 2012   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. Amendment tax return 2012 In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. Amendment tax return 2012   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. Amendment tax return 2012 In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. Amendment tax return 2012   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. Amendment tax return 2012 (See Capital Losses under Reporting Capital Gains and Losses, later. Amendment tax return 2012 ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. Amendment tax return 2012 In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. Amendment tax return 2012 Net section 1256 contracts loss. Amendment tax return 2012   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. Amendment tax return 2012 Net section 1256 contracts gain. Amendment tax return 2012   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. Amendment tax return 2012  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. Amendment tax return 2012 Traders in section 1256 contracts. Amendment tax return 2012   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. Amendment tax return 2012 However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. Amendment tax return 2012 Treatment of underlying property. Amendment tax return 2012   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. Amendment tax return 2012 How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. Amendment tax return 2012 Form 6781. Amendment tax return 2012   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. Amendment tax return 2012 This includes the amount shown in box 10 of Form 1099-B. Amendment tax return 2012 Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. Amendment tax return 2012 Include a copy of Form 6781 with your income tax return. Amendment tax return 2012   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. Amendment tax return 2012 Follow the Form 6781 instructions for completing Part I. Amendment tax return 2012 Loss carryback election. Amendment tax return 2012   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. Amendment tax return 2012 Follow the instructions for completing Form 6781 for the loss year to make this election. Amendment tax return 2012 Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. Amendment tax return 2012 A transaction is a hedging transaction if both of the following conditions are met. Amendment tax return 2012 You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. Amendment tax return 2012 You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. Amendment tax return 2012 This hedging transaction exception does not apply to transactions entered into by or for any syndicate. Amendment tax return 2012 A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. Amendment tax return 2012 A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. Amendment tax return 2012 However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. Amendment tax return 2012 Hedging loss limit. Amendment tax return 2012   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. Amendment tax return 2012 A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. Amendment tax return 2012   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. Amendment tax return 2012 Ignore any hedging transaction items in determining this taxable income. Amendment tax return 2012 If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. Amendment tax return 2012   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. Amendment tax return 2012   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. Amendment tax return 2012 The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. Amendment tax return 2012 Sale of property used in a hedge. Amendment tax return 2012   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. Amendment tax return 2012 Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. Amendment tax return 2012 See the Instructions for Schedule SE (Form 1040). Amendment tax return 2012 In addition, the rules relating to contributions to self-employment retirement plans apply. Amendment tax return 2012 For information on retirement plan contributions, see Publication 560 and Publication 590. Amendment tax return 2012 Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. Amendment tax return 2012 You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. Amendment tax return 2012 Investment property you buy normally has an original basis equal to its cost. Amendment tax return 2012 If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. Amendment tax return 2012 Cost Basis The basis of property you buy is usually its cost. Amendment tax return 2012 The cost is the amount you pay in cash, debt obligations, or other property or services. Amendment tax return 2012 Unstated interest. Amendment tax return 2012   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Amendment tax return 2012 You generally have unstated interest if your interest rate is less than the applicable federal rate. Amendment tax return 2012 For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Amendment tax return 2012 Basis Other Than Cost There are times when you must use a basis other than cost. Amendment tax return 2012 In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. Amendment tax return 2012 Fair market value. Amendment tax return 2012   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Amendment tax return 2012 Sales of similar property, around the same date, may be helpful in figuring fair market value. Amendment tax return 2012 Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. Amendment tax return 2012 The amount you include in income then becomes your basis in the property. Amendment tax return 2012 If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. Amendment tax return 2012 Restricted property. Amendment tax return 2012   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. Amendment tax return 2012 Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. Amendment tax return 2012 See Restricted Property in Publication 525 for more information. Amendment tax return 2012 Bargain purchases. Amendment tax return 2012   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. Amendment tax return 2012 Your basis in the property is the price you pay plus the amount you include in income. Amendment tax return 2012 Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. Amendment tax return 2012 Example. Amendment tax return 2012 You trade A Company stock for B Company stock having a fair market value of $1,200. Amendment tax return 2012 If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. Amendment tax return 2012 If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. Amendment tax return 2012 The basis of your B Company stock is $1,200. Amendment tax return 2012 If you later sell the B Company stock for $1,300, you will have a gain of $100. Amendment tax return 2012 Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. Amendment tax return 2012 See Nontaxable Trades , later. Amendment tax return 2012 The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. Amendment tax return 2012 Increase this amount by any cash you paid, additional costs you had, and any gain recognized. Amendment tax return 2012 Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. Amendment tax return 2012 Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. Amendment tax return 2012 See Transfers Between Spouses , later. Amendment tax return 2012 Recordkeeping. Amendment tax return 2012 The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. Amendment tax return 2012 Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. Amendment tax return 2012 Fair market value less than donor's adjusted basis. Amendment tax return 2012   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Amendment tax return 2012 Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. Amendment tax return 2012 No gain or loss. Amendment tax return 2012   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. Amendment tax return 2012 Example. Amendment tax return 2012 You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. Amendment tax return 2012 The fair market value at the time of the gift is $9,000. Amendment tax return 2012 You later sell the property for $9,500. Amendment tax return 2012 You have neither gain nor loss. Amendment tax return 2012 Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. Amendment tax return 2012 Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. Amendment tax return 2012 Fair market value equal to or more than donor's adjusted basis. Amendment tax return 2012   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Amendment tax return 2012 Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. Amendment tax return 2012 Gift received before 1977. Amendment tax return 2012   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. Amendment tax return 2012 However, your basis cannot be more than the fair market value of the gift at the time it was given to you. Amendment tax return 2012 Example 1. Amendment tax return 2012 You were given XYZ Company stock in 1976. Amendment tax return 2012 At the time of the gift, the stock had a fair market value of $21,000. Amendment tax return 2012 The donor's adjusted basis was $20,000. Amendment tax return 2012 The donor paid a gift tax of $500 on the gift. Amendment tax return 2012 Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. Amendment tax return 2012 Example 2. Amendment tax return 2012 The facts are the same as in Example 1 except that the gift tax paid was $1,500. Amendment tax return 2012 Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. Amendment tax return 2012 Gift received after 1976. Amendment tax return 2012   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. Amendment tax return 2012 You figure this part by multiplying the gift tax paid on the gift by a fraction. Amendment tax return 2012 The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. Amendment tax return 2012   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. Amendment tax return 2012 The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Amendment tax return 2012 Example. Amendment tax return 2012 In 2013, you received a gift of property from your mother. Amendment tax return 2012 At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. Amendment tax return 2012 The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. Amendment tax return 2012 You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . Amendment tax return 2012 701 ($61,000 ÷ $87,000) . Amendment tax return 2012 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. Amendment tax return 2012   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. Amendment tax return 2012 Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. Amendment tax return 2012 For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. Amendment tax return 2012 Gift tax information. Amendment tax return 2012   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Amendment tax return 2012 For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. Amendment tax return 2012 Property Received as Inheritance Before or after 2010. Amendment tax return 2012   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. Amendment tax return 2012 If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. Amendment tax return 2012 For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. Amendment tax return 2012 Appreciated property you gave the decedent. Amendment tax return 2012   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. Amendment tax return 2012 This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. Amendment tax return 2012 Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. Amendment tax return 2012 More information. Amendment tax return 2012   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. Amendment tax return 2012 Inherited in 2010 and executor elected to file Form 8939. Amendment tax return 2012   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. Amendment tax return 2012 Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. Amendment tax return 2012 The result of these adjustments to the basis is the adjusted basis. Amendment tax return 2012 Adjustments to the basis of stocks and bonds are explained in the following discussion. Amendment tax return 2012 For information about other adjustments to basis, see Publication 551. Amendment tax return 2012 Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. Amendment tax return 2012 If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . Amendment tax return 2012 The basis of stock must be adjusted for certain events that occur after purchase. Amendment tax return 2012 For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. Amendment tax return 2012 You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). Amendment tax return 2012 These distributions, up to the amount of your basis, are a nontaxable return of capital. Amendment tax return 2012 The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. Amendment tax return 2012 To find out more, go to www. Amendment tax return 2012 irs. Amendment tax return 2012 gov/Filing/Filing-Options. Amendment tax return 2012 Identifying stock or bonds sold. Amendment tax return 2012   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Amendment tax return 2012 Adequate identification. Amendment tax return 2012   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. Amendment tax return 2012 Broker holds stock. Amendment tax return 2012   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Amendment tax return 2012  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. Amendment tax return 2012 Single stock certificate. Amendment tax return 2012   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Amendment tax return 2012   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. Amendment tax return 2012 Bonds. Amendment tax return 2012   These methods of identification also apply to bonds sold or transferred. Amendment tax return 2012 Identification not possible. Amendment tax return 2012   If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Amendment tax return 2012 Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. Amendment tax return 2012 Example. Amendment tax return 2012 You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. Amendment tax return 2012 In January 1999 you bought another 200 shares for $11 a share. Amendment tax return 2012 In July 1999 you gave your son 50 shares. Amendment tax return 2012 In December 2001 you bought 100 shares for $9 a share. Amendment tax return 2012 In April 2013 you sold 130 shares. Amendment tax return 2012 You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. Amendment tax return 2012 The shares of stock you gave your son had a basis of $500 (50 × $10). Amendment tax return 2012 You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. Amendment tax return 2012    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. Amendment tax return 2012 Example. Amendment tax return 2012 You bought 100 shares of Fund A for $10 a share. Amendment tax return 2012 You paid a $50 commission to the broker for the purchase. Amendment tax return 2012 Your cost basis for each share is $10. Amendment tax return 2012 50 ($1,050 ÷ 100). Amendment tax return 2012 Commissions and load charges. Amendment tax return 2012   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. Amendment tax return 2012 You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. Amendment tax return 2012 A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). Amendment tax return 2012   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. Amendment tax return 2012 You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. Amendment tax return 2012 You dispose of the shares within 90 days of the purchase date. Amendment tax return 2012 You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. Amendment tax return 2012   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. Amendment tax return 2012 The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). Amendment tax return 2012 Choosing average basis for mutual fund shares. Amendment tax return 2012   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. Amendment tax return 2012 The methods you can use to figure average basis are explained later. Amendment tax return 2012 Undistributed capital gains. Amendment tax return 2012   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. Amendment tax return 2012 See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. Amendment tax return 2012 Reinvestment right. Amendment tax return 2012   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. Amendment tax return 2012      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. Amendment tax return 2012 This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. Amendment tax return 2012 Table 4-1. Amendment tax return 2012 This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Amendment tax return 2012 Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. Amendment tax return 2012 This worksheet will help you figure the adjusted basis when you sell or redeem shares. Amendment tax return 2012 Table 4-1. Amendment tax return 2012 Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. Amendment tax return 2012 2 Cost plus or minus adjustments. Amendment tax return 2012 Automatic investment service. Amendment tax return 2012   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. Amendment tax return 2012 Dividend reinvestment plans. Amendment tax return 2012   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. Amendment tax return 2012 You must include the amount of the discount in your income. Amendment tax return 2012 Public utilities. Amendment tax return 2012   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. Amendment tax return 2012 Stock dividends. Amendment tax return 2012   Stock dividends are distributions made by a corporation of its own stock. Amendment tax return 2012 Generally, stock dividends are not taxable to you. Amendment tax return 2012 However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. Amendment tax return 2012 If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. Amendment tax return 2012 New and old stock identical. Amendment tax return 2012   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. Amendment tax return 2012 The result is your basis for each share of stock. Amendment tax return 2012 Example 1. Amendment tax return 2012 You owned one share of common stock that you bought for $45. Amendment tax return 2012 The corporation distributed two new shares of common stock for each share held. Amendment tax return 2012 You then had three shares of common stock. Amendment tax return 2012 Your basis in each share is $15 ($45 ÷ 3). Amendment tax return 2012 Example 2. Amendment tax return 2012 You owned two shares of common stock. Amendment tax return 2012 You bought one for $30 and the other for $45. Amendment tax return 2012 The corporation distributed two new shares of common stock for each share held. Amendment tax return 2012 You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). Amendment tax return 2012 New and old stock not identical. Amendment tax return 2012   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. Amendment tax return 2012 Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. Amendment tax return 2012 Example. Amendment tax return 2012 You bought a share of common stock for $100. Amendment tax return 2012 Later, the corporation distributed a share of preferred stock for each share of common stock held. Amendment tax return 2012 At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. Amendment tax return 2012 You figure the basis of the old and new stock by dividing your $100 basis between them. Amendment tax return 2012 The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). Amendment tax return 2012 Stock bought at various times. Amendment tax return 2012   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. Amendment tax return 2012 Taxable stock dividends. Amendment tax return 2012   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. Amendment tax return 2012 The basis of your old stock does not change. Amendment tax return 2012 Stock splits. Amendment tax return 2012   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. Amendment tax return 2012 Stock rights. Amendment tax return 2012   A stock right is a right to acquire a corporation's stock. Amendment tax return 2012 It may be exercised, it may be sold if it has a market value, or it may expire. Amendment tax return 2012 Stock rights are rarely taxable when you receive them. Amendment tax return 2012 See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. Amendment tax return 2012 Taxable stock rights. Amendment tax return 2012   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. Amendment tax return 2012 The basis of the old stock does not change. Amendment tax return 2012 Nontaxable stock rights. Amendment tax return 2012   If you receive nontaxable stock rights and allow them to expire, they have no basis. Amendment tax return 2012   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. Amendment tax return 2012 Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. Amendment tax return 2012   If the fair market value of the stock rights was less than 15%, their basis is zero. Amendment tax return 2012 However, you can choose to divide the basis of the old stock between the old stock and the stock rights. Amendment tax return 2012 To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. Amendment tax return 2012 Basis of new stock. Amendment tax return 2012   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. Amendment tax return 2012 Example. Amendment tax return 2012 You own 100 shares of ABC Company stock, which cost you $22 per share. Amendment tax return 2012 The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. Amendment tax return 2012 At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. Amendment tax return 2012 Each stock right had a market value of $3. Amendment tax return 2012 The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. Amendment tax return 2012 You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. Amendment tax return 2012 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. Amendment tax return 2012 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. Amendment tax return 2012 18 ($21. Amendment tax return 2012 78 ÷ 10) per right. Amendment tax return 2012 If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. Amendment tax return 2012 18), or $28. Amendment tax return 2012 18 per share. Amendment tax return 2012 The remaining basis of the old stock is $21. Amendment tax return 2012 78 per share. Amendment tax return 2012 Investment property received in liquidation. Amendment tax return 2012   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. Amendment tax return 2012 S corporation stock. Amendment tax return 2012   You must increase your basis in stock of an S corporation by your pro rata share of the following items. Amendment tax return 2012 All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. Amendment tax return 2012 The nonseparately stated income of the S corporation. Amendment tax return 2012 The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. Amendment tax return 2012   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. Amendment tax return 2012 Distributions by the S corporation that were not included in your income. Amendment tax return 2012 All loss and deduction items of the S corporation that are separately stated and passed through to you. Amendment tax return 2012 Any nonseparately stated loss of the S corporation. Amendment tax return 2012 Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. Amendment tax return 2012 The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. Amendment tax return 2012 However, your basis in the stock cannot be reduced below zero. Amendment tax return 2012 Specialized small business investment company stock or partnership interest. Amendment tax return 2012   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. Amendment tax return 2012 See Rollover of Gain From Publicly Traded Securities , later. Amendment tax return 2012 Qualified small business stock. Amendment tax return 2012   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. Amendment tax return 2012 See Gains on Qualified Small Business Stock , later. Amendment tax return 2012 Short sales. Amendment tax return 2012   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. Amendment tax return 2012   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. Amendment tax return 2012 Premiums on bonds. Amendment tax return 2012   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. Amendment tax return 2012 If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. Amendment tax return 2012   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. Amendment tax return 2012 You must reduce the basis of the bond by the premium you amortized for the period you held the bond. Amendment tax return 2012   See Bond Premium Amortization in chapter 3 for more information. Amendment tax return 2012 Market discount on bonds. Amendment tax return 2012   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. Amendment tax return 2012 See Market Discount Bonds in chapter 1 for more information. Amendment tax return 2012 Bonds purchased at par value. Amendment tax return 2012   A bond purchased at par value (face amount) has no premium or discount. Amendment tax return 2012 When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. Amendment tax return 2012 Example. Amendment tax return 2012 You purchased a bond several years ago for its par value of $10,000. Amendment tax return 2012 You sold the bond this year for $10,100. Amendment tax return 2012 You have a gain of $100. Amendment tax return 2012 However, if you had sold the bond for $9,900, you would have a loss of $100. Amendment tax return 2012 Acquisition discount on short-term obligations. Amendment tax return 2012   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. Amendment tax return 2012 See Discount on Short-Term Obligations in chapter 1 for more information. Amendment tax return 2012 Original issue discount (OID) on debt instruments. Amendment tax return 2012   Increase the basis of a debt instrument by the OID you include in your income. Amendment tax return 2012 See Original Issue Discount (OID) in chapter 1. Amendment tax return 2012 Discounted tax-exempt obligations. Amendment tax return 2012   OID on tax-exempt obligations is generally not taxable. Amendment tax return 2012 However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Amendment tax return 2012 The accrued OID is added to the basis of the obligation to determine your gain or loss. Amendment tax return 2012   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. Amendment tax return 2012   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. Amendment tax return 2012 See Discount on Short-Term Obligations in chapter 1. Amendment tax return 2012 Stripped tax-exempt obligation. Amendment tax return 2012   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. Amendment tax return 2012 For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. Amendment tax return 2012 You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . Amendment tax return 2012   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. Amendment tax return 2012 Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. Amendment tax return 2012 In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. Amendment tax return 2012 How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Amendment tax return 2012 Gain. Amendment tax return 2012   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Amendment tax return 2012 Loss. Amendment tax return 2012   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Amendment tax return 2012 Amount realized. Amendment tax return 2012   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Amendment tax return 2012 Amount realized includes the money you receive plus the fair market value of any property or services you receive. Amendment tax return 2012   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Amendment tax return 2012 For more information, see Publication 537. Amendment tax return 2012   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. Amendment tax return 2012 See Regulations section 1. Amendment tax return 2012 1001-1(g). Amendment tax return 2012 However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. Amendment tax return 2012 Fair market value. Amendment tax return 2012   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Amendment tax return 2012 Example. Amendment tax return 2012 You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Amendment tax return 2012 Your gain is $3,000 ($10,000 – $7,000). Amendment tax return 2012 If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). Amendment tax return 2012 Debt paid off. Amendment tax return 2012   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. Amendment tax return 2012 This is true even if neither you nor the buyer is personally liable for the debt. Amendment tax return 2012 For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Amendment tax return 2012 Example. Amendment tax return 2012 You sell stock that you had pledged as security for a bank loan of $8,000. Amendment tax return 2012 Your basis in the stock is $6,000. Amendment tax return 2012 The buyer pays off your bank loan and pays you $20,000 in cash. Amendment tax return 2012 The amount realized is $28,000 ($20,000 + $8,000). Amendment tax return 2012 Your gain is $22,000 ($28,000 – $6,000). Amendment tax return 2012 Payment of cash. Amendment tax return 2012   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Amendment tax return 2012 Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. Amendment tax return 2012 If the result is a positive number, it is a gain. Amendment tax return 2012 If the result is a negative number, it is a loss. Amendment tax return 2012 No gain or loss. Amendment tax return 2012   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Amendment tax return 2012 In this case, you may have neither a gain nor a loss. Amendment tax return 2012 See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. Amendment tax return 2012 Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. Amendment tax return 2012 If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu