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Eztax 13. Eztax Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Eztax It is divided into the following sections. Eztax Cost basis. Eztax Adjusted basis. Eztax Basis other than cost. Eztax Your basis is the amount of your investment in property for tax purposes. Eztax Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Eztax Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Eztax If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Eztax Only the basis allocated to the business or investment use of the property can be depreciated. Eztax Your original basis in property is adjusted (increased or decreased) by certain events. Eztax For example, if you make improvements to the property, increase your basis. Eztax If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Eztax Keep accurate records of all items that affect the basis of your property. Eztax For more information on keeping records, see chapter 1. Eztax Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Eztax The cost is the amount you pay in cash, debt obligations, other property, or services. Eztax Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Eztax In addition, the basis of real estate and business assets may include other items. Eztax Loans with low or no interest. Eztax If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. Eztax You generally have unstated interest if your interest rate is less than the applicable federal rate. Eztax For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Eztax Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Eztax If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Eztax Lump sum purchase. Eztax If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Eztax Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Eztax Figure the basis of each asset by multiplying the lump sum by a fraction. Eztax The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Eztax If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Eztax Fair market value (FMV). Eztax FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Eztax Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Eztax Assumption of mortgage. Eztax If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Eztax Settlement costs. Eztax Your basis includes the settlement fees and closing costs you paid for buying the property. Eztax (A fee for buying property is a cost that must be paid even if you buy the property for cash. Eztax ) Do not include fees and costs for getting a loan on the property in your basis. Eztax The following are some of the settlement fees or closing costs you can include in the basis of your property. Eztax Abstract fees (abstract of title fees). Eztax Charges for installing utility services. Eztax Legal fees (including fees for the title search and preparation of the sales contract and deed). Eztax Recording fees. Eztax Survey fees. Eztax Transfer taxes. Eztax Owner's title insurance. Eztax Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Eztax Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Eztax The following are some of the settlement fees and closing costs you cannot include in the basis of property. Eztax Casualty insurance premiums. Eztax Rent for occupancy of the property before closing. Eztax Charges for utilities or other services related to occupancy of the property before closing. Eztax Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Eztax Fees for refinancing a mortgage. Eztax Real estate taxes. Eztax If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Eztax You cannot deduct them as an expense. Eztax If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Eztax Do not include that amount in the basis of your property. Eztax If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Eztax Points. Eztax If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Eztax Generally, you deduct the points over the term of the loan. Eztax For more information on how to deduct points, see chapter 23. Eztax Points on home mortgage. Eztax Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Eztax If certain requirements are met, you can deduct the points in full for the year in which they are paid. Eztax Reduce the basis of your home by any seller-paid points. Eztax Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Eztax The result is the adjusted basis. Eztax Increases to Basis Increase the basis of any property by all items properly added to a capital account. Eztax Examples of items that increase basis are shown in Table 13-1. Eztax These include the items discussed below. Eztax Improvements. Eztax Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Eztax For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Eztax Assessments for local improvements. Eztax Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Eztax Do not deduct them as taxes. Eztax However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Eztax Example. Eztax Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Eztax Add the assessment to your property's basis. Eztax In this example, the assessment is a depreciable asset. Eztax Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Eztax Examples of items that decrease basis are shown in Table 13-1. Eztax These include the items discussed below. Eztax Table 13-1. Eztax Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of Putting an addition on your home subsidies for energy conservation Replacing an entire roof measures Paving your driveway Installing central air conditioning • Casualty or theft loss deductions Rewiring your home and insurance reimbursements • Assessments for local improvements: Water connections Extending utility service lines to the property • Postponed gain from the sale of a home Sidewalks • Alternative motor vehicle credit (Form 8910) Roads • Alternative fuel vehicle refueling property credit (Form 8911) • Residential energy credits (Form 5695) • Casualty losses: • Depreciation and section 179 deduction Restoring damaged property • Nontaxable corporate distributions • Legal fees: Cost of defending and perfecting a title • Certain canceled debt excluded from Fees for getting a reduction of an assessment income • Zoning costs • Easements • Adoption tax benefits Casualty and theft losses. Eztax If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Eztax You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Eztax For more information on casualty and theft losses, see chapter 25. Eztax Depreciation and section 179 deduction. Eztax Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Eztax For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Eztax Example. Eztax You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Eztax You added an improvement to the duplex that cost $10,000. Eztax In February last year, the duplex was damaged by fire. Eztax Up to that time, you had been allowed depreciation of $23,000. Eztax You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Eztax You deducted a casualty loss of $1,000 on your income tax return for last year. Eztax You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Eztax You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Eztax Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700 Deducted casualty loss 1,000 Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Eztax Your basis in the land is its original cost of $5,000. Eztax Easements. Eztax The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Eztax It reduces the basis of the affected part of the property. Eztax If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Eztax If the gain is on a capital asset, see chapter 16 for information about how to report it. Eztax If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Eztax Exclusion of subsidies for energy conservation measures. Eztax You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Eztax Reduce the basis of the property for which you received the subsidy by the excluded amount. Eztax For more information about this subsidy, see chapter 12. Eztax Postponed gain from sale of home. Eztax If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Eztax For more information on the rules for the sale of a home, see chapter 15. Eztax Basis Other Than Cost There are many times when you cannot use cost as basis. Eztax In these cases, the fair market value or the adjusted basis of the property can be used. Eztax Fair market value (FMV) and adjusted basis were discussed earlier. Eztax Property Received for Services If you receive property for your services, include the FMV of the property in income. Eztax The amount you include in income becomes your basis. Eztax If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Eztax Restricted property. Eztax If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Eztax However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Eztax Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Eztax For more information, see Restricted Property in Publication 525. Eztax Bargain purchases. Eztax A bargain purchase is a purchase of an item for less than its FMV. Eztax If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Eztax Your basis in the property is its FMV (your purchase price plus the amount you include in income). Eztax If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Eztax However, your basis in the property is still its FMV. Eztax See Employee Discounts in Publication 15-B. Eztax Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Eztax A taxable gain or deductible loss also is known as a recognized gain or loss. Eztax If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Eztax Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Eztax Similar or related property. Eztax If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Eztax Decrease the basis by the following. Eztax Any loss you recognize on the involuntary conversion. Eztax Any money you receive that you do not spend on similar property. Eztax Increase the basis by the following. Eztax Any gain you recognize on the involuntary conversion. Eztax Any cost of acquiring the replacement property. Eztax Money or property not similar or related. Eztax If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. Eztax Example. Eztax The state condemned your property. Eztax The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Eztax You realized a gain of $5,000 ($31,000 − $26,000). Eztax You bought replacement property similar in use to the converted property for $29,000. Eztax You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Eztax Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Eztax The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Eztax If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Eztax Basis for depreciation. Eztax Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Eztax For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Eztax Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Eztax If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Eztax See Nontaxable Trades in chapter 14. Eztax Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Eztax To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Eztax Qualifying property. Eztax Like-kind property. Eztax The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Eztax If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Eztax Qualifying property. Eztax In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Eztax Like-kind property. Eztax There must be an exchange of like-kind property. Eztax Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Eztax The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Eztax Example. Eztax You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Eztax The dealer allows you $2,000 on the old truck, and you pay $4,800. Eztax This is a like-kind exchange. Eztax The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Eztax If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Eztax The basis of the new truck is the price you pay the dealer. Eztax Partially nontaxable exchanges. Eztax A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Eztax The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Eztax Decrease the basis by the following amounts. Eztax Any money you receive. Eztax Any loss you recognize on the exchange. Eztax Increase the basis by the following amounts. Eztax Any additional costs you incur. Eztax Any gain you recognize on the exchange. Eztax If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Eztax Allocation of basis. Eztax If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Eztax The rest is the basis of the like-kind property. Eztax More information. Eztax See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Eztax Basis for depreciation. Eztax Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Eztax For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Eztax Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Eztax The same rule applies to a transfer by your former spouse that is incident to divorce. Eztax However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Eztax If the property transferred to you is a series E, series EE, or series I U. Eztax S. Eztax savings bond, the transferor must include in income the interest accrued to the date of transfer. Eztax Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Eztax For more information on these bonds, see chapter 7. Eztax At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Eztax For more information about the transfer of property from a spouse, see chapter 14. Eztax Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Eztax FMV less than donor's adjusted basis. Eztax If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Eztax Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Eztax Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Eztax See Adjusted Basis , earlier. Eztax Example. Eztax You received an acre of land as a gift. Eztax At the time of the gift, the land had an FMV of $8,000. Eztax The donor's adjusted basis was $10,000. Eztax After you received the property, no events occurred to increase or decrease your basis. Eztax If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Eztax If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Eztax If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Eztax Business property. Eztax If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Eztax FMV equal to or greater than donor's adjusted basis. Eztax If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Eztax Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Eztax Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Eztax See Adjusted Basis , earlier. Eztax If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Eztax Figure the increase by multiplying the gift tax paid by a fraction. Eztax The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Eztax The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Eztax 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. Eztax Example. Eztax In 2013, you received a gift of property from your mother that had an FMV of $50,000. Eztax Her adjusted basis was $20,000. Eztax The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Eztax She paid a gift tax of $7,320 on the property. Eztax Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Eztax 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Eztax If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Eztax However, your basis cannot exceed the FMV of the gift at the time it was given to you. Eztax Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Eztax The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Eztax The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Eztax The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Eztax If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Eztax For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Eztax Property inherited from a decedent who died in 2010. Eztax If you inherited property from a decedent who died in 2010, special rules may apply. Eztax For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Eztax Community property. Eztax In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Eztax When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Eztax For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Eztax Example. Eztax You and your spouse owned community property that had a basis of $80,000. Eztax When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Eztax The FMV of the community interest was $100,000. Eztax The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Eztax The basis of the other half to your spouse's heirs is also $50,000. Eztax For more information about community property, see Publication 555, Community Property. Eztax Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Eztax To do so, you must figure its basis for depreciation at the time of the change. Eztax An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Eztax Basis for depreciation. Eztax The basis for depreciation is the lesser of the following amounts. Eztax The FMV of the property on the date of the change. Eztax Your adjusted basis on the date of the change. Eztax Example. Eztax Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Eztax You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Eztax Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Eztax Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Eztax On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Eztax The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Eztax Sale of property. Eztax If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Eztax Gain. Eztax The basis for figuring a gain is your adjusted basis in the property when you sell the property. Eztax Example. Eztax Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Eztax Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Eztax Loss. Eztax Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Eztax Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Eztax Example. Eztax Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Eztax In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Eztax Reduce that amount ($180,000) by the depreciation deductions ($37,500). Eztax The basis for loss is $142,500 ($180,000 − $37,500). Eztax Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Eztax If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Eztax You must adjust the basis of stocks for certain events that occur after purchase. Eztax For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Eztax This rule applies only when the additional stock received is identical to the stock held. Eztax Also reduce your basis when you receive nontaxable distributions. Eztax They are a return of capital. Eztax Example. Eztax In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Eztax In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Eztax In 2013 XYZ declared a 2-for-1 stock split. Eztax You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Eztax Other basis. Eztax There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Eztax For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Eztax Identifying stocks or bonds sold. Eztax If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Eztax 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. Eztax For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Eztax Mutual fund shares. Eztax If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Eztax For more information, see Publication 550. Eztax Bond premium. Eztax If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Eztax See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Eztax Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Eztax Original issue discount (OID) on debt instruments. Eztax You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Eztax See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Eztax Tax-exempt obligations. Eztax OID on tax-exempt obligations is generally not taxable. Eztax However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Eztax The accrued OID is added to the basis of the obligation to determine your gain or loss. Eztax See chapter 4 of Publication 550. Eztax Prev Up Next Home More Online Publications
Topic 451 - Individual Retirement Arrangements (IRAs)
An individual retirement arrangement, or IRA, is a tax-favored
personal savings arrangement, which allows you to set aside money
for retirement. There are several different types of IRAs, which you
can set up with a bank, insurance company, or other financial institution.
The original IRA is often referred to as a "traditional IRA." You
may be able to deduct some or all of your contributions to a traditional
IRA. You may also be eligible for a tax credit equal to a percentage
of your contribution. Amounts in your traditional IRA, including earnings,
generally are not taxed until distributed to you. IRAs cannot be owned
jointly. However, any amounts remaining in your IRA upon your death
will be paid to your beneficiary or beneficiaries.
To contribute to a traditional IRA, you must be under age 70½
at the end of the tax year. You, and/or your spouse if you file a
joint return, must have taxable compensation, such as wages, salaries,
commissions, tips, bonuses, or net income from self-employment. Taxable alimony and separate maintenance payments
received by an individual are treated as compensation for IRA purposes.
Compensation does not include earnings and profits from property,
such as rental income, interest and dividend income, or any amount
received as pension or annuity income, or as deferred compensation.
Figure your allowable deduction using the worksheets in the Form 1040 Instructions (PDF), Form 1040A Instructions (PDF) or in Publication 590, Individual
Retirement Arrangements (IRAs). You cannot claim an IRA deduction
on Form 1040EZ (PDF); you must use either Form 1040A (PDF) or Form 1040 (PDF). If you made nondeductible contributions to a traditional
IRA you need to attach Form 8606 (PDF), Nondeductible IRAs. Use Form 8880 (PDF), Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit. Enter
the amount of the credit on either Form 1040A or Form 1040. You cannot
use Form 1040EZ to claim this credit.
Distributions from a traditional IRA are fully or partially taxable
in the year of distribution. If you made only deductible contributions,
distributions are fully taxable. Use Form 8606 to figure the taxable
portion of withdrawals.
Distributions made prior to age 59½ may be subject to a
10% additional tax. You also may owe an excise tax if you do not begin
to withdraw minimum distributions by April 1 of the year after you
reach age 70½. These additional taxes are figured and reported
on Form 5329 (PDF), Additional Taxes
on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Refer to the Form 5329 Instructions (PDF)
for exceptions to the additional taxes.
A Roth IRA differs from a traditional IRA in several respects.
Contributions to a Roth IRA are not deductible (and you do not report
the contributions on your tax return), but you also are not taxed
on qualified distributions or distributions that are a return of contributions.
In addition, you do not have to be under age 70½ to contribute
to a Roth IRA. To be a Roth IRA, the account or annuity must be designated
as a Roth IRA when it is set up. For more information on Roth IRA
contributions, refer to Topic 309.
Refer to Publication 590, Individual Retirement
Arrangements (IRAs), for additional information on the different
types of IRAs, including information on contributions, distributions,
as well as conversions from one type of IRA to another.
Page Last Reviewed or Updated: December 12, 2013
Eztax Publicación 4492(SP) - Introductory Material Tabla de contenidos Introducción Artículos de interés - A usted quizá le interese ver: Introducción En esta publicación se explican las disposiciones principales de la Katrina Emergency Tax Relief Act of 2005 (Ley de Alivio Tributario para Desastres Causados por el Huracán Katrina del 2005) y la Gulf Opportunity Zone Act of 2005 (Ley de la Zona de Oportunidad del Golfo del 2005). Eztax Artículos de interés - A usted quizá le interese ver: Publicación 526 Charitable Contributions (Contribuciones Caritativas), en inglés 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts (Pérdidas Netas de Operación (NOL) para Personas Físicas, Caudales Hereditarios y Fideicomisos), en inglés 547(SP) Hechos Fortuitos, Desastres y Robos, en español 946 How to Depreciate Property (Cómo Depreciar los Bienes), en inglés Formas (e instrucciones) 4506Request for Copy of Tax Return (Solicitud de una Copia de la Declaración de Impuestos), en inglés 4506-TRequest for Transcript of Tax Return (Solicitud de un Apógrafo de la Declaración de Impuestos), en inglés 4684Casualties and Thefts (Hechos Fortuitos y Robos), en inglés 5884Work Opportunity Credit (Crédito por Oportunidad de Trabajo), en inglés 5884-ACredits for Employers Affected by Hurricane Katrina, Rita, or Wilma (Créditos para Patronos o Empleadores Afectados por el Huracán Katrina, Rita o Wilma), en inglés 8863Education Credits (Hope and Lifetime Learning Credits) (Créditos por Enseñanza Superior (Crédito Hope y Crédito Perpetuo (Vitalicio) por Aprendizaje)), en inglés 8914Exemption Amount for Taxpayers Housing Individuals Displaced by Hurricane Katrina (Cantidad de la Exención para Contribuyentes dando Alojamiento a Personas Desplazadas por el Huracán Katrina), en inglés 8915Qualified Hurricane Retirement Plan Distributions and Repayments (Distribuciones y Devoluciones (Reintegros) de Pagos Calificados de Planes de Jubilación a Causa de un Huracán), en inglés Anterior Subir Siguiente Inicio More Online Publications