Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

File 1040

TurbotaxEfile For 2012File Amended Tax Return FreeNj 1040nrH&r Block Free Tax FilingFree State Tax E Filing990 Ez FormTurbotax 2011 DownloadWhen Last Day File Taxes 20121040 XHow Do I Do My 2012 TaxesTurbotax Business Federal E File 2012 For Pc Download1040ez 2010Tax Software 1040nr1040x FileFree File Federal And State Taxes OnlineIncome Tax Forms 2010Irs Forms 2011Free 2010 Tax Forms1040 Form 2011Can I File 1040nr OnlineFree 1040x FilingForm 1040x 20132012 Free Tax Filing OnlineHr Block Online Free Tax FilingFree State Tax Return FormsTurbotax Free State FileH&r Block Military Free FileAmendments1040ex1040 Estimated Tax FormIrs Tax Forms 1040ezWww Irs GovH&r Block Free Taxes2011 Tax SoftwareH&r Block 2010 Tax Software1040ez 2010 Instructions2013 State Tax Forms2012 1040Taxact Com 2011

File 1040

File 1040 Publication 559 - Introductory Material Table of Contents Future Developments Reminders Introduction Useful Items - You may want to see: Future Developments For the latest information about developments affecting Publication 559, such as legislation enacted after we release it, go to www. File 1040 irs. File 1040 gov/pub559. File 1040 Reminders Throughout this publication, section references are to the Internal Revenue Code unless otherwise noted. File 1040 Consistent treatment of estate and trust items. File 1040  Beneficiaries must generally treat estate items the same way on their individual returns as they are treated on the estate's return. File 1040 Photographs of missing children. File 1040  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. File 1040 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. File 1040 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. File 1040 Introduction This publication is designed to help those in charge (personal representatives) of the property (estate) of an individual who has died (decedent). File 1040 It shows them how to complete and file federal income tax returns and explains their responsibility to pay any taxes due on behalf of the decedent. File 1040 A comprehensive example of the decedent's final tax return, Form 1040, and estate's income tax return, Form 1041, are included in this publication. File 1040 The publication also explains how much money or property a taxpayer can give away during their lifetime or leave to their heirs at their death before any tax will be owed. File 1040 A discussion of Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is included. File 1040 Also included in this publication are the following items: A checklist of the forms you may need and their due dates. File 1040 A worksheet to reconcile amounts reported in the decedent's name on information returns including Forms W-2, 1099-INT, 1099-DIV, etc. File 1040 The worksheet will help you correctly determine the income to report on the decedent's final return and on the return for either the estate or a beneficiary. File 1040 Comments and suggestions. File 1040   We welcome your comments about this publication and your suggestions for future editions. File 1040   You can send us comments from http://www. File 1040 irs. File 1040 gov/formspubs. File 1040 Click on “More Information” and then on “Give us Feedback. File 1040 ” Or you can also send your comments to the Internal Revenue Service, Tax Forms and Publications Division, 1111 Constitution Ave. File 1040 NW, IR-6526, Washington, DC 20224. File 1040 Useful Items - You may want to see: Publication 3 Armed Forces' Tax Guide Form (and Instructions) SS-4 Application for Employer Identification Number 56 Notice Concerning Fiduciary Relationship 1040 U. File 1040 S. File 1040 Individual Income Tax Return 1041 U. File 1040 S. File 1040 Income Tax Return for Estates and Trusts 706 United States Estate (and Generation-Skipping Transfer) Tax Return 709 United States Gift (and Generation-Skipping Transfer) Tax Return 1310 Statement of Person Claiming Refund Due a Deceased Taxpayer  See How To Get Tax Help near the end of this publication for information about getting publications and forms. File 1040 Also near the end of this publication is Table A, a checklist of forms and their due dates for the executor, administrator, or personal representative. File 1040 Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding Your CP279 Notice

CP279 is the notice of acceptance to the parent corporation of a Qualified Subchapter S Subsidiary (QSub) from Form 8869, Qualified Subchapter S Subsidiary Election.


What you need to do

  • Retain this notice in your permanent records.
  • Notify IRS of necessary changes via Form 8822-B, Change of Address or Responsible Party – Business.

You may want to

Supply your subsidiary corporation with a copy of this notice.


Answers to Common Questions

Q. How do I report the activity of my subsidiary?

A. Subsidiary information should be reported on Form 851, Affiliations Schedule, and other necessary schedules.

 

Page Last Reviewed or Updated: 12-Feb-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The File 1040

File 1040 13. File 1040   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. File 1040 It is divided into the following sections. File 1040 Cost basis. File 1040 Adjusted basis. File 1040 Basis other than cost. File 1040 Your basis is the amount of your investment in property for tax purposes. File 1040 Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. File 1040 Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. File 1040 If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. File 1040 Only the basis allocated to the business or investment use of the property can be depreciated. File 1040 Your original basis in property is adjusted (increased or decreased) by certain events. File 1040 For example, if you make improvements to the property, increase your basis. File 1040 If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. File 1040 Keep accurate records of all items that affect the basis of your property. File 1040 For more information on keeping records, see chapter 1. File 1040 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. File 1040 The cost is the amount you pay in cash, debt obligations, other property, or services. File 1040 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). File 1040 In addition, the basis of real estate and business assets may include other items. File 1040 Loans with low or no interest. File 1040    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. File 1040 You generally have unstated interest if your interest rate is less than the applicable federal rate. File 1040   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. File 1040 Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. File 1040 If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. File 1040 Lump sum purchase. File 1040   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. File 1040 Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. File 1040 Figure the basis of each asset by multiplying the lump sum by a fraction. File 1040 The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. File 1040    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. File 1040 Fair market value (FMV). File 1040   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. File 1040 Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. File 1040 Assumption of mortgage. File 1040   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. File 1040 Settlement costs. File 1040   Your basis includes the settlement fees and closing costs you paid for buying the property. File 1040 (A fee for buying property is a cost that must be paid even if you buy the property for cash. File 1040 ) Do not include fees and costs for getting a loan on the property in your basis. File 1040   The following are some of the settlement fees or closing costs you can include in the basis of your property. File 1040 Abstract fees (abstract of title fees). File 1040 Charges for installing utility services. File 1040 Legal fees (including fees for the title search and preparation of the sales contract and deed). File 1040 Recording fees. File 1040 Survey fees. File 1040 Transfer taxes. File 1040 Owner's title insurance. File 1040 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. File 1040   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. File 1040   The following are some of the settlement fees and closing costs you cannot include in the basis of property. File 1040 Casualty insurance premiums. File 1040 Rent for occupancy of the property before closing. File 1040 Charges for utilities or other services related to occupancy of the property before closing. File 1040 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. File 1040 Fees for refinancing a mortgage. File 1040 Real estate taxes. File 1040   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. File 1040 You cannot deduct them as an expense. File 1040    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. File 1040 Do not include that amount in the basis of your property. File 1040 If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. File 1040 Points. File 1040   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. File 1040 Generally, you deduct the points over the term of the loan. File 1040 For more information on how to deduct points, see chapter 23. File 1040 Points on home mortgage. File 1040   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. File 1040 If certain requirements are met, you can deduct the points in full for the year in which they are paid. File 1040 Reduce the basis of your home by any seller-paid points. File 1040 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. File 1040 The result is the adjusted basis. File 1040 Increases to Basis Increase the basis of any property by all items properly added to a capital account. File 1040 Examples of items that increase basis are shown in Table 13-1. File 1040 These include the items discussed below. File 1040 Improvements. File 1040   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. File 1040 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. File 1040 Assessments for local improvements. File 1040   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. File 1040 Do not deduct them as taxes. File 1040 However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. File 1040 Example. File 1040 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. File 1040 Add the assessment to your property's basis. File 1040 In this example, the assessment is a depreciable asset. File 1040 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. File 1040 Examples of items that decrease basis are shown in Table 13-1. File 1040 These include the items discussed below. File 1040 Table 13-1. File 1040 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. File 1040   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. File 1040    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. File 1040   For more information on casualty and theft losses, see chapter 25. File 1040 Depreciation and section 179 deduction. File 1040   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. File 1040   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. File 1040 Example. File 1040 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. File 1040 You added an improvement to the duplex that cost $10,000. File 1040 In February last year, the duplex was damaged by fire. File 1040 Up to that time, you had been allowed depreciation of $23,000. File 1040 You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. File 1040 You deducted a casualty loss of $1,000 on your income tax return for last year. File 1040 You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. File 1040 You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. File 1040 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. File 1040 Your basis in the land is its original cost of $5,000. File 1040 Easements. File 1040   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. File 1040 It reduces the basis of the affected part of the property. File 1040 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. File 1040   If the gain is on a capital asset, see chapter 16 for information about how to report it. File 1040 If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. File 1040 Exclusion of subsidies for energy conservation measures. File 1040   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. File 1040 Reduce the basis of the property for which you received the subsidy by the excluded amount. File 1040 For more information about this subsidy, see chapter 12. File 1040 Postponed gain from sale of home. File 1040    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. File 1040 For more information on the rules for the sale of a home, see chapter 15. File 1040 Basis Other Than Cost There are many times when you cannot use cost as basis. File 1040 In these cases, the fair market value or the adjusted basis of the property can be used. File 1040 Fair market value (FMV) and adjusted basis were discussed earlier. File 1040 Property Received for Services If you receive property for your services, include the FMV of the property in income. File 1040 The amount you include in income becomes your basis. File 1040 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. File 1040 Restricted property. File 1040   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. File 1040 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. File 1040 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). File 1040 For more information, see Restricted Property in Publication 525. File 1040 Bargain purchases. File 1040   A bargain purchase is a purchase of an item for less than its FMV. File 1040 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. File 1040 Your basis in the property is its FMV (your purchase price plus the amount you include in income). File 1040   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. File 1040 However, your basis in the property is still its FMV. File 1040 See Employee Discounts in Publication 15-B. File 1040 Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. File 1040 A taxable gain or deductible loss also is known as a recognized gain or loss. File 1040 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. File 1040 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. File 1040 Similar or related property. File 1040   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. File 1040 Decrease the basis by the following. File 1040 Any loss you recognize on the involuntary conversion. File 1040 Any money you receive that you do not spend on similar property. File 1040 Increase the basis by the following. File 1040 Any gain you recognize on the involuntary conversion. File 1040 Any cost of acquiring the replacement property. File 1040 Money or property not similar or related. File 1040    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. File 1040 Example. File 1040 The state condemned your property. File 1040 The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. File 1040 You realized a gain of $5,000 ($31,000 − $26,000). File 1040 You bought replacement property similar in use to the converted property for $29,000. File 1040 You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. File 1040 Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. File 1040 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. File 1040   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. File 1040 Basis for depreciation. File 1040   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. File 1040 For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. File 1040 Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. File 1040 If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. File 1040 See Nontaxable Trades in chapter 14. File 1040 Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. File 1040 To qualify as a like-kind exchange, the property traded and the property received must be both of the following. File 1040 Qualifying property. File 1040 Like-kind property. File 1040 The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. File 1040 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. File 1040 Qualifying property. File 1040   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. File 1040 Like-kind property. File 1040   There must be an exchange of like-kind property. File 1040 Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. File 1040 The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. File 1040 Example. File 1040 You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. File 1040 The dealer allows you $2,000 on the old truck, and you pay $4,800. File 1040 This is a like-kind exchange. File 1040 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). File 1040 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). File 1040 The basis of the new truck is the price you pay the dealer. File 1040 Partially nontaxable exchanges. File 1040   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. File 1040 The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. File 1040 Decrease the basis by the following amounts. File 1040 Any money you receive. File 1040 Any loss you recognize on the exchange. File 1040 Increase the basis by the following amounts. File 1040 Any additional costs you incur. File 1040 Any gain you recognize on the exchange. File 1040 If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. File 1040 Allocation of basis. File 1040   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. File 1040 The rest is the basis of the like-kind property. File 1040 More information. File 1040   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. File 1040 Basis for depreciation. File 1040   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. File 1040 For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. File 1040 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. File 1040 The same rule applies to a transfer by your former spouse that is incident to divorce. File 1040 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. File 1040 If the property transferred to you is a series E, series EE, or series I U. File 1040 S. File 1040 savings bond, the transferor must include in income the interest accrued to the date of transfer. File 1040 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. File 1040 For more information on these bonds, see chapter 7. File 1040 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. File 1040 For more information about the transfer of property from a spouse, see chapter 14. File 1040 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. File 1040 FMV less than donor's adjusted basis. File 1040   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. File 1040 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. File 1040 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. File 1040 See Adjusted Basis , earlier. File 1040 Example. File 1040 You received an acre of land as a gift. File 1040 At the time of the gift, the land had an FMV of $8,000. File 1040 The donor's adjusted basis was $10,000. File 1040 After you received the property, no events occurred to increase or decrease your basis. File 1040 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. File 1040 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. File 1040 If the sales price is between $8,000 and $10,000, you have neither gain nor loss. File 1040 Business property. File 1040   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. File 1040 FMV equal to or greater than donor's adjusted basis. File 1040   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. File 1040 Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. File 1040   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. File 1040 See Adjusted Basis , earlier. File 1040   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. File 1040 Figure the increase by multiplying the gift tax paid by a fraction. File 1040 The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. File 1040   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. File 1040 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. File 1040 Example. File 1040 In 2013, you received a gift of property from your mother that had an FMV of $50,000. File 1040 Her adjusted basis was $20,000. File 1040 The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). File 1040 She paid a gift tax of $7,320 on the property. File 1040 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) × . File 1040 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. File 1040 If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. File 1040 However, your basis cannot exceed the FMV of the gift at the time it was given to you. File 1040 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. File 1040 The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. File 1040 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. File 1040 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. File 1040 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. File 1040 For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. File 1040 Property inherited from a decedent who died in 2010. File 1040   If you inherited property from a decedent who died in 2010, special rules may apply. File 1040 For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. File 1040 Community property. File 1040   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. File 1040 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. File 1040 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. File 1040 Example. File 1040 You and your spouse owned community property that had a basis of $80,000. File 1040 When your spouse died, half the FMV of the community interest was includible in your spouse's estate. File 1040 The FMV of the community interest was $100,000. File 1040 The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). File 1040 The basis of the other half to your spouse's heirs is also $50,000. File 1040 For more information about community property, see Publication 555, Community Property. File 1040 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. File 1040 To do so, you must figure its basis for depreciation at the time of the change. File 1040 An example of changing property held for personal use to business or rental use would be renting out your former personal residence. File 1040 Basis for depreciation. File 1040   The basis for depreciation is the lesser of the following amounts. File 1040 The FMV of the property on the date of the change. File 1040 Your adjusted basis on the date of the change. File 1040 Example. File 1040 Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. File 1040 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. File 1040 Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. File 1040 Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). File 1040 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. File 1040 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). File 1040 Sale of property. File 1040   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. File 1040 Gain. File 1040   The basis for figuring a gain is your adjusted basis in the property when you sell the property. File 1040 Example. File 1040 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. File 1040 Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). File 1040 Loss. File 1040   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. File 1040 Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . File 1040 Example. File 1040 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. File 1040 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. File 1040 Reduce that amount ($180,000) by the depreciation deductions ($37,500). File 1040 The basis for loss is $142,500 ($180,000 − $37,500). File 1040 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. File 1040 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. File 1040 You must adjust the basis of stocks for certain events that occur after purchase. File 1040 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. File 1040 This rule applies only when the additional stock received is identical to the stock held. File 1040 Also reduce your basis when you receive nontaxable distributions. File 1040 They are a return of capital. File 1040 Example. File 1040 In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. File 1040 In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. File 1040 In 2013 XYZ declared a 2-for-1 stock split. File 1040 You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. File 1040 Other basis. File 1040   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. File 1040 For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. File 1040 Identifying stocks or bonds sold. File 1040   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. File 1040 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. File 1040 For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. File 1040 Mutual fund shares. File 1040   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. File 1040 For more information, see Publication 550. File 1040 Bond premium. File 1040   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. File 1040 See Bond Premium Amortization in chapter 3 of Publication 550 for more information. File 1040 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. File 1040 Original issue discount (OID) on debt instruments. File 1040   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. File 1040 See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. File 1040 Tax-exempt obligations. File 1040    OID on tax-exempt obligations is generally not taxable. File 1040 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. File 1040 The accrued OID is added to the basis of the obligation to determine your gain or loss. File 1040 See chapter 4 of Publication 550. File 1040 Prev  Up  Next   Home   More Online Publications