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File Amended Tax Return

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File Amended Tax Return

File amended tax return 2. File amended tax return   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. File amended tax return 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. File amended tax return Deduction may depend on your type of business. File amended tax return Exception for events that benefit charitable organizations. File amended tax return Food and beverages in skybox seats. File amended tax return What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. File amended tax return You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. File amended tax return The rules and definitions are summarized in Table 2-1 . File amended tax return You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. File amended tax return Directly-related test. File amended tax return Associated test. File amended tax return Both of these tests are explained later. File amended tax return An ordinary expense is one that is common and accepted in your trade or business. File amended tax return A necessary expense is one that is helpful and appropriate for your business. File amended tax return An expense does not have to be required to be considered necessary. File amended tax return The amount you can deduct for entertainment expenses may be limited. File amended tax return Generally, you can deduct only 50% of your unreimbursed entertainment expenses. File amended tax return This limit is discussed later under 50% Limit. File amended tax return Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. File amended tax return Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. File amended tax return Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. File amended tax return See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. File amended tax return You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. File amended tax return It is not necessary to devote more time to business than to entertainment. File amended tax return However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. File amended tax return Table 2-1. File amended tax return When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. File amended tax return Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. File amended tax return An ordinary expense is one that is common and accepted in your trade or business. File amended tax return A necessary expense is one that is helpful and appropriate. File amended tax return Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. File amended tax return   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. File amended tax return Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. File amended tax return You cannot deduct expenses that are lavish or extravagant under the circumstances. File amended tax return You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). File amended tax return You do not have to show that business income or other business benefit actually resulted from each entertainment expense. File amended tax return Clear business setting. File amended tax return   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. File amended tax return The following situations are examples of entertainment in a clear business setting. File amended tax return Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. File amended tax return Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). File amended tax return Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. File amended tax return An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. File amended tax return Expenses not considered directly related. File amended tax return   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. File amended tax return The following are examples of situations where there are substantial distractions. File amended tax return A meeting or discussion at a nightclub, theater, or sporting event. File amended tax return A meeting or discussion during what is essentially a social gathering, such as a cocktail party. File amended tax return A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. File amended tax return Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. File amended tax return To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). File amended tax return Associated with trade or business. File amended tax return   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. File amended tax return The purpose may be to get new business or to encourage the continuation of an existing business relationship. File amended tax return Substantial business discussion. File amended tax return   Whether a business discussion is substantial depends on the facts of each case. File amended tax return A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. File amended tax return   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. File amended tax return It is not necessary that you devote more time to business than to entertainment. File amended tax return You do not have to discuss business during the meal or entertainment. File amended tax return Meetings at conventions. File amended tax return   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. File amended tax return However, your reason for attending the convention or meeting must be to further your trade or business. File amended tax return The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. File amended tax return Directly before or after business discussion. File amended tax return   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. File amended tax return   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. File amended tax return Among the facts to consider are the place, date, and duration of the business discussion. File amended tax return If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. File amended tax return Example. File amended tax return A group of business associates comes from out of town to your place of business to hold a substantial business discussion. File amended tax return If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. File amended tax return The expense meets the associated test. File amended tax return 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. File amended tax return (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. File amended tax return See Individuals subject to “hours of service” limits , later. File amended tax return ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. File amended tax return Figure A summarizes the general rules explained in this section. File amended tax return The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. File amended tax return Included expenses. File amended tax return   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. File amended tax return However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. File amended tax return Figure A. File amended tax return Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. File amended tax return See Exceptions to the 50% Limit . File amended tax return Please click here for the text description of the image. File amended tax return Figure A. File amended tax return Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. File amended tax return   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. File amended tax return   The 50% limit also applies to certain meal and entertainment expenses that are not business related. File amended tax return It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. File amended tax return It also applies to the cost of meals included in deductible educational expenses. File amended tax return When to apply the 50% limit. File amended tax return   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. File amended tax return You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. File amended tax return Example 1. File amended tax return You spend $200 for a business-related meal. File amended tax return If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. File amended tax return Your deduction cannot be more than $45 (50% × $90). File amended tax return Example 2. File amended tax return You purchase two tickets to a concert and give them to a client. File amended tax return You purchased the tickets through a ticket agent. File amended tax return You paid $200 for the two tickets, which had a face value of $80 each ($160 total). File amended tax return Your deduction cannot be more than $80 (50% × $160). File amended tax return Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. File amended tax return Figure A can help you determine if the 50% limit applies to you. File amended tax return Expenses not subject to 50% limit. File amended tax return   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. File amended tax return 1 - Employee's reimbursed expenses. File amended tax return   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. File amended tax return Accountable plans are discussed in chapter 6. File amended tax return 2 - Self-employed. File amended tax return   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. File amended tax return You have these expenses as an independent contractor. File amended tax return Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. File amended tax return You provide adequate records of these expenses to your customer or client. File amended tax return (See chapter 5 . File amended tax return )   In this case, your client or customer is subject to the 50% limit on the expenses. File amended tax return Example. File amended tax return You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. File amended tax return You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. File amended tax return If the client can deduct the expenses, the client is subject to the 50% limit. File amended tax return If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. File amended tax return 3 - Advertising expenses. File amended tax return   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. File amended tax return For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. File amended tax return 4 - Sale of meals or entertainment. File amended tax return   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. File amended tax return For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. File amended tax return 5 - Charitable sports event. File amended tax return   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. File amended tax return For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. File amended tax return Individuals subject to “hours of service” limits. File amended tax return   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. File amended tax return The percentage is 80%. File amended tax return   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. File amended tax return Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. File amended tax return Interstate truck operators and bus drivers who are under Department of Transportation regulations. File amended tax return Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. File amended tax return Certain merchant mariners who are under Coast Guard regulations. File amended tax return What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. File amended tax return Entertainment. File amended tax return   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. File amended tax return Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. File amended tax return   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. File amended tax return A meal as a form of entertainment. File amended tax return   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. File amended tax return A meal expense includes the cost of food, beverages, taxes, and tips for the meal. File amended tax return To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. File amended tax return    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. File amended tax return    Meals sold in the normal course of your business are not considered entertainment. File amended tax return Deduction may depend on your type of business. File amended tax return   Your kind of business may determine if a particular activity is considered entertainment. File amended tax return For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. File amended tax return This is because fashion shows are typical in your business. File amended tax return But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. File amended tax return Separating costs. File amended tax return   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. File amended tax return You must have a reasonable basis for making this allocation. File amended tax return For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. File amended tax return Taking turns paying for meals or entertainment. File amended tax return   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. File amended tax return Lavish or extravagant expenses. File amended tax return   You cannot deduct expenses for entertainment that are lavish or extravagant. File amended tax return An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. File amended tax return Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. File amended tax return Allocating between business and nonbusiness. File amended tax return   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. File amended tax return You can deduct only the business part. File amended tax return If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. File amended tax return Example. File amended tax return You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. File amended tax return Only 4/11 of the expense qualifies as a business entertainment expense. File amended tax return You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. File amended tax return Trade association meetings. File amended tax return   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. File amended tax return These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. File amended tax return Entertainment tickets. File amended tax return   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. File amended tax return For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. File amended tax return Exception for events that benefit charitable organizations. File amended tax return   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. File amended tax return You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. File amended tax return The event's main purpose is to benefit a qualified charitable organization. File amended tax return The entire net proceeds go to the charity. File amended tax return The event uses volunteers to perform substantially all the event's work. File amended tax return    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. File amended tax return Example 1. File amended tax return You purchase tickets to a golf tournament organized by the local volunteer fire company. File amended tax return All net proceeds will be used to buy new fire equipment. File amended tax return The volunteers will run the tournament. File amended tax return You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. File amended tax return Example 2. File amended tax return You purchase tickets to a college football game through a ticket broker. File amended tax return After having a business discussion, you take a client to the game. File amended tax return Net proceeds from the game go to colleges that qualify as charitable organizations. File amended tax return However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. File amended tax return Skyboxes and other private luxury boxes. File amended tax return   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. File amended tax return   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. File amended tax return For example, renting a skybox for a series of playoff games is considered renting it for more than one event. File amended tax return All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. File amended tax return   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. File amended tax return Example. File amended tax return You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. File amended tax return The cost of regular nonluxury box seats at each event is $30 a seat. File amended tax return You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). File amended tax return Food and beverages in skybox seats. File amended tax return   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. File amended tax return The amounts separately stated for food and beverages must be reasonable. File amended tax return You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. File amended tax return What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. File amended tax return Club dues and membership fees. File amended tax return   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. File amended tax return This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. File amended tax return   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. File amended tax return You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. File amended tax return Entertainment facilities. File amended tax return   Generally, you cannot deduct any expense for the use of an entertainment facility. File amended tax return This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. File amended tax return   An entertainment facility is any property you own, rent, or use for entertainment. File amended tax return Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. File amended tax return Out-of-pocket expenses. File amended tax return   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. File amended tax return These are not expenses for the use of an entertainment facility. File amended tax return However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. File amended tax return Expenses for spouses. File amended tax return   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. File amended tax return However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. File amended tax return Example. File amended tax return You entertain a customer. File amended tax return The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. File amended tax return The customer's spouse joins you because it is impractical to entertain the customer without the spouse. File amended tax return You can deduct the cost of entertaining the customer's spouse. File amended tax return If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. File amended tax return Gift or entertainment. File amended tax return   Any item that might be considered either a gift or entertainment generally will be considered entertainment. File amended tax return However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. File amended tax return   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. File amended tax return You can treat the tickets as either a gift or entertainment, whichever is to your advantage. File amended tax return   You can change your treatment of the tickets at a later date by filing an amended return. File amended tax return Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. File amended tax return   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. File amended tax return You cannot choose, in this case, to treat the tickets as a gift. File amended tax return Prev  Up  Next   Home   More Online Publications
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File amended tax return 3. File amended tax return   Abandonments Table of Contents You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. File amended tax return Whether an abandonment has occurred is determined in light of all the facts and circumstances. File amended tax return You must both show an intention to abandon the property and affirmatively act to abandon the property. File amended tax return A voluntary conveyance of the property in lieu of foreclosure is not an abandonment and is treated as the exchange of property to satisfy a debt. File amended tax return For more information, see Sales and Exchanges in Publication 544. File amended tax return The tax consequences of abandonment of property that secures a debt depend on whether you were personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). File amended tax return See Publication 544 if you abandoned property that did not secure debt. File amended tax return This publication only discusses the tax consequences of abandoning property that secured a debt. File amended tax return Abandonment of property securing recourse debt. File amended tax return    In most cases, if you abandon property that secures debt for which you are personally liable (recourse debt), you do not have gain or loss until the later foreclosure is completed. File amended tax return For details on figuring gain or loss on the foreclosure, see chapter 2. File amended tax return Example 1—abandonment of personal-use property securing recourse debt. File amended tax return In 2009, Anne purchased a home for $200,000. File amended tax return She borrowed the entire purchase price, for which she was personally liable, and gave the bank a mortgage on the home. File amended tax return In 2013, Anne lost her job and was unable to continue making her mortgage loan payments. File amended tax return Because her mortgage loan balance was $185,000 and the FMV of her home was only $150,000, Anne decided to abandon her home by permanently moving out on August 1, 2013. File amended tax return Because Anne was personally liable for the debt and the bank did not complete a foreclosure of the property in 2013, Anne has neither gain nor loss in tax year 2013 from abandoning the home. File amended tax return If the bank sells the house at a foreclosure sale in 2014, Anne will have to figure her gain or nondeductible loss for tax year 2014 as discussed earlier in chapter 2. File amended tax return Example 2—abandonment of business or investment property securing recourse debt. File amended tax return In 2009, Sue purchased business property for $200,000. File amended tax return She borrowed the entire purchase price, for which she was personally liable, and gave the lender a security interest in the property. File amended tax return In 2013, Sue was unable to continue making her loan payments. File amended tax return Because her loan balance was $185,000 and the FMV of the property was only $150,000, Sue abandoned the property on August 1, 2013. File amended tax return Because Sue was personally liable for the debt and the lender did not complete a foreclosure of the property in 2013, Sue has neither gain nor loss in tax year 2013 from abandoning the property. File amended tax return If the lender sells the property at a foreclosure sale in 2014, Sue will have to figure her gain or deductible loss for tax year 2014 as discussed earlier in chapter 2. File amended tax return Abandonment of property securing nonrecourse debt. File amended tax return    If you abandon property that secures debt for which you are not personally liable (nonrecourse debt), the abandonment is treated as a sale or exchange. File amended tax return   The amount you realize on the abandonment of property that secured nonrecourse debt is the amount of the nonrecourse debt. File amended tax return If the amount you realize is more than your adjusted basis, then you have a gain. File amended tax return If your adjusted basis is more than the amount you realize, then you have a loss. File amended tax return For more information on how to figure gain and loss, see Gain or Loss from Sales or Exchanges in Publication 544. File amended tax return   Loss from abandonment of business or investment property is deductible as a loss. File amended tax return The character of the loss depends on the character of the property. File amended tax return The amount of deductible capital loss may be limited. File amended tax return For more information, see Treatment of Capital Losses in Publication 544. File amended tax return You cannot deduct any loss from abandonment of your home or other property held for personal use. File amended tax return Example 1—abandonment of personal-use property securing nonrecourse debt. File amended tax return In 2009, Timothy purchased a home for $200,000. File amended tax return He borrowed the entire purchase price, for which he was not personally liable, and gave the bank a mortgage on the home. File amended tax return In 2013, Timothy lost his job and was unable to continue making his mortgage loan payments. File amended tax return Because his mortgage loan balance was $185,000 and the FMV of his home was only $150,000, Timothy decided to abandon his home by permanently moving out on August 1, 2013. File amended tax return Because Timothy was not personally liable for the debt, the abandonment is treated as a sale or exchange of the home in tax year 2013. File amended tax return Timothy's amount realized is $185,000 and his adjusted basis in the home is $200,000. File amended tax return Timothy has a $15,000 nondeductible loss in tax year 2013. File amended tax return (Had Timothy’s adjusted basis been less than the amount realized, Timothy would have had a gain that he would have to include in gross income. File amended tax return ) The bank sells the house at a foreclosure sale in 2014. File amended tax return Timothy has neither gain nor loss from the foreclosure sale. File amended tax return Because he was not personally liable for the debt, he also has no cancellation of debt income. File amended tax return Example 2—abandonment of business or investment property securing nonrecourse debt. File amended tax return In 2009, Robert purchased business property for $200,000. File amended tax return He borrowed the entire purchase price, for which he was not personally liable, and gave the lender a security interest in the property. File amended tax return In 2013, Robert was unable to continue making his loan payments. File amended tax return Because his loan balance was $185,000 and the FMV of the property was only $150,000, Robert decided to abandon the property on August 1, 2013. File amended tax return Because Robert was not personally liable for the debt, the abandonment is treated as a sale or exchange of the property in tax year 2013. File amended tax return Robert's amount realized is $185,000 and his adjusted basis in the property is $180,000 (as a result of $20,000 of depreciation deductions on the property). File amended tax return Robert has a $5,000 gain in tax year 2013. File amended tax return (Had Robert’s adjusted basis been greater than the amount realized, he would have had a deductible loss. File amended tax return ) The lender sells the property at a foreclosure sale in 2014. File amended tax return Robert has neither gain nor loss from the foreclosure sale. File amended tax return Because he was not personally liable for the debt, he also has no cancellation of debt income. File amended tax return Canceled debt. File amended tax return    If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. File amended tax return This income is separate from any amount realized from abandonment of the property. File amended tax return You must report this income on your return unless one of the exceptions or exclusions described in chapter 1 applies. File amended tax return See chapter 1 for more details. File amended tax return Forms 1099-A and 1099-C. File amended tax return    In most cases, if you abandon real property (such as a home), intangible property, or tangible personal property held (wholly or partly) for use in a trade or business or for investment, that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your gain or loss from the abandonment. File amended tax return Also, if your debt is canceled and the lender must file Form 1099-C, the lender can include the information about the abandonment on that form instead of on Form 1099-A. File amended tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. File amended tax return For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. File amended tax return Prev  Up  Next   Home   More Online Publications