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Filing 2011 Tax Return

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Filing 2011 Tax Return

Filing 2011 tax return 4. Filing 2011 tax return   Sales and Trades of Investment Property Table of Contents IntroductionNominees. Filing 2011 tax return Topics - This chapter discusses: Useful Items - You may want to see: What Is a Sale or Trade?Dividend versus sale or trade. Filing 2011 tax return Worthless Securities Constructive Sales of Appreciated Financial Positions Section 1256 Contracts Marked to Market Basis of Investment PropertyCost Basis Basis Other Than Cost Adjusted Basis Stocks and Bonds How To Figure Gain or LossFair market value. Filing 2011 tax return Debt paid off. Filing 2011 tax return Payment of cash. Filing 2011 tax return Special Rules for Mutual Funds Nontaxable TradesLike-Kind Exchanges Corporate Stocks Exchange of Shares In One Mutual Fund For Shares In Another Mutual Fund Insurance Policies and Annuities U. Filing 2011 tax return S. Filing 2011 tax return Treasury Notes or Bonds Transfers Between Spouses Related Party TransactionsGain on Sale or Trade of Depreciable Property Capital Gains and LossesCapital or Ordinary Gain or Loss Holding Period Nonbusiness Bad Debts Short Sales Wash Sales Options Straddles Sales of Stock to ESOPs or Certain Cooperatives Rollover of Gain From Publicly Traded Securities Gains on Qualified Small Business Stock Exclusion of Gain From DC Zone Assets Reporting Capital Gains and LossesException 1. Filing 2011 tax return Exception 2. Filing 2011 tax return Section 1256 contracts and straddles. Filing 2011 tax return Market discount bonds. Filing 2011 tax return File Form 1099-B or Form 1099-S with the IRS. Filing 2011 tax return Capital Losses Capital Gain Tax Rates Special Rules for Traders in SecuritiesHow To Report Introduction This chapter explains the tax treatment of sales and trades of investment property. Filing 2011 tax return Investment property. Filing 2011 tax return   This is property that produces investment income. Filing 2011 tax return Examples include stocks, bonds, and Treasury bills and notes. Filing 2011 tax return Property used in a trade or business is not investment property. Filing 2011 tax return Form 1099-B. Filing 2011 tax return   If you sold property such as stocks, bonds, mutual funds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Filing 2011 tax return You should receive the statement by February 15 of the next year. Filing 2011 tax return It will show the gross proceeds from the sale. Filing 2011 tax return The IRS will also get a copy of Form 1099-B from the broker. Filing 2011 tax return   Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Filing 2011 tax return If you sold a covered security in 2013, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. Filing 2011 tax return This will help you complete Form 8949. Filing 2011 tax return Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the Instructions for Form 8949. Filing 2011 tax return    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter. Filing 2011 tax return Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Filing 2011 tax return Nominees. Filing 2011 tax return   If someone receives gross proceeds as a nominee for you, that person will give you a Form 1099-B, which will show gross proceeds received on your behalf. Filing 2011 tax return   If you receive a Form 1099-B that includes gross proceeds belonging to another person, see Nominees , later under Reporting Capital Gains and Losses for more information. Filing 2011 tax return Other property transactions. Filing 2011 tax return   Certain transfers of property are discussed in other IRS publications. Filing 2011 tax return These include: Sale of your main home, discussed in Publication 523, Selling Your Home; Installment sales, covered in Publication 537; Various types of transactions involving business property, discussed in Publication 544, Sales and Other Dispositions of Assets; Transfers of property at death, covered in Publication 559; and Disposition of an interest in a passive activity, discussed in Publication 925. Filing 2011 tax return Topics - This chapter discusses: What Is a Sale or Trade? , Basis of Investment Property , Adjusted Basis , How To Figure Gain or Loss , Nontaxable trades , Transfers Between Spouses , Related Party Transactions , Capital Gains and Losses , Reporting Capital Gains and Losses , and Special Rules for Traders in Securities . Filing 2011 tax return Useful Items - You may want to see: Publication 551 Basis of Assets Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 6781 Gains and Losses From Section 1256 Contracts and Straddles 8582 Passive Activity Loss Limitations 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Filing 2011 tax return What Is a Sale or Trade? This section explains what is a sale or trade. Filing 2011 tax return It also explains certain transactions and events that are treated as sales or trades. Filing 2011 tax return A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Filing 2011 tax return A trade is a transfer of property for other property or services, and may be taxed in the same way as a sale. Filing 2011 tax return Sale and purchase. Filing 2011 tax return   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Filing 2011 tax return The sale and purchase are two separate transactions. Filing 2011 tax return But see Like-Kind Exchanges under Nontaxable Trades, later. Filing 2011 tax return Redemption of stock. Filing 2011 tax return   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Filing 2011 tax return Dividend versus sale or trade. Filing 2011 tax return   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Filing 2011 tax return Both direct and indirect ownership of stock will be considered. Filing 2011 tax return The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend — see Dividends and Other Distributions in chapter 1, There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Filing 2011 tax return Redemption or retirement of bonds. Filing 2011 tax return   A redemption or retirement of bonds or notes at their maturity generally is treated as a sale or trade. Filing 2011 tax return See Stocks, stock rights, and bonds and Discounted Debt Instruments under Capital or Ordinary Gain or Loss, later. Filing 2011 tax return   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Filing 2011 tax return For details, see Regulations section 1. Filing 2011 tax return 1001-3. Filing 2011 tax return Surrender of stock. Filing 2011 tax return   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Filing 2011 tax return The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Filing 2011 tax return Trade of investment property for an annuity. Filing 2011 tax return   The transfer of investment property to a corporation, trust, fund, foundation, or other organization, in exchange for a fixed annuity contract that will make guaranteed annual payments to you for life, is a taxable trade. Filing 2011 tax return If the present value of the annuity is more than your basis in the property traded, you have a taxable gain in the year of the trade. Filing 2011 tax return Figure the present value of the annuity according to factors used by commercial insurance companies issuing annuities. Filing 2011 tax return Transfer by inheritance. Filing 2011 tax return   The transfer of property of a decedent to the executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or other disposition. Filing 2011 tax return No taxable gain or deductible loss results from the transfer. Filing 2011 tax return Termination of certain rights and obligations. Filing 2011 tax return   The cancellation, lapse, expiration, or other termination of a right or obligation (other than a securities futures contract) with respect to property that is a capital asset (or that would be a capital asset if you acquired it) is treated as a sale. Filing 2011 tax return Any gain or loss is treated as a capital gain or loss. Filing 2011 tax return   This rule does not apply to the retirement of a debt instrument. Filing 2011 tax return See Redemption or retirement of bonds , earlier. Filing 2011 tax return Worthless Securities Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Filing 2011 tax return This affects whether your capital loss is long term or short term. Filing 2011 tax return See Holding Period , later. Filing 2011 tax return Worthless securities also include securities that you abandon after March 12, 2008. Filing 2011 tax return To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Filing 2011 tax return All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Filing 2011 tax return If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Filing 2011 tax return Do not deduct them in the year the stock became worthless. Filing 2011 tax return How to report loss. Filing 2011 tax return   Report worthless securities in Form 8949, Part I or Part II, whichever applies. Filing 2011 tax return    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Filing 2011 tax return See Form 8949 and the Instructions for Form 8949. Filing 2011 tax return Filing a claim for refund. Filing 2011 tax return   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Filing 2011 tax return You must use Form 1040X, Amended U. Filing 2011 tax return S. Filing 2011 tax return Individual Income Tax Return, to amend your return for the year the security became worthless. Filing 2011 tax return You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Filing 2011 tax return (Claims not due to worthless securities or bad debts generally must be filed within 3 years from the date a return is filed, or 2 years from the date the tax is paid, whichever is later. Filing 2011 tax return ) For more information about filing a claim, see Publication 556. Filing 2011 tax return Constructive Sales of Appreciated Financial Positions You are treated as having made a constructive sale when you enter into certain transactions involving an appreciated financial position (defined later) in stock, a partnership interest, or certain debt instruments. Filing 2011 tax return You must recognize gain as if the position were disposed of at its fair market value on the date of the constructive sale. Filing 2011 tax return This gives you a new holding period for the position that begins on the date of the constructive sale. Filing 2011 tax return Then, when you close the transaction, you reduce your gain (or increase your loss) by the gain recognized on the constructive sale. Filing 2011 tax return Constructive sale. Filing 2011 tax return   You are treated as having made a constructive sale of an appreciated financial position if you: Enter into a short sale of the same or substantially identical property, Enter into an offsetting notional principal contract relating to the same or substantially identical property, Enter into a futures or forward contract to deliver the same or substantially identical property (including a forward contract that provides for cash settlement), or Acquire the same or substantially identical property (if the appreciated financial position is a short sale, an offsetting notional principal contract, or a futures or forward contract). Filing 2011 tax return   You are also treated as having made a constructive sale of an appreciated financial position if a person related to you enters into a transaction described above with a view toward avoiding the constructive sale treatment. Filing 2011 tax return For this purpose, a related person is any related party described under Related Party Transactions , later in this chapter. Filing 2011 tax return Exception for nonmarketable securities. Filing 2011 tax return   You are not treated as having made a constructive sale solely because you entered into a contract for sale of any stock, debt instrument, or partnership interest that is not a marketable security if it settles within 1 year of the date you enter into it. Filing 2011 tax return Exception for certain closed transactions. Filing 2011 tax return   Do not treat a transaction as a constructive sale if all of the following are true. Filing 2011 tax return You closed the transaction on or before the 30th day after the end of your tax year. Filing 2011 tax return You held the appreciated financial position throughout the 60-day period beginning on the date you closed the transaction. Filing 2011 tax return Your risk of loss was not reduced at any time during that 60-day period by holding certain other positions. Filing 2011 tax return   If a closed transaction is reestablished in a substantially similar position during the 60-day period beginning on the date the first transaction was closed, this exception still applies if the reestablished position is closed before the 30th day after the end of your tax year in which the first transaction was closed and, after that closing, (2) and (3) above are true. Filing 2011 tax return   This exception also applies to successive short sales of an entire appreciated financial position. Filing 2011 tax return For more information, see Revenue Ruling 2003-1 in Internal Revenue Bulletin 2003-3. Filing 2011 tax return This bulletin is available at www. Filing 2011 tax return irs. Filing 2011 tax return gov/pub/irs-irbs/irb03-03. Filing 2011 tax return pdf. Filing 2011 tax return Appreciated financial position. Filing 2011 tax return   This is any interest in stock, a partnership interest, or a debt instrument (including a futures or forward contract, a short sale, or an option) if disposing of the interest would result in a gain. Filing 2011 tax return Exceptions. Filing 2011 tax return   An appreciated financial position does not include the following. Filing 2011 tax return Any position from which all of the appreciation is accounted for under marked-to-market rules, including section 1256 contracts (described later under Section 1256 Contracts Marked to Market ). Filing 2011 tax return Any position in a debt instrument if: The position unconditionally entitles the holder to receive a specified principal amount, The interest payments (or other similar amounts) with respect to the position are payable at a fixed rate or a variable rate described in Regulations section 1. Filing 2011 tax return 860G-1(a)(3), and The position is not convertible, either directly or indirectly, into stock of the issuer (or any related person). Filing 2011 tax return Any hedge with respect to a position described in (2). Filing 2011 tax return Certain trust instruments treated as stock. Filing 2011 tax return   For the constructive sale rules, an interest in an actively traded trust is treated as stock unless substantially all of the value of the property held by the trust is debt that qualifies for the exception to the definition of an appreciated financial position (explained in (2) above). Filing 2011 tax return Sale of appreciated financial position. Filing 2011 tax return   A transaction treated as a constructive sale of an appreciated financial position is not treated as a constructive sale of any other appreciated financial position, as long as you continue to hold the original position. Filing 2011 tax return However, if you hold another appreciated financial position and dispose of the original position before closing the transaction that resulted in the constructive sale, you are treated as if, at the same time, you constructively sold the other appreciated financial position. Filing 2011 tax return Section 1256 Contracts Marked to Market If you hold a section 1256 contract at the end of the tax year, you generally must treat it as sold at its fair market value on the last business day of the tax year. Filing 2011 tax return Section 1256 Contract A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract. Filing 2011 tax return Exceptions. Filing 2011 tax return   A section 1256 contract does not include: Interest rate swaps, Currency swaps, Basis swaps, Interest rate caps, Interest rate floors, Commodity swaps, Equity swaps, Equity index swaps, Credit default swaps, or Similar agreements. Filing 2011 tax return For more details, including definitions of these terms, see section 1256. Filing 2011 tax return Regulated futures contract. Filing 2011 tax return   This is a contract that: Provides that amounts which must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange. Filing 2011 tax return A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission. Filing 2011 tax return Foreign currency contract. Filing 2011 tax return   This is a contract that: Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency), Is traded in the interbank market, and Is entered into at arm's length at a price determined by reference to the price in the interbank market. Filing 2011 tax return   Bank forward contracts with maturity dates longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied. Filing 2011 tax return   Special rules apply to certain foreign currency transactions. Filing 2011 tax return These transactions may result in ordinary gain or loss treatment. Filing 2011 tax return For details, see Internal Revenue Code section 988 and Regulations sections 1. Filing 2011 tax return 988-1(a)(7) and 1. Filing 2011 tax return 988-3. Filing 2011 tax return Nonequity option. Filing 2011 tax return   This is any listed option (defined later) that is not an equity option. Filing 2011 tax return Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. Filing 2011 tax return A broad-based stock index is based on the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). Filing 2011 tax return Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index. Filing 2011 tax return Cash-settled options. Filing 2011 tax return   Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based. Filing 2011 tax return   This rule does not apply to options established before the SEC determines that the stock index is broad based. Filing 2011 tax return Listed option. Filing 2011 tax return   This is any option traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). Filing 2011 tax return A listed option, however, does not include an option that is a right to acquire stock from the issuer. Filing 2011 tax return Dealer equity option. Filing 2011 tax return   This is any listed option that, for an options dealer: Is an equity option, Is bought or granted by that dealer in the normal course of the dealer's business activity of dealing in options, and Is listed on the qualified board of exchange where that dealer is registered. Filing 2011 tax return   An “options dealer” is any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. Filing 2011 tax return Equity option. Filing 2011 tax return   This is any option: To buy or sell stock, or That is valued directly or indirectly by reference to any stock or narrow-based security index. Filing 2011 tax return  Equity options include options on a group of stocks only if the group is a narrow-based stock index. Filing 2011 tax return Dealer securities futures contract. Filing 2011 tax return   For any dealer in securities futures contracts or options on those contracts, this is a securities futures contract (or option on such a contract) that: Is entered into by the dealer (or, in the case of an option, is purchased or granted by the dealer) in the normal course of the dealer's activity of dealing in this type of contract (or option), and Is traded on a qualified board or exchange (as defined under Regulated futures contract , earlier). Filing 2011 tax return A securities futures contract that is not a dealer securities futures contract is treated as described later under Securities Futures Contracts . Filing 2011 tax return Marked-to-Market Rules A section 1256 contract that you hold at the end of the tax year will generally be treated as sold at its fair market value on the last business day of the tax year, and you must recognize any gain or loss that results. Filing 2011 tax return That gain or loss is taken into account in figuring your gain or loss when you later dispose of the contract, as shown in the example under 60/40 rule, below. Filing 2011 tax return Hedging exception. Filing 2011 tax return   The marked-to-market rules do not apply to hedging transactions. Filing 2011 tax return See Hedging Transactions , later. Filing 2011 tax return 60/40 rule. Filing 2011 tax return   Under the marked-to-market system, 60% of your capital gain or loss will be treated as a long-term capital gain or loss, and 40% will be treated as a short-term capital gain or loss. Filing 2011 tax return This is true regardless of how long you actually held the property. Filing 2011 tax return Example. Filing 2011 tax return On June 22, 2012, you bought a regulated futures contract for $50,000. Filing 2011 tax return On December 31, 2012 (the last business day of your tax year), the fair market value of the contract was $57,000. Filing 2011 tax return You recognized a $7,000 gain on your 2012 tax return, treated as 60% long-term and 40% short-term capital gain. Filing 2011 tax return On February 1, 2013, you sold the contract for $56,000. Filing 2011 tax return Because you recognized a $7,000 gain on your 2012 return, you recognize a $1,000 loss ($57,000 − $56,000) on your 2013 tax return, treated as 60% long-term and 40% short-term capital loss. Filing 2011 tax return Limited partners or entrepreneurs. Filing 2011 tax return   The 60/40 rule does not apply to dealer equity options or dealer securities futures contracts that result in capital gain or loss allocable to limited partners or limited entrepreneurs (defined later under Hedging Transactions ). Filing 2011 tax return Instead, these gains or losses are treated as short term. Filing 2011 tax return Terminations and transfers. Filing 2011 tax return   The marked-to-market rules also apply if your obligation or rights under section 1256 contracts are terminated or transferred during the tax year. Filing 2011 tax return In this case, use the fair market value of each section 1256 contract at the time of termination or transfer to determine the gain or loss. Filing 2011 tax return Terminations or transfers may result from any offsetting, delivery, exercise, assignment, or lapse of your obligation or rights under section 1256 contracts. Filing 2011 tax return Loss carryback election. Filing 2011 tax return   An individual having a net section 1256 contracts loss (defined later), generally can elect to carry this loss back 3 years instead of carrying it over to the next year. Filing 2011 tax return See How To Report , later, for information about reporting this election on your return. Filing 2011 tax return   The loss carried back to any year under this election cannot be more than the net section 1256 contracts gain in that year. Filing 2011 tax return In addition, the amount of loss carried back to an earlier tax year cannot increase or produce a net operating loss for that year. Filing 2011 tax return   The loss is carried to the earliest carryback year first, and any unabsorbed loss amount can then be carried to each of the next 2 tax years. Filing 2011 tax return In each carryback year, treat 60% of the carryback amount as a long-term capital loss and 40% as a short-term capital loss from section 1256 contracts. Filing 2011 tax return   If only a portion of the net section 1256 contracts loss is absorbed by carrying the loss back, the unabsorbed portion can be carried forward, under the capital loss carryover rules, to the year following the loss. Filing 2011 tax return (See Capital Losses under Reporting Capital Gains and Losses, later. Filing 2011 tax return ) Figure your capital loss carryover as if, for the loss year, you had an additional short-term capital gain of 40% of the amount of net section 1256 contracts loss absorbed in the carryback years and an additional long-term capital gain of 60% of the absorbed loss. Filing 2011 tax return In the carryover year, treat any capital loss carryover from losses on section 1256 contracts as if it were a loss from section 1256 contracts for that year. Filing 2011 tax return Net section 1256 contracts loss. Filing 2011 tax return   This loss is the lesser of: The net capital loss for your tax year determined by taking into account only the gains and losses from section 1256 contracts, or The capital loss carryover to the next tax year determined without this election. Filing 2011 tax return Net section 1256 contracts gain. Filing 2011 tax return   This gain is the lesser of: The capital gain net income for the carryback year determined by taking into account only gains and losses from section 1256 contracts, or The capital gain net income for that year. Filing 2011 tax return  Figure your net section 1256 contracts gain for any carryback year without regard to the net section 1256 contracts loss for the loss year or any later tax year. Filing 2011 tax return Traders in section 1256 contracts. Filing 2011 tax return   Gain or loss from the trading of section 1256 contracts is capital gain or loss subject to the marked-to-market rules. Filing 2011 tax return However, this does not apply to contracts held for purposes of hedging property if any loss from the property would be an ordinary loss. Filing 2011 tax return Treatment of underlying property. Filing 2011 tax return   The determination of whether an individual's gain or loss from any property is ordinary or capital gain or loss is made without regard to the fact that the individual is actively engaged in dealing in or trading section 1256 contracts related to that property. Filing 2011 tax return How To Report If you disposed of regulated futures or foreign currency contracts in 2013 (or had unrealized profit or loss on these contracts that were open at the end of 2012 or 2013), you should receive Form 1099-B, or substitute statement, from your broker. Filing 2011 tax return Form 6781. Filing 2011 tax return   Use Part I of Form 6781 to report your gains and losses from all section 1256 contracts that are open at the end of the year or that were closed out during the year. Filing 2011 tax return This includes the amount shown in box 10 of Form 1099-B. Filing 2011 tax return Then enter the net amount of these gains and losses on Schedule D (Form 1040), line 4 or line 11, as appropriate. Filing 2011 tax return Include a copy of Form 6781 with your income tax return. Filing 2011 tax return   If the Form 1099-B you receive includes a straddle or hedging transaction, defined later, it may be necessary to show certain adjustments on Form 6781. Filing 2011 tax return Follow the Form 6781 instructions for completing Part I. Filing 2011 tax return Loss carryback election. Filing 2011 tax return   To carry back your loss under the election procedures described earlier, file Form 1040X or Form 1045, Application for Tentative Refund, for the year to which you are carrying the loss with an amended Form 6781 and an amended Schedule D (Form 1040) attached. Filing 2011 tax return Follow the instructions for completing Form 6781 for the loss year to make this election. Filing 2011 tax return Hedging Transactions The marked-to-market rules, described earlier, do not apply to hedging transactions. Filing 2011 tax return A transaction is a hedging transaction if both of the following conditions are met. Filing 2011 tax return You entered into the transaction in the normal course of your trade or business primarily to manage the risk of: Price changes or currency fluctuations on ordinary property you hold (or will hold), or Interest rate or price changes, or currency fluctuations, on your current or future borrowings or ordinary obligations. Filing 2011 tax return You clearly identified the transaction as being a hedging transaction before the close of the day on which you entered into it. Filing 2011 tax return This hedging transaction exception does not apply to transactions entered into by or for any syndicate. Filing 2011 tax return A syndicate is a partnership, S corporation, or other entity (other than a regular corporation) that allocates more than 35% of its losses to limited partners or limited entrepreneurs. Filing 2011 tax return A limited entrepreneur is a person who has an interest in an enterprise (but not as a limited partner) and who does not actively participate in its management. Filing 2011 tax return However, an interest is not considered held by a limited partner or entrepreneur if the interest holder actively participates (or did so for at least 5 full years) in the management of the entity, or is the spouse, child (including a legally adopted child), grandchild, or parent of an individual who actively participates in the management of the entity. Filing 2011 tax return Hedging loss limit. Filing 2011 tax return   If you are a limited partner or entrepreneur in a syndicate, the amount of a hedging loss you can claim is limited. Filing 2011 tax return A “hedging loss” is the amount by which the allowable deductions in a tax year that resulted from a hedging transaction (determined without regard to the limit) are more than the income received or accrued during the tax year from this transaction. Filing 2011 tax return   Any hedging loss allocated to you for the tax year is limited to your taxable income for that year from the trade or business in which the hedging transaction occurred. Filing 2011 tax return Ignore any hedging transaction items in determining this taxable income. Filing 2011 tax return If you have a hedging loss that is disallowed because of this limit, you can carry it over to the next tax year as a deduction resulting from a hedging transaction. Filing 2011 tax return   If the hedging transaction relates to property other than stock or securities, the limit on hedging losses applies if the limited partner or entrepreneur is an individual. Filing 2011 tax return   The limit on hedging losses does not apply to any hedging loss to the extent that it is more than all your unrecognized gains from hedging transactions at the end of the tax year that are from the trade or business in which the hedging transaction occurred. Filing 2011 tax return The term “unrecognized gain” has the same meaning as defined under Loss Deferral Rules in Straddles, later. Filing 2011 tax return Sale of property used in a hedge. Filing 2011 tax return   Once you identify personal property as being part of a hedging transaction, you must treat gain from its sale or exchange as ordinary income, not capital gain. Filing 2011 tax return Self-Employment Income Gains and losses derived in the ordinary course of a commodity or option dealer's trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. Filing 2011 tax return See the Instructions for Schedule SE (Form 1040). Filing 2011 tax return In addition, the rules relating to contributions to self-employment retirement plans apply. Filing 2011 tax return For information on retirement plan contributions, see Publication 560 and Publication 590. Filing 2011 tax return Basis of Investment Property Basis is a way of measuring your investment in property for tax purposes. Filing 2011 tax return You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. Filing 2011 tax return Investment property you buy normally has an original basis equal to its cost. Filing 2011 tax return If you get property in some way other than buying it, such as by gift or inheritance, its fair market value may be important in figuring the basis. Filing 2011 tax return Cost Basis The basis of property you buy is usually its cost. Filing 2011 tax return The cost is the amount you pay in cash, debt obligations, or other property or services. Filing 2011 tax return Unstated interest. Filing 2011 tax return   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. Filing 2011 tax return You generally have unstated interest if your interest rate is less than the applicable federal rate. Filing 2011 tax return For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Filing 2011 tax return Basis Other Than Cost There are times when you must use a basis other than cost. Filing 2011 tax return In these cases, you may need to know the property's fair market value or the adjusted basis of the previous owner. Filing 2011 tax return Fair market value. Filing 2011 tax return   This is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Filing 2011 tax return Sales of similar property, around the same date, may be helpful in figuring fair market value. Filing 2011 tax return Property Received for Services If you receive investment property for services, you must include the property's fair market value in income. Filing 2011 tax return The amount you include in income then becomes your basis in the property. Filing 2011 tax return If the services were performed for a price that was agreed to beforehand, this price will be accepted as the fair market value of the property if there is no evidence to the contrary. Filing 2011 tax return Restricted property. Filing 2011 tax return   If you receive, as payment for services, property that is subject to certain restrictions, your basis in the property generally is its fair market value when it becomes substantially vested. Filing 2011 tax return Property becomes substantially vested when it is transferable or is no longer subject to substantial risk of forfeiture, whichever happens first. Filing 2011 tax return See Restricted Property in Publication 525 for more information. Filing 2011 tax return Bargain purchases. Filing 2011 tax return   If you buy investment property at less than fair market value, as payment for services, you must include the difference in income. Filing 2011 tax return Your basis in the property is the price you pay plus the amount you include in income. Filing 2011 tax return Property Received in Taxable Trades If you received investment property in trade for other property, the basis of the new property is its fair market value at the time of the trade unless you received the property in a nontaxable trade. Filing 2011 tax return Example. Filing 2011 tax return You trade A Company stock for B Company stock having a fair market value of $1,200. Filing 2011 tax return If the adjusted basis of the A Company stock is less than $1,200, you have a taxable gain on the trade. Filing 2011 tax return If the adjusted basis of the A Company stock is more than $1,200, you have a deductible loss on the trade. Filing 2011 tax return The basis of your B Company stock is $1,200. Filing 2011 tax return If you later sell the B Company stock for $1,300, you will have a gain of $100. Filing 2011 tax return Property Received in Nontaxable Trades If you have a nontaxable trade, you do not recognize gain or loss until you dispose of the property you received in the trade. Filing 2011 tax return See Nontaxable Trades , later. Filing 2011 tax return The basis of property you received in a nontaxable or partly nontaxable trade is generally the same as the adjusted basis of the property you gave up. Filing 2011 tax return Increase this amount by any cash you paid, additional costs you had, and any gain recognized. Filing 2011 tax return Reduce this amount by any cash or unlike property you received, any loss recognized, and any liability of yours that was assumed or treated as assumed. Filing 2011 tax return Property Received From Your Spouse If property is transferred to you from your spouse (or former spouse, if the transfer is incident to your divorce), your basis is the same as your spouse's or former spouse's adjusted basis just before the transfer. Filing 2011 tax return See Transfers Between Spouses , later. Filing 2011 tax return Recordkeeping. Filing 2011 tax return The transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of the transfer. Filing 2011 tax return Property Received as a Gift To figure your basis in property that you received as a gift, you must know its adjusted basis to the donor just before it was given to you, its fair market value at the time it was given to you, the amount of any gift tax paid on it, and the date it was given to you. Filing 2011 tax return Fair market value less than donor's adjusted basis. Filing 2011 tax return   If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Filing 2011 tax return Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. Filing 2011 tax return No gain or loss. Filing 2011 tax return   If you use the basis for figuring a gain and the result is a loss, and then use the basis for figuring a loss and the result is a gain, you will have neither a gain nor a loss. Filing 2011 tax return Example. Filing 2011 tax return You receive a gift of investment property having an adjusted basis of $10,000 at the time of the gift. Filing 2011 tax return The fair market value at the time of the gift is $9,000. Filing 2011 tax return You later sell the property for $9,500. Filing 2011 tax return You have neither gain nor loss. Filing 2011 tax return Your basis for figuring gain is $10,000, and $9,500 minus $10,000 results in a $500 loss. Filing 2011 tax return Your basis for figuring loss is $9,000, and $9,500 minus $9,000 results in a $500 gain. Filing 2011 tax return Fair market value equal to or more than donor's adjusted basis. Filing 2011 tax return   If the fair market value of the property at the time of the gift was equal to or more than the donor's adjusted basis just before the gift, your basis for gain or loss on its sale or other disposition is the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Filing 2011 tax return Also, you may be allowed to add to the donor's adjusted basis all or part of any gift tax paid, depending on the date of the gift. Filing 2011 tax return Gift received before 1977. Filing 2011 tax return   If you received property as a gift before 1977, your basis in the property is the donor's adjusted basis increased by the total gift tax paid on the gift. Filing 2011 tax return However, your basis cannot be more than the fair market value of the gift at the time it was given to you. Filing 2011 tax return Example 1. Filing 2011 tax return You were given XYZ Company stock in 1976. Filing 2011 tax return At the time of the gift, the stock had a fair market value of $21,000. Filing 2011 tax return The donor's adjusted basis was $20,000. Filing 2011 tax return The donor paid a gift tax of $500 on the gift. Filing 2011 tax return Your basis for gain or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid. Filing 2011 tax return Example 2. Filing 2011 tax return The facts are the same as in Example 1 except that the gift tax paid was $1,500. Filing 2011 tax return Your basis is $21,000, the donor's adjusted basis plus the gift tax paid, but limited to the fair market value of the stock at the time of the gift. Filing 2011 tax return Gift received after 1976. Filing 2011 tax return   If you received property as a gift after 1976, your basis is the donor's adjusted basis increased by the part of the gift tax paid that was for the net increase in value of the gift. Filing 2011 tax return You figure this part by multiplying the gift tax paid on the gift by a fraction. Filing 2011 tax return The numerator (top part) is the net increase in value of the gift and the denominator (bottom part) is the amount of the gift. Filing 2011 tax return   The net increase in value of the gift is the fair market value of the gift minus the donor's adjusted basis. Filing 2011 tax return 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. Filing 2011 tax return Example. Filing 2011 tax return In 2013, you received a gift of property from your mother. Filing 2011 tax return At the time of the gift, the property had a fair market value of $101,000 and an adjusted basis to her of $40,000. Filing 2011 tax return The amount of the gift for gift tax purposes was $87,000 ($101,000 minus the $14,000 annual exclusion), and your mother paid a gift tax of $21,000. Filing 2011 tax return You figure your basis in the following way: Fair market value $101,000 Minus: Adjusted basis 40,000 Net increase in value of gift $61,000 Gift tax paid $21,000 Multiplied by . Filing 2011 tax return 701 ($61,000 ÷ $87,000) . Filing 2011 tax return 701 Gift tax due to net increase in value $14,721 Plus: Adjusted basis of property to  your mother 40,000 Your basis in the property $54,721 Part sale, part gift. Filing 2011 tax return   If you get property in a transfer that is partly a sale and partly a gift, your basis is the larger of the amount you paid for the property or the transferor's adjusted basis in the property at the time of the transfer. Filing 2011 tax return Add to that amount the amount of any gift tax paid on the gift, as described in the preceding discussion. Filing 2011 tax return For figuring loss, your basis is limited to the property's fair market value at the time of the transfer. Filing 2011 tax return Gift tax information. Filing 2011 tax return   For information on gift tax, see Publication 950, Introduction to Estate and Gift Taxes. Filing 2011 tax return For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551. Filing 2011 tax return Property Received as Inheritance Before or after 2010. Filing 2011 tax return   If you inherited property from a decedent who died before or after 2010, or who died in 2010 and the executor of the decedent's estate elected not to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, your basis in that property generally is its fair market value (its appraised value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) on: The date of the decedent's death, or The later alternate valuation date if the estate qualifies for, and elects to use, alternate valuation. Filing 2011 tax return If no Form 706 was filed, use the appraised value on the date of death for state inheritance or transmission taxes. Filing 2011 tax return For stocks and bonds, if no Form 706 was filed and there are no state inheritance or transmission taxes, see the Form 706 instructions for figuring the fair market value of the stocks and bonds on the date of the decedent's death. Filing 2011 tax return Appreciated property you gave the decedent. Filing 2011 tax return   Your basis in certain appreciated property that you inherited is the decedent's adjusted basis in the property immediately before death rather than its fair market value. Filing 2011 tax return This applies to appreciated property that you or your spouse gave the decedent as a gift during the 1-year period ending on the date of death. Filing 2011 tax return Appreciated property is any property whose fair market value on the day you gave it to the decedent was more than its adjusted basis. Filing 2011 tax return More information. Filing 2011 tax return   See Publication 551 for more information on the basis of inherited property, including community property, property held by a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified joint interest, and a farm or closely held business. Filing 2011 tax return Inherited in 2010 and executor elected to file Form 8939. Filing 2011 tax return   If you inherited property from a decedent who died in 2010 and the executor made the election to file Form 8939, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to figure your basis. Filing 2011 tax return Adjusted Basis Before you can figure any gain or loss on a sale, exchange, or other disposition of property or figure allowable depreciation, depletion, or amortization, you usually must make certain adjustments (increases and decreases) to the basis of the property. Filing 2011 tax return The result of these adjustments to the basis is the adjusted basis. Filing 2011 tax return Adjustments to the basis of stocks and bonds are explained in the following discussion. Filing 2011 tax return For information about other adjustments to basis, see Publication 551. Filing 2011 tax return Stocks and Bonds The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. Filing 2011 tax return If you acquired stock or bonds other than by purchase, your basis is usually determined by fair market value or the previous owner's adjusted basis as discussed earlier under Basis Other Than Cost . Filing 2011 tax return The basis of stock must be adjusted for certain events that occur after purchase. Filing 2011 tax return For example, if you receive more stock from nontaxable stock dividends or stock splits, you must reduce the basis of your original stock. Filing 2011 tax return You must also reduce your basis when you receive nondividend distributions (discussed in chapter 1). Filing 2011 tax return These distributions, up to the amount of your basis, are a nontaxable return of capital. Filing 2011 tax return The IRS partners with companies that offer Form 8949 and Schedule D (Form 1040) software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. Filing 2011 tax return To find out more, go to www. Filing 2011 tax return irs. Filing 2011 tax return gov/Filing/Filing-Options. Filing 2011 tax return Identifying stock or bonds sold. Filing 2011 tax return   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. Filing 2011 tax return Adequate identification. Filing 2011 tax return   You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent. Filing 2011 tax return Broker holds stock. Filing 2011 tax return   If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Filing 2011 tax return  Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent. Filing 2011 tax return Single stock certificate. Filing 2011 tax return   If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you: Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and Receive a written confirmation of this from your broker or other agent within a reasonable time. Filing 2011 tax return   If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell. Filing 2011 tax return Bonds. Filing 2011 tax return   These methods of identification also apply to bonds sold or transferred. Filing 2011 tax return Identification not possible. Filing 2011 tax return   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. Filing 2011 tax return Except for certain mutual fund shares, discussed later, you cannot use the average price per share to figure gain or loss on the sale of the shares. Filing 2011 tax return Example. Filing 2011 tax return You bought 100 shares of stock of XYZ Corporation in 1998 for $10 a share. Filing 2011 tax return In January 1999 you bought another 200 shares for $11 a share. Filing 2011 tax return In July 1999 you gave your son 50 shares. Filing 2011 tax return In December 2001 you bought 100 shares for $9 a share. Filing 2011 tax return In April 2013 you sold 130 shares. Filing 2011 tax return You cannot identify the shares you disposed of, so you must use the stock you acquired first to figure the basis. Filing 2011 tax return The shares of stock you gave your son had a basis of $500 (50 × $10). Filing 2011 tax return You figure the basis of the 130 shares of stock you sold in 2013 as follows: 50 shares (50 × $10) balance of stock bought in 1998 $ 500 80 shares (80 × $11) stock bought in January 1999 880 Total basis of stock sold in 2013 $1,380 Shares in a mutual fund or REIT. Filing 2011 tax return    The basis of shares in a mutual fund (or other regulated investment company) or a real estate investment trust (REIT) is generally figured in the same way as the basis of other stock and usually includes any commissions or load charges paid for the purchase. Filing 2011 tax return Example. Filing 2011 tax return You bought 100 shares of Fund A for $10 a share. Filing 2011 tax return You paid a $50 commission to the broker for the purchase. Filing 2011 tax return Your cost basis for each share is $10. Filing 2011 tax return 50 ($1,050 ÷ 100). Filing 2011 tax return Commissions and load charges. Filing 2011 tax return   The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. Filing 2011 tax return You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. Filing 2011 tax return A fee paid to redeem the shares is usually a reduction in the redemption price (sales price). Filing 2011 tax return   You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply. Filing 2011 tax return You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge. Filing 2011 tax return You dispose of the shares within 90 days of the purchase date. Filing 2011 tax return You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares. Filing 2011 tax return   The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. Filing 2011 tax return The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares). Filing 2011 tax return Choosing average basis for mutual fund shares. Filing 2011 tax return   You can choose to use the average basis of mutual fund shares if you acquired the identical shares at various times and prices, or you acquired the shares after 2010 in connection with a dividend reinvestment plan, and left them on deposit in an account kept by a custodian or agent. Filing 2011 tax return The methods you can use to figure average basis are explained later. Filing 2011 tax return Undistributed capital gains. Filing 2011 tax return   If you had to include in your income any undistributed capital gains of the mutual fund or REIT, increase your basis in the stock by the difference between the amount you included and the amount of tax paid for you by the fund or REIT. Filing 2011 tax return See Undistributed capital gains of mutual funds and REITs under Capital Gain Distributions in chapter 1. Filing 2011 tax return Reinvestment right. Filing 2011 tax return   This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge. Filing 2011 tax return      The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. Filing 2011 tax return This rule applies even if the distribution is an exempt-interest dividend that you do not report as income. Filing 2011 tax return Table 4-1. Filing 2011 tax return This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Filing 2011 tax return Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. Filing 2011 tax return This worksheet will help you figure the adjusted basis when you sell or redeem shares. Filing 2011 tax return Table 4-1. Filing 2011 tax return Mutual Fund Record Mutual Fund Acquired1 Adjustment to Basis Per Share Adjusted2 Basis Per Share Sold or redeemed Date Number of Shares Cost Per Share Date Number of Shares                                                                                                                                                                                                                                                                         1 Include share received from reinvestment of distributions. Filing 2011 tax return 2 Cost plus or minus adjustments. Filing 2011 tax return Automatic investment service. Filing 2011 tax return   If you participate in an automatic investment service, your basis for each share of stock, including fractional shares, bought by the bank or other agent is the purchase price plus a share of the broker's commission. Filing 2011 tax return Dividend reinvestment plans. Filing 2011 tax return   If you participate in a dividend reinvestment plan and receive stock from the corporation at a discount, your basis is the full fair market value of the stock on the dividend payment date. Filing 2011 tax return You must include the amount of the discount in your income. Filing 2011 tax return Public utilities. Filing 2011 tax return   If, before 1986, you excluded from income the value of stock you had received under a qualified public utility reinvestment plan, your basis in that stock is zero. Filing 2011 tax return Stock dividends. Filing 2011 tax return   Stock dividends are distributions made by a corporation of its own stock. Filing 2011 tax return Generally, stock dividends are not taxable to you. Filing 2011 tax return However, see Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1 for some exceptions. Filing 2011 tax return If the stock dividends are not taxable, you must divide your basis for the old stock between the old and new stock. Filing 2011 tax return New and old stock identical. Filing 2011 tax return   If the new stock you received as a nontaxable dividend is identical to the old stock on which the dividend was declared, divide the adjusted basis of the old stock by the number of shares of old and new stock. Filing 2011 tax return The result is your basis for each share of stock. Filing 2011 tax return Example 1. Filing 2011 tax return You owned one share of common stock that you bought for $45. Filing 2011 tax return The corporation distributed two new shares of common stock for each share held. Filing 2011 tax return You then had three shares of common stock. Filing 2011 tax return Your basis in each share is $15 ($45 ÷ 3). Filing 2011 tax return Example 2. Filing 2011 tax return You owned two shares of common stock. Filing 2011 tax return You bought one for $30 and the other for $45. Filing 2011 tax return The corporation distributed two new shares of common stock for each share held. Filing 2011 tax return You had six shares after the distribution—three with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45 ÷ 3). Filing 2011 tax return New and old stock not identical. Filing 2011 tax return   If the new stock you received as a nontaxable dividend is not identical to the old stock on which it was declared, the basis of the new stock is calculated differently. Filing 2011 tax return Divide the adjusted basis of the old stock between the old and the new stock in the ratio of the fair market value of each lot of stock to the total fair market value of both lots on the date of distribution of the new stock. Filing 2011 tax return Example. Filing 2011 tax return You bought a share of common stock for $100. Filing 2011 tax return Later, the corporation distributed a share of preferred stock for each share of common stock held. Filing 2011 tax return At the date of distribution, your common stock had a fair market value of $150 and the preferred stock had a fair market value of $50. Filing 2011 tax return You figure the basis of the old and new stock by dividing your $100 basis between them. Filing 2011 tax return The basis of your common stock is $75 (($150 ÷ $200) × $100), and the basis of the new preferred stock is $25 (($50 ÷ $200) × $100). Filing 2011 tax return Stock bought at various times. Filing 2011 tax return   Figure the basis of stock dividends received on stock you bought at various times and at different prices by allocating to each lot of stock the share of the stock dividends due to it. Filing 2011 tax return Taxable stock dividends. Filing 2011 tax return   If your stock dividend is taxable when you receive it, the basis of your new stock is its fair market value on the date of distribution. Filing 2011 tax return The basis of your old stock does not change. Filing 2011 tax return Stock splits. Filing 2011 tax return   Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held. Filing 2011 tax return Stock rights. Filing 2011 tax return   A stock right is a right to acquire a corporation's stock. Filing 2011 tax return It may be exercised, it may be sold if it has a market value, or it may expire. Filing 2011 tax return Stock rights are rarely taxable when you receive them. Filing 2011 tax return See Distributions of Stock and Stock Rights under Dividends and Other Distributions in chapter 1. Filing 2011 tax return Taxable stock rights. Filing 2011 tax return   If you receive stock rights that are taxable, the basis of the rights is their fair market value at the time of distribution. Filing 2011 tax return The basis of the old stock does not change. Filing 2011 tax return Nontaxable stock rights. Filing 2011 tax return   If you receive nontaxable stock rights and allow them to expire, they have no basis. Filing 2011 tax return   If you exercise or sell the nontaxable stock rights and if, at the time of distribution, the stock rights had a fair market value of 15% or more of the fair market value of the old stock, you must divide the adjusted basis of the old stock between the old stock and the stock rights. Filing 2011 tax return Use a ratio of the fair market value of each to the total fair market value of both at the time of distribution. Filing 2011 tax return   If the fair market value of the stock rights was less than 15%, their basis is zero. Filing 2011 tax return However, you can choose to divide the basis of the old stock between the old stock and the stock rights. Filing 2011 tax return To make the choice, attach a statement to your return for the year in which you received the rights, stating that you choose to divide the basis of the stock. Filing 2011 tax return Basis of new stock. Filing 2011 tax return   If you exercise the stock rights, the basis of the new stock is its cost plus the basis of the stock rights exercised. Filing 2011 tax return Example. Filing 2011 tax return You own 100 shares of ABC Company stock, which cost you $22 per share. Filing 2011 tax return The ABC Company gave you 10 nontaxable stock rights that would allow you to buy 10 more shares at $26 per share. Filing 2011 tax return At the time the stock rights were distributed, the stock had a market value of $30, not including the stock rights. Filing 2011 tax return Each stock right had a market value of $3. Filing 2011 tax return The market value of the stock rights was less than 15% of the market value of the stock, but you chose to divide the basis of your stock between the stock and the rights. Filing 2011 tax return You figure the basis of the rights and the basis of the old stock as follows: 100 shares × $22 = $2,200, basis of old stock   100 shares × $30 = $3,000, market value of old stock   10 rights × $3 = $30, market value of rights   ($3,000 ÷ $3,030) × $2,200 = $2,178. Filing 2011 tax return 22, new basis of old stock   ($30 ÷ $3,030) × $2,200 = $21. Filing 2011 tax return 78, basis of rights   If you sell the rights, the basis for figuring gain or loss is $2. Filing 2011 tax return 18 ($21. Filing 2011 tax return 78 ÷ 10) per right. Filing 2011 tax return If you exercise the rights, the basis of the stock you acquire is the price you pay ($26) plus the basis of the right exercised ($2. Filing 2011 tax return 18), or $28. Filing 2011 tax return 18 per share. Filing 2011 tax return The remaining basis of the old stock is $21. Filing 2011 tax return 78 per share. Filing 2011 tax return Investment property received in liquidation. Filing 2011 tax return   In general, if you receive investment property as a distribution in partial or complete liquidation of a corporation and if you recognize gain or loss when you acquire the property, your basis in the property is its fair market value at the time of the distribution. Filing 2011 tax return S corporation stock. Filing 2011 tax return   You must increase your basis in stock of an S corporation by your pro rata share of the following items. Filing 2011 tax return All income items of the S corporation, including tax-exempt income, that are separately stated and passed through to you as a shareholder. Filing 2011 tax return The nonseparately stated income of the S corporation. Filing 2011 tax return The amount of the deduction for depletion (other than oil and gas depletion) that is more than the basis of the property being depleted. Filing 2011 tax return   You must decrease your basis in stock of an S corporation by your pro rata share of the following items. Filing 2011 tax return Distributions by the S corporation that were not included in your income. Filing 2011 tax return All loss and deduction items of the S corporation that are separately stated and passed through to you. Filing 2011 tax return Any nonseparately stated loss of the S corporation. Filing 2011 tax return Any expense of the S corporation that is not deductible in figuring its taxable income and not properly chargeable to a capital account. Filing 2011 tax return The amount of your deduction for depletion of oil and gas wells to the extent the deduction is not more than your share of the adjusted basis of the wells. Filing 2011 tax return However, your basis in the stock cannot be reduced below zero. Filing 2011 tax return Specialized small business investment company stock or partnership interest. Filing 2011 tax return   If you bought this stock or interest as replacement property for publicly traded securities you sold at a gain, you must reduce the basis of the stock or interest by the amount of any postponed gain on that sale. Filing 2011 tax return See Rollover of Gain From Publicly Traded Securities , later. Filing 2011 tax return Qualified small business stock. Filing 2011 tax return   If you bought this stock as replacement property for other qualified small business stock you sold at a gain, you must reduce the basis of this replacement stock by the amount of any postponed gain on the earlier sale. Filing 2011 tax return See Gains on Qualified Small Business Stock , later. Filing 2011 tax return Short sales. Filing 2011 tax return   If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale. Filing 2011 tax return   See Payments in lieu of dividends , later, for information about deducting payments in lieu of dividends. Filing 2011 tax return Premiums on bonds. Filing 2011 tax return   If you buy a bond at a premium, the premium is treated as part of your basis in the bond. Filing 2011 tax return If you choose to amortize the premium paid on a taxable bond, you must reduce the basis of the bond by the amortized part of the premium each year over the life of the bond. Filing 2011 tax return   Although you cannot deduct the premium on a tax-exempt bond, you must amortize it to determine your adjusted basis in the bond. Filing 2011 tax return You must reduce the basis of the bond by the premium you amortized for the period you held the bond. Filing 2011 tax return   See Bond Premium Amortization in chapter 3 for more information. Filing 2011 tax return Market discount on bonds. Filing 2011 tax return   If you include market discount on a bond in income currently, increase the basis of your bond by the amount of market discount you include in your income. Filing 2011 tax return See Market Discount Bonds in chapter 1 for more information. Filing 2011 tax return Bonds purchased at par value. Filing 2011 tax return   A bond purchased at par value (face amount) has no premium or discount. Filing 2011 tax return When you sell or otherwise dispose of the bond, you figure the gain or loss by comparing the bond proceeds to the purchase price of the bond. Filing 2011 tax return Example. Filing 2011 tax return You purchased a bond several years ago for its par value of $10,000. Filing 2011 tax return You sold the bond this year for $10,100. Filing 2011 tax return You have a gain of $100. Filing 2011 tax return However, if you had sold the bond for $9,900, you would have a loss of $100. Filing 2011 tax return Acquisition discount on short-term obligations. Filing 2011 tax return   If you include acquisition discount on a short-term obligation in your income currently, increase the basis of the obligation by the amount of acquisition discount you include in your income. Filing 2011 tax return See Discount on Short-Term Obligations in chapter 1 for more information. Filing 2011 tax return Original issue discount (OID) on debt instruments. Filing 2011 tax return   Increase the basis of a debt instrument by the OID you include in your income. Filing 2011 tax return See Original Issue Discount (OID) in chapter 1. Filing 2011 tax return Discounted tax-exempt obligations. Filing 2011 tax return   OID on tax-exempt obligations is generally not taxable. Filing 2011 tax return However, when you dispose of a tax-exempt obligation issued after September 3, 1982, that you acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Filing 2011 tax return The accrued OID is added to the basis of the obligation to determine your gain or loss. Filing 2011 tax return   For information on determining OID on a long-term obligation, see Debt Instruments Issued After July 1, 1982, and Before 1985 or Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under Figuring OID on Long-Term Debt Instruments. Filing 2011 tax return   If the tax-exempt obligation has a maturity of 1 year or less, accrue OID under the rules for acquisition discount on short-term obligations. Filing 2011 tax return See Discount on Short-Term Obligations in chapter 1. Filing 2011 tax return Stripped tax-exempt obligation. Filing 2011 tax return   If you acquired a stripped tax-exempt bond or coupon after October 22, 1986, you must accrue OID on it to determine its adjusted basis when you dispose of it. Filing 2011 tax return For stripped tax-exempt bonds or coupons acquired after June 10, 1987, part of this OID may be taxable. Filing 2011 tax return You accrue the OID on these obligations in the manner described in chapter 1 under Stripped Bonds and Coupons . Filing 2011 tax return   Increase your basis in the stripped tax-exempt bond or coupon by the taxable and nontaxable accrued OID. Filing 2011 tax return Also increase your basis by the interest that accrued (but was not paid and was not previously reflected in your basis) before the date you sold the bond or coupon. Filing 2011 tax return In addition, for bonds acquired after June 10, 1987, add to your basis any accrued market discount not previously reflected in basis. Filing 2011 tax return How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Filing 2011 tax return Gain. Filing 2011 tax return   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Filing 2011 tax return Loss. Filing 2011 tax return   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Filing 2011 tax return Amount realized. Filing 2011 tax return   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Filing 2011 tax return Amount realized includes the money you receive plus the fair market value of any property or services you receive. Filing 2011 tax return   If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Filing 2011 tax return For more information, see Publication 537. Filing 2011 tax return   If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. Filing 2011 tax return See Regulations section 1. Filing 2011 tax return 1001-1(g). Filing 2011 tax return However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized. Filing 2011 tax return Fair market value. Filing 2011 tax return   Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Filing 2011 tax return Example. Filing 2011 tax return You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Filing 2011 tax return Your gain is $3,000 ($10,000 – $7,000). Filing 2011 tax return If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000). Filing 2011 tax return Debt paid off. Filing 2011 tax return   A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. Filing 2011 tax return This is true even if neither you nor the buyer is personally liable for the debt. Filing 2011 tax return For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Filing 2011 tax return Example. Filing 2011 tax return You sell stock that you had pledged as security for a bank loan of $8,000. Filing 2011 tax return Your basis in the stock is $6,000. Filing 2011 tax return The buyer pays off your bank loan and pays you $20,000 in cash. Filing 2011 tax return The amount realized is $28,000 ($20,000 + $8,000). Filing 2011 tax return Your gain is $22,000 ($28,000 – $6,000). Filing 2011 tax return Payment of cash. Filing 2011 tax return   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Filing 2011 tax return Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. Filing 2011 tax return If the result is a positive number, it is a gain. Filing 2011 tax return If the result is a negative number, it is a loss. Filing 2011 tax return No gain or loss. Filing 2011 tax return   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Filing 2011 tax return In this case, you may have neither a gain nor a loss. Filing 2011 tax return See No gain or loss in the discussion on the basis of property you received as a gift under Basis Other Than Cost, earlier. Filing 2011 tax return Special Rules for Mutual Funds To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. Filing 2011 tax return If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficu
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The Filing 2011 Tax Return

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