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Filing Amended Return

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Filing Amended Return

Filing amended return 6. Filing amended return   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Filing amended return Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Filing amended return Also use basis to figure depreciation, amortization, depletion, and casualty losses. Filing amended return If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Filing amended return Only the basis allocated to the business or investment use of the property can be depreciated. Filing amended return Your original basis in property is adjusted (increased or decreased) by certain events. Filing amended return For example, if you make improvements to the property, increase your basis. Filing amended return If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Filing amended return Keep accurate records of all items that affect the basis of your assets. Filing amended return For information on keeping records, see chapter 1. Filing amended return Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Filing amended return Cost Basis The basis of property you buy is usually its cost. Filing amended return Cost is the amount you pay in cash, debt obligations, other property, or services. Filing amended return Your cost includes amounts you pay for sales tax, freight, installation, and testing. Filing amended return The basis of real estate and business assets will include other items, discussed later. Filing amended return Basis generally does not include interest payments. Filing amended return However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Filing amended return You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Filing amended return Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Filing amended return Loans with low or no interest. Filing amended 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 amended return You generally have unstated interest if your interest rate is less than the applicable federal rate. Filing amended return See the discussion of unstated interest in Publication 537, Installment Sales. Filing amended return Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Filing amended return If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Filing amended return Some of these expenses are discussed next. Filing amended return Lump sum purchase. Filing amended return   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Filing amended return Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Filing amended return Figure the basis of each asset by multiplying the lump sum by a fraction. Filing amended return The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Filing amended return Fair market value (FMV). Filing amended return   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Filing amended return Sales of similar property on or about the same date may help in figuring the FMV of the property. Filing amended return If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Filing amended return Real estate taxes. Filing amended return   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Filing amended return   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Filing amended return Whether or not you reimburse the seller, do not include that amount in the basis of your property. Filing amended return Settlement costs. Filing amended return   Your basis includes the settlement fees and closing costs for buying the property. Filing amended return See Publication 551 for a detailed list of items you can and cannot include in basis. Filing amended return   Do not include fees and costs for getting a loan on the property. Filing amended return Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Filing amended return Points. Filing amended return   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Filing amended return You may be able to deduct the points currently or over the term of the loan. Filing amended return For more information about deducting points, see Points in chapter 4 of Publication 535. Filing amended return Assumption of a mortgage. Filing amended return   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Filing amended return Example. Filing amended return If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Filing amended return Constructing assets. Filing amended return   If you build property or have assets built for you, your expenses for this construction are part of your basis. Filing amended return Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Filing amended return   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Filing amended return You must capitalize them (include them in the asset's basis). Filing amended return Employee wages paid for the construction work, reduced by any employment credits allowed. Filing amended return Depreciation on equipment you own while it is used in the construction. Filing amended return Operating and maintenance costs for equipment used in the construction. Filing amended return The cost of business supplies and materials used in the construction. Filing amended return    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Filing amended return Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Filing amended return To determine the basis of these assets or separate items, there must be an allocation of basis. Filing amended return Group of assets acquired. Filing amended return   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Filing amended return Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Filing amended return You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Filing amended return If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Filing amended return Farming business acquired. Filing amended return   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Filing amended return Generally, reduce the purchase price by any cash received. Filing amended return Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Filing amended return See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Filing amended return Transplanted embryo. Filing amended return   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Filing amended return Allocate the rest of the purchase price to the basis of the calf. Filing amended return Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Filing amended return Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Filing amended return You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Filing amended return Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Filing amended return However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Filing amended return You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Filing amended return You are not subject to the uniform capitalization rules if the property is produced for personal use. Filing amended return In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Filing amended return Plants. Filing amended return   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Filing amended return Animals. Filing amended return   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Filing amended return The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Filing amended return Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Filing amended return For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Filing amended return For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Filing amended return Exceptions. Filing amended return   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Filing amended return   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Filing amended return See Accrual Method Required under Accounting Methods in chapter 2. Filing amended return   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Filing amended return If you make this election, special rules apply. Filing amended return This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Filing amended return This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Filing amended return    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Filing amended return See chapter 7, for additional information on depreciation. Filing amended return Example. Filing amended return You grow trees that have a preproductive period of more than 2 years. Filing amended return The trees produce an annual crop. Filing amended return You are an individual and the uniform capitalization rules apply to your farming business. Filing amended return You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Filing amended return You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Filing amended return Preproductive period of more than 2 years. Filing amended return   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Filing amended return Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Filing amended return Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Filing amended return More information. Filing amended return   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Filing amended return 263A-4. Filing amended return Table 6-1. Filing amended return Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Filing amended return Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. Filing amended return The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Filing amended return Increases to Basis Increase the basis of any property by all items properly added to a capital account. Filing amended return These include the cost of any improvements having a useful life of more than 1 year. Filing amended return The following costs increase the basis of property. Filing amended return The cost of extending utility service lines to property. Filing amended return Legal fees, such as the cost of defending and perfecting title. Filing amended return Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Filing amended return Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Filing amended return Do not deduct these expenses as taxes. Filing amended return However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Filing amended return If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Filing amended return See chapter 7. Filing amended return Deducting vs. Filing amended return capitalizing costs. Filing amended return   Do not add to your basis costs you can deduct as current expenses. Filing amended return For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Filing amended return However, you can elect either to deduct or to capitalize certain other costs. Filing amended return See chapter 7 in Publication 535. Filing amended return Decreases to Basis The following are some items that reduce the basis of property. Filing amended return Section 179 deduction. Filing amended return Deductions previously allowed or allowable for amortization, depreciation, and depletion. Filing amended return Alternative motor vehicle credit. Filing amended return See Form 8910. Filing amended return Alternative fuel vehicle refueling property credit. Filing amended return See Form 8911. Filing amended return Residential energy efficient property credits. Filing amended return See Form 5695. Filing amended return Investment credit (part or all) taken. Filing amended return Casualty and theft losses and insurance reimbursements. Filing amended return Payments you receive for granting an easement. Filing amended return Exclusion from income of subsidies for energy conservation measures. Filing amended return Certain canceled debt excluded from income. Filing amended return Rebates from a manufacturer or seller. Filing amended return Patronage dividends received from a cooperative association as a result of a purchase of property. Filing amended return See Patronage Dividends in chapter 3. Filing amended return Gas-guzzler tax. Filing amended return See Form 6197. Filing amended return Some of these items are discussed next. Filing amended return For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Filing amended return Depreciation and section 179 deduction. Filing amended return   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Filing amended return For more information on these deductions, see chapter 7. Filing amended return Section 179 deduction. Filing amended return   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Filing amended return Depreciation. Filing amended return   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. Filing amended return If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Filing amended return If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Filing amended return   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Filing amended return   See chapter 7 for information on figuring the depreciation you should have claimed. Filing amended return   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Filing amended return Casualty and theft losses. Filing amended return   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Filing amended return Also, decrease it by any deductible loss not covered by insurance. Filing amended return See chapter 11 for information about figuring your casualty or theft loss. Filing amended return   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Filing amended return To make this determination, compare the repaired property to the property before the casualty. Filing amended return Easements. Filing amended return   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Filing amended return It reduces the basis of the affected part of the property. Filing amended return If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Filing amended return See Easements and rights-of-way in chapter 3. Filing amended return Exclusion from income of subsidies for energy conservation measures. Filing amended return   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Filing amended return Reduce the basis of the property by the excluded amount. Filing amended return Canceled debt excluded from income. Filing amended return   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Filing amended return A debt includes any indebtedness for which you are liable or which attaches to property you hold. Filing amended return   You can exclude your canceled debt from income if the debt is any of the following. Filing amended return Debt canceled in a bankruptcy case or when you are insolvent. Filing amended return Qualified farm debt. Filing amended return Qualified real property business debt (provided you are not a C corporation). Filing amended return Qualified principal residence indebtedness. Filing amended return Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Filing amended return If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Filing amended return If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Filing amended return   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Filing amended return For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Filing amended return For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Filing amended return For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Filing amended return Basis Other Than Cost There are times when you cannot use cost as basis. Filing amended return In these situations, the fair market value or the adjusted basis of property may be used. Filing amended return Examples are discussed next. Filing amended return Property changed from personal to business or rental use. Filing amended return   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Filing amended return An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Filing amended return   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Filing amended return   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Filing amended return The basis for figuring a gain is your adjusted basis in the property when you sell the property. Filing amended return Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Filing amended return Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Filing amended return Property received for services. Filing amended return   If you receive property for services, include the property's FMV in income. Filing amended return The amount you include in income becomes your basis. Filing amended return If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Filing amended return Example. Filing amended return George Smith is an accountant and also operates a farming business. Filing amended return George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Filing amended return The accounting work and the cow are each worth $1,500. Filing amended return George must include $1,500 in income for his accounting services. Filing amended return George's basis in the cow is $1,500. Filing amended return Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Filing amended return A taxable gain or deductible loss also is known as a recognized gain or loss. Filing amended return A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Filing amended return If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Filing amended return Example. Filing amended return You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Filing amended return You must report a taxable gain of $4,000 for the land. Filing amended return The tractor has a basis of $6,000. Filing amended return Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Filing amended return Similar or related property. Filing amended return   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Filing amended return However, make the following adjustments. Filing amended return Decrease the basis by the following amounts. Filing amended return Any loss you recognize on the involuntary conversion. Filing amended return Any money you receive that you do not spend on similar property. Filing amended return Increase the basis by the following amounts. Filing amended return Any gain you recognize on the involuntary conversion. Filing amended return Any cost of acquiring the replacement property. Filing amended return Money or property not similar or related. Filing amended return   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Filing amended return Allocating the basis. Filing amended return   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Filing amended return Basis for depreciation. Filing amended return   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Filing amended return For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Filing amended return For more information about involuntary conversions, see chapter 11. Filing amended return Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Filing amended return A nontaxable gain or loss also is known as an unrecognized gain or loss. Filing amended return If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Filing amended return Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Filing amended return For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Filing amended return There must also be an exchange of like-kind property. Filing amended return For more information, see Like-Kind Exchanges in  chapter 8. Filing amended return The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Filing amended return Example 1. Filing amended return You traded a truck you used in your farming business for a new smaller truck to use in farming. Filing amended return The adjusted basis of the old truck was $10,000. Filing amended return The FMV of the new truck is $30,000. Filing amended return Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Filing amended return Example 2. Filing amended return You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Filing amended return You use both the field cultivator and the planter in your farming business. Filing amended return The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Filing amended return   Exchange expenses generally are the closing costs that you pay. Filing amended return They include such items as brokerage commissions, attorney fees, and deed preparation fees. Filing amended return Add them to the basis of the like-kind property you receive. Filing amended return Property plus cash. Filing amended return   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Filing amended return Example. Filing amended return You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Filing amended return Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Filing amended return Special rules for related persons. Filing amended return   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Filing amended return Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Filing amended return Each person reports it on the tax return filed for the year in which the later disposition occurred. Filing amended return If this rule applies, the basis of the property received in the original exchange will be its FMV. Filing amended return For more information, see chapter 8. Filing amended return Exchange of business property. Filing amended return   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Filing amended return For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Filing amended return Basis for depreciation. Filing amended return   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Filing amended return For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Filing amended return Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Filing amended return The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Filing amended return Decrease the basis by the following amounts. Filing amended return Any money you receive. Filing amended return Any loss you recognize on the exchange. Filing amended return Increase the basis by the following amounts. Filing amended return Any additional costs you incur. Filing amended return Any gain you recognize on the exchange. Filing amended return If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Filing amended return Example 1. Filing amended return You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Filing amended return You realize a gain of $40,000. Filing amended return This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Filing amended return Include your gain in income (recognize gain) only to the extent of the cash received. Filing amended return Your basis in the land you received is figured as follows. Filing amended return Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Filing amended return You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Filing amended return You realize a gain of $7,250. Filing amended return This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Filing amended return You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Filing amended return Your basis in the truck you received is figured as follows. Filing amended return Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Filing amended return   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Filing amended return The rest is the basis of the like-kind property. Filing amended return Example. Filing amended return You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Filing amended return You also received $1,000 cash and a truck that had an FMV of $3,000. Filing amended return The truck is unlike property. Filing amended return You realized a gain of $1,500. Filing amended return This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Filing amended return You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Filing amended return Your basis in the properties you received is figured as follows. Filing amended return Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). Filing amended return This is the truck's FMV. Filing amended return The rest ($12,500) is the basis of the tractor. Filing amended return Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Filing amended return Example. Filing amended return You used a tractor on your farm for 3 years. Filing amended return Its adjusted basis is $22,000 and its FMV is $40,000. Filing amended return You are interested in a new tractor, which sells for $60,000. Filing amended return Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Filing amended return Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Filing amended return However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Filing amended return Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Filing amended return Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Filing amended return Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. Filing amended return You also must know its FMV at the time it was given to you and any gift tax paid on it. Filing amended return FMV equal to or greater than donor's adjusted basis. Filing amended return   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. Filing amended return Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Filing amended return   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Filing amended return See Adjusted Basis , earlier. Filing amended return   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Filing amended return Figure the increase by multiplying the gift tax paid by the following fraction. Filing amended return Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Filing amended 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 amended return Example. Filing amended return In 2013, you received a gift of property from your mother that had an FMV of $50,000. Filing amended return Her adjusted basis was $20,000. Filing amended return The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Filing amended return She paid a gift tax of $7,320. Filing amended return Your basis, $26,076, is figured as follows. Filing amended return Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Filing amended return 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Filing amended return If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Filing amended return However, your basis cannot exceed the FMV of the gift when it was given to you. Filing amended return FMV less than donor's adjusted basis. Filing amended return   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Filing amended return Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Filing amended return Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Filing amended return (See Adjusted Basis , earlier. Filing amended return )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. Filing amended return Example. Filing amended return You received farmland as a gift from your parents when they retired from farming. Filing amended return At the time of the gift, the land had an FMV of $80,000. Filing amended return Your parents' adjusted basis was $100,000. Filing amended return After you received the land, no events occurred that would increase or decrease your basis. Filing amended return If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Filing amended return If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Filing amended return If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Filing amended return For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Filing amended return If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Filing amended return Business property. Filing amended return   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Filing amended return Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Filing amended return The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Filing amended return However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Filing amended return The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Filing amended return For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Filing amended return Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Filing amended return If a federal estate return is filed, you can use its appraised value. Filing amended return The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Filing amended return For information on the alternate valuation, see the Instructions for Form 706. Filing amended return The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Filing amended return If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Filing amended return Special-use valuation method. Filing amended return   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Filing amended return If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Filing amended return If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Filing amended return The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Filing amended return   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Filing amended return Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. Filing amended return Figure all FMVs without regard to the special-use valuation. Filing amended return   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Filing amended return This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Filing amended return The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Filing amended return   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Filing amended return To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. Filing amended return If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Filing amended return The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Filing amended return   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Filing amended return   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Filing amended return Property inherited from a decedent who died in 2010. Filing amended return   If you inherited property from a decedent who died in 2010, different rules may apply. Filing amended return See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Filing amended return Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Filing amended return Partner's basis. Filing amended return   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Filing amended return However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Filing amended return For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Filing amended return Shareholder's basis. Filing amended return   The basis of property distributed by a corporation to a shareholder is its fair market value. Filing amended return For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Filing amended return Prev  Up  Next   Home   More Online Publications
 
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The Filing Amended Return

Filing amended return 4. Filing amended return   Foreign Earned Income and Housing: Exclusion – Deduction Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Qualifies for the Exclusions and the Deduction? RequirementsTax Home in Foreign Country Bona Fide Residence Test Physical Presence Test Waiver of Time Requirements U. Filing amended return S. Filing amended return Travel Restrictions Foreign Earned Income Foreign Earned Income ExclusionLimit on Excludable Amount Choosing the Exclusion Foreign Housing Exclusion and DeductionHousing Amount Foreign Housing Exclusion Foreign Housing Deduction Married Couples Form 2555 and Form 2555-EZForm 2555-EZ Form 2555 Topics - This chapter discusses: Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, The requirements that must be met to claim either exclusion or the deduction, How to figure the foreign earned income exclusion, and How to figure the foreign housing exclusion and the foreign housing deduction. Filing amended return Useful Items - You may want to see: Publication 519 U. Filing amended return S. Filing amended return Tax Guide for Aliens 570 Tax Guide for Individuals With Income from U. Filing amended return S. Filing amended return Possessions 596 Earned Income Credit (EIC) Form (and Instructions) 1040X Amended U. Filing amended return S. Filing amended return Individual Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion See chapter 7 for information about getting these publications and forms. Filing amended return Who Qualifies for the Exclusions and the Deduction? If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. Filing amended return If you are a U. Filing amended return S. Filing amended return citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. Filing amended return However, you may qualify to exclude from income up to $97,600 of your foreign earnings. Filing amended return In addition, you can exclude or deduct certain foreign housing amounts. Filing amended return See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction, later. Filing amended return You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. Filing amended return See Exclusion of Meals and Lodging, later. Filing amended return Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. Filing amended return Your tax home must be in a foreign country. Filing amended return You must have foreign earned income. Filing amended return You must be one of the following. Filing amended return A U. Filing amended return S. Filing amended return citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Filing amended return A U. Filing amended return S. Filing amended return resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Filing amended return A U. Filing amended return S. Filing amended return citizen or a U. Filing amended return S. Filing amended return resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Filing amended return See Publication 519 to find out if you are a U. Filing amended return S. Filing amended return resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad. Filing amended return If you are a nonresident alien married to a U. Filing amended return S. Filing amended return citizen or resident alien, and both you and your spouse choose to treat you as a resident alien, you are a resident alien for tax purposes. Filing amended return For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident . Filing amended return Waiver of minimum time requirements. Filing amended return   The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Filing amended return This is fully explained under Waiver of Time Requirements , later. Filing amended return   See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction. Filing amended return Tax Home in Foreign Country To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. Filing amended return Bona fide residence and physical presence are explained later. Filing amended return Tax Home Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Filing amended return Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Filing amended return Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. Filing amended return If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. Filing amended return If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work. Filing amended return You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Filing amended return However, your abode is not necessarily in the United States while you are temporarily in the United States. Filing amended return Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Filing amended return “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. Filing amended return It does not mean your principal place of business. Filing amended return “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home. Filing amended return ” The location of your abode often will depend on where you maintain your economic, family, and personal ties. Filing amended return Example 1. Filing amended return You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. Filing amended return You return to your family residence in the United States during your off periods. Filing amended return You are considered to have an abode in the United States and do not satisfy the tax home test in the foreign country. Filing amended return You cannot claim either of the exclusions or the housing deduction. Filing amended return Example 2. Filing amended return For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. Filing amended return In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Filing amended return Before you left, you distributed business cards showing your business and home addresses in London. Filing amended return You kept ownership of your home in Toledo but rented it to another family. Filing amended return You placed your car in storage. Filing amended return In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. Filing amended return Shortly after moving, you leased a car and you and your spouse got British driving licenses. Filing amended return Your entire family got library cards for the local public library. Filing amended return You and your spouse opened bank accounts with a London bank and secured consumer credit. Filing amended return You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Filing amended return Your abode is in London for the time you live there. Filing amended return You satisfy the tax home test in the foreign country. Filing amended return Please click here for the text description of the image. Filing amended return Figure 4–A Can I Claim the Exclusion or Deduction? Temporary or Indefinite Assignment The location of your tax home often depends on whether your assignment is temporary or indefinite. Filing amended return If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. Filing amended return If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. Filing amended return If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion. Filing amended return If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. Filing amended return If you expect it to last for more than 1 year, it is indefinite. Filing amended return If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. Filing amended return Once your expectation changes, it is indefinite. Filing amended return Foreign Country To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. Filing amended return A foreign country includes any territory under the sovereignty of a government other than that of the United States. Filing amended return The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above them. Filing amended return It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Filing amended return The term “foreign country” does not include Antarctica or U. Filing amended return S. Filing amended return possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U. Filing amended return S. Filing amended return Virgin Islands, and Johnston Island. Filing amended return For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms “foreign,” “abroad,” and “overseas” refer to areas outside the United States and those areas listed or described in the previous sentence. Filing amended return American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residence or presence in a U. Filing amended return S. Filing amended return possession does not qualify you for the foreign earned income exclusion. Filing amended return You may, however, qualify for an exclusion of your possession income on your U. Filing amended return S. Filing amended return return. Filing amended return American Samoa. Filing amended return   There is a possession exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year. Filing amended return Gross income from sources within American Samoa may be eligible for this exclusion. Filing amended return Income that is effectively connected with the conduct of a trade or business within American Samoa also may be eligible for this exclusion. Filing amended return Use Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, to figure the exclusion. Filing amended return Guam and the Commonwealth of the Northern Mariana Islands. Filing amended return   An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those possessions. Filing amended return   For more information, see Publication 570. Filing amended return Puerto Rico and U. Filing amended return S. Filing amended return Virgin Islands Residents of Puerto Rico and the U. Filing amended return S. Filing amended return Virgin Islands cannot claim the foreign earned income exclusion or the foreign housing exclusion. Filing amended return Puerto Rico. Filing amended return   Generally, if you are a U. Filing amended return S. Filing amended return citizen who is a bona fide resident of Puerto Rico for the entire tax year, you are not subject to U. Filing amended return S. Filing amended return tax on income from Puerto Rican sources. Filing amended return This does not include amounts paid for services performed as an employee of the United States. Filing amended return However, you are subject to U. Filing amended return S. Filing amended return tax on your income from sources outside Puerto Rico. Filing amended return In figuring your U. Filing amended return S. Filing amended return tax, you cannot deduct expenses allocable to income not subject to tax. Filing amended return Bona Fide Residence Test You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Filing amended return You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either: A U. Filing amended return S. Filing amended return citizen, or A U. Filing amended return S. Filing amended return resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. Filing amended return You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. Filing amended return If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. Filing amended return The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test. Filing amended return Bona fide residence. Filing amended return   To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. Filing amended return   Your bona fide residence is not necessarily the same as your domicile. Filing amended return Your domicile is your permanent home, the place to which you always return or intend to return. Filing amended return Example. Filing amended return You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland. Filing amended return The fact that you go to Scotland does not automatically make Scotland your bona fide residence. Filing amended return If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. Filing amended return But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. Filing amended return You are clearly not a resident of Scotland in the first instance. Filing amended return However, in the second, you are a resident because your stay in Scotland appears to be permanent. Filing amended return If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence. Filing amended return Determination. Filing amended return   Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. Filing amended return   To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Filing amended return The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. Filing amended return IRS cannot make this determination until you file Form 2555. Filing amended return Statement to foreign authorities. Filing amended return   You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities: Hold that you are not subject to their income tax laws as a resident, or Have not made a final decision on your status. Filing amended return Special agreements and treaties. Filing amended return   An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Filing amended return Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. Filing amended return Example 1. Filing amended return You are a U. Filing amended return S. Filing amended return citizen employed in the United Kingdom by a U. Filing amended return S. Filing amended return employer under contract with the U. Filing amended return S. Filing amended return Armed Forces. Filing amended return You are not subject to the North Atlantic Treaty Status of Forces Agreement. Filing amended return You may be a bona fide resident of the United Kingdom. Filing amended return Example 2. Filing amended return You are a U. Filing amended return S. Filing amended return citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. Filing amended return You are not a bona fide resident of the United Kingdom. Filing amended return Example 3. Filing amended return You are a U. Filing amended return S. Filing amended return citizen employed in Japan by a U. Filing amended return S. Filing amended return employer under contract with the U. Filing amended return S. Filing amended return Armed Forces. Filing amended return You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. Filing amended return Being subject to the agreement does not make you a bona fide resident of Japan. Filing amended return Example 4. Filing amended return You are a U. Filing amended return S. Filing amended return citizen employed as an “official” by the United Nations in Switzerland. Filing amended return You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. Filing amended return This does not prevent you from being a bona fide resident of Switzerland. Filing amended return Effect of voting by absentee ballot. Filing amended return   If you are a U. Filing amended return S. Filing amended return citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country. Filing amended return   However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive. Filing amended return Uninterrupted period including entire tax year. Filing amended return   To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. Filing amended return An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. Filing amended return   During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. Filing amended return To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country. Filing amended return Example 1. Filing amended return You arrived with your family in Lisbon, Portugal, on November 1, 2011. Filing amended return Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. Filing amended return You immediately established residence there. Filing amended return You spent April of 2012 at a business conference in the United States. Filing amended return Your family stayed in Lisbon. Filing amended return Immediately following the conference, you returned to Lisbon and continued living there. Filing amended return On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you meet the bona fide residence test. Filing amended return Example 2. Filing amended return Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2012. Filing amended return You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. Filing amended return You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later). Filing amended return Bona fide resident for part of a year. Filing amended return   Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Filing amended return Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. Filing amended return Example. Filing amended return You were a bona fide resident of Singapore from March 1, 2011, through September 14, 2013. Filing amended return On September 15, 2013, you returned to the United States. Filing amended return Since you were a bona fide resident of a foreign country for all of 2012, you were also a bona fide resident of a foreign country from March 1, 2011, through the end of 2011 and from January 1, 2013, through September 14, 2013. Filing amended return Reassignment. Filing amended return   If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances. Filing amended return Example 1. Filing amended return You were a resident of Pakistan from October 1, 2012, through November 30, 2013. Filing amended return On December 1, 2013, you and your family returned to the United States to wait for an assignment to another foreign country. Filing amended return Your household goods also were returned to the United States. Filing amended return Your foreign residence ended on November 30, 2013, and did not begin again until after you were assigned to another foreign country and physically entered that country. Filing amended return Since you were not a bona fide resident of a foreign country for the entire tax year of 2012 or 2013 you do not meet the bona fide residence test in either year. Filing amended return You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later. Filing amended return Example 2. Filing amended return Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. Filing amended return On December 1, 2013, you and your family returned to the United States for a month's vacation. Filing amended return On January 2, 2014, you arrived in Turkey for your new assignment. Filing amended return Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test. Filing amended return Physical Presence Test You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. Filing amended return The 330 days do not have to be consecutive. Filing amended return Any U. Filing amended return S. Filing amended return citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction. Filing amended return The physical presence test is based only on how long you stay in a foreign country or countries. Filing amended return This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad. Filing amended return 330 full days. Filing amended return   Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. Filing amended return You can count days you spent abroad for any reason. Filing amended return You do not have to be in a foreign country only for employment purposes. Filing amended return You can be on vacation. Filing amended return   You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. Filing amended return Exception. Filing amended return   You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. Filing amended return See Waiver of Time Requirements, later. Filing amended return Full day. Filing amended return   A full day is a period of 24 consecutive hours, beginning at midnight. Filing amended return Travel. Filing amended return    When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total. Filing amended return Example. Filing amended return You leave the United States for France by air on June 10. Filing amended return You arrive in France at 9:00 a. Filing amended return m. Filing amended return on June 11. Filing amended return Your first full day of physical presence in France is June 12. Filing amended return Passing over foreign country. Filing amended return   If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States. Filing amended return Example. Filing amended return You leave the United States by air at 9:30 a. Filing amended return m. Filing amended return on June 10 to travel to Kenya. Filing amended return You pass over western Africa at 11:00 p. Filing amended return m. Filing amended return on June 10 and arrive in Kenya at 12:30 a. Filing amended return m. Filing amended return on June 11. Filing amended return Your first full day in a foreign country is June 11. Filing amended return Change of location. Filing amended return   You can move about from one place to another in a foreign country or to another foreign country without losing full days. Filing amended return If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. Filing amended return Example 1. Filing amended return You leave Ireland by air at 11:00 p. Filing amended return m. Filing amended return on July 6 and arrive in Sweden at 5:00 a. Filing amended return m. Filing amended return on July 7. Filing amended return Your trip takes less than 24 hours and you lose no full days. Filing amended return Example 2. Filing amended return You leave Norway by ship at 10:00 p. Filing amended return m. Filing amended return on July 6 and arrive in Portugal at 6:00 a. Filing amended return m. Filing amended return on July 8. Filing amended return Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. Filing amended return If you remain in Portugal, your next full day in a foreign country is July 9. Filing amended return In United States while in transit. Filing amended return   If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. Filing amended return You are treated as traveling over areas not within any foreign country. Filing amended return    Please click here for the text description of the image. Filing amended return Figure 4-B How to figure the 12-month period. Filing amended return   There are four rules you should know when figuring the 12-month period. Filing amended return Your 12-month period can begin with any day of the month. Filing amended return It ends the day before the same calendar day, 12 months later. Filing amended return Your 12-month period must be made up of consecutive months. Filing amended return Any 12-month period can be used if the 330 days in a foreign country fall within that period. Filing amended return You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. Filing amended return You can choose the 12-month period that gives you the greatest exclusion. Filing amended return In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another. Filing amended return Example 1. Filing amended return You are a construction worker who works on and off in a foreign country over a 20-month period. Filing amended return You might pick up the 330 full days in a 12-month period only during the middle months of the time you work in the foreign country because the first few and last few months of the 20-month period are broken up by long visits to the United States. Filing amended return Example 2. Filing amended return You work in New Zealand for a 20-month period from January 1, 2012, through August 31, 2013, except that you spend 28 days in February 2012 and 28 days in February 2013 on vacation in the United States. Filing amended return You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2012 – December 31, 2012 and September 1, 2012 – August 31, 2013. Filing amended return By overlapping the 12-month periods in this way, you meet the physical presence test for the whole 20-month period. Filing amended return See Figure 4-B, on the previous page. Filing amended return Waiver of Time Requirements Both the bona fide residence test and the physical presence test contain minimum time requirements. Filing amended return The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Filing amended return You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. Filing amended return To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver. Filing amended return Early in 2014, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2013 and the effective dates. Filing amended return If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for 2013 without meeting the minimum time requirement. Filing amended return However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. Filing amended return U. Filing amended return S. Filing amended return Travel Restrictions If you are present in a foreign country in violation of U. Filing amended return S. Filing amended return law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. Filing amended return Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Filing amended return Your housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount. Filing amended return For 2013, the only country to which travel restrictions applied was Cuba. Filing amended return The restrictions applied for the entire year. Filing amended return However, individuals working at the U. Filing amended return S. Filing amended return Naval Base at Guantanamo Bay in Cuba are not in violation of U. Filing amended return S. Filing amended return law. Filing amended return Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion provided the other requirements are met. Filing amended return Foreign Earned Income To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Filing amended return Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements. Filing amended return Your tax home is in a foreign country. Filing amended return You meet either the bona fide residence test or the physical presence test. Filing amended return To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country, earlier. Filing amended return To determine whether you meet either the bona fide residence test or the physical presence test, see Bona Fide Residence Test and Physical Presence Test, earlier. Filing amended return Foreign earned income does not include the following amounts. Filing amended return The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. Filing amended return Pension or annuity payments you receive, including social security benefits (see Pensions and annuities, later). Filing amended return Pay you receive as an employee of the U. Filing amended return S. Filing amended return Government. Filing amended return (See U. Filing amended return S. Filing amended return Government Employees, later. Filing amended return ) Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract. Filing amended return Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributable to Foreign Earnings in 2 Years in chapter 5. Filing amended return Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. Filing amended return Earned income. Filing amended return   This is pay for personal services performed, such as wages, salaries, or professional fees. Filing amended return The list that follows classifies many types of income into three categories. Filing amended return The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both. Filing amended return For more information on earned and unearned income, see Earned and Unearned Income, later. Filing amended return Earned Income Unearned Income Variable Income Salaries and wages Dividends Business profits Commissions Interest Royalties Bonuses Capital gains Rents Professional fees Gambling winnings Scholarships and fellowships Tips Alimony     Social security benefits     Pensions     Annuities     In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. Filing amended return Noncash income. Filing amended return   The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income. Filing amended return Allowances or reimbursements. Filing amended return   Earned income includes allowances or reimbursements you receive, such as the following amounts. Filing amended return    Cost-of-living allowances. Filing amended return Overseas differential. Filing amended return Family allowance. Filing amended return Reimbursement for education or education allowance. Filing amended return Home leave allowance. Filing amended return Quarters allowance. Filing amended return Reimbursement for moving or moving allowance (unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income). Filing amended return Source of Earned Income The source of your earned income is the place where you perform the services for which you received the income. Filing amended return Foreign earned income is income you receive for working in a foreign country. Filing amended return Where or how you are paid has no effect on the source of the income. Filing amended return For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. Filing amended return Example. Filing amended return You are a U. Filing amended return S. Filing amended return citizen, a bona fide resident of Canada, and working as a mining engineer. Filing amended return Your salary is $76,800 per year. Filing amended return You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. Filing amended return Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. Filing amended return Your total income is $88,800. Filing amended return You work a 5-day week, Monday through Friday. Filing amended return After subtracting your vacation, you have a total of 240 workdays in the year. Filing amended return You worked in the United States during the year for 6 weeks (30 workdays). Filing amended return The following shows how to figure the part of your income that is for work done in Canada during the year. Filing amended return   Number of days worked in Canada during the year (210) × Total income ($88,800) = $77,700     Number of days of work during the year for which payment was made (240)   Your foreign source earned income is $77,700. Filing amended return Earned and Unearned Income Earned income was defined earlier as pay for personal services performed. Filing amended return Some types of income are not easily identified as earned or unearned income. Filing amended return Some of these types of income are further explained here. Filing amended return Income from a sole proprietorship or partnership. Filing amended return   Income from a business in which capital investment is an important part of producing the income may be unearned income. Filing amended return If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income. Filing amended return Capital a factor. Filing amended return   If capital investment is an important part of producing income, no more than 30% of your share of the net profits of the business is earned income. Filing amended return   If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income. Filing amended return Because you do not have a net profit, the 30% limit does not apply. Filing amended return Example 1. Filing amended return You are a U. Filing amended return S. Filing amended return citizen and meet the bona fide residence test. Filing amended return You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. Filing amended return You perform no services for the partnership. Filing amended return At the end of the tax year, your share of the net profits is $80,000. Filing amended return The entire $80,000 is unearned income. Filing amended return Example 2. Filing amended return Assume that in Example 1 you spend time operating the business. Filing amended return Your share of the net profits is $80,000; 30% of your share of the profits is $24,000. Filing amended return If the value of your services for the year is $15,000, your earned income is limited to the value of your services, $15,000. Filing amended return Capital not a factor. Filing amended return   If capital is not an income-producing factor and personal services produce the business income, the 30% rule does not apply. Filing amended return The entire amount of business income is earned income. Filing amended return Example. Filing amended return You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. Filing amended return Because capital is not an income- producing factor, all the income from the partnership is considered earned income. Filing amended return Income from a corporation. Filing amended return   The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. Filing amended return Any amount over what is considered a reasonable salary is unearned income. Filing amended return Example 1. Filing amended return You are a U. Filing amended return S. Filing amended return citizen and an officer and stockholder of a corporation in Honduras. Filing amended return You perform no work or service of any kind for the corporation. Filing amended return During the tax year you receive a $10,000 “salary” from the corporation. Filing amended return The $10,000 clearly is not for personal services and is unearned income. Filing amended return Example 2. Filing amended return You are a U. Filing amended return S. Filing amended return citizen and work full time as secretary-treasurer of your corporation. Filing amended return During the tax year you receive $100,000 as salary from the corporation. Filing amended return If $80,000 is a reasonable allowance as pay for the work you did, then $80,000 is earned income. Filing amended return Stock options. Filing amended return   You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan. Filing amended return   If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. Filing amended return   However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. Filing amended return It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. Filing amended return Any part of the earned income that is due to work you did outside the United States is foreign earned income. Filing amended return   See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options. Filing amended return Pensions and annuities. Filing amended return    For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. Filing amended return Royalties. Filing amended return   Royalties from the leasing of oil and mineral lands and patents generally are a form of rent or dividends and are unearned income. Filing amended return   Royalties received by a writer are earned income if they are received: For the transfer of property rights of the writer in the writer's product, or Under a contract to write a book or series of articles. Filing amended return Rental income. Filing amended return   Generally, rental income is unearned income. Filing amended return If you perform personal services in connection with the production of rent, up to 30% of your net rental income can be considered earned income. Filing amended return Example. Filing amended return Larry Smith, a U. Filing amended return S. Filing amended return citizen living in Australia, owns and operates a rooming house in Sydney. Filing amended return If he is operating the rooming house as a business that requires capital and personal services, he can consider up to 30% of net rental income as earned income. Filing amended return On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. Filing amended return It is all unearned income. Filing amended return Professional fees. Filing amended return   If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income. Filing amended return Income of an artist. Filing amended return   Income you receive from the sale of paintings you created is earned income. Filing amended return Scholarships and fellowships. Filing amended return   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income. Filing amended return If the payer of the grant is required to provide you with a Form W-2, Wage and Tax Statement, these amounts will be listed as wages. Filing amended return    Certain scholarship and fellowship income may be exempt under other provisions. Filing amended return See Publication 970, Tax Benefits for Education, chapter 1. Filing amended return Use of employer's property or facilities. Filing amended return   If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. Filing amended return Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts. Filing amended return Example. Filing amended return You are privately employed and live in Japan all year. Filing amended return You are paid a salary of $6,000 a month. Filing amended return You live rent-free in a house provided by your employer that has a fair rental value of $3,000 a month. Filing amended return The house is not provided for your employer's convenience. Filing amended return You report on the calendar-year, cash basis. Filing amended return You received $72,000 salary from foreign sources plus $36,000 fair rental value of the house, or a total of $108,000 of earned income. Filing amended return Reimbursement of employee expenses. Filing amended return   If you are reimbursed under an accountable plan (defined below) for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income. Filing amended return   The expenses for which you are reimbursed are not considered allocable (related) to your earned income. Filing amended return If expenses and reimbursement are equal, there is nothing to allocate to excluded income. Filing amended return If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income in determining the amount of unreimbursed expenses you can deduct. Filing amended return (See chapter 5. Filing amended return ) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. Filing amended return   These rules do not apply to the following individuals. Filing amended return Straight-commission salespersons. Filing amended return Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses. Filing amended return Accountable plan. Filing amended return   An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. Filing amended return The expenses covered under the plan must have a business connection. Filing amended return The employee must adequately account to the employer for these expenses within a reasonable period of time. Filing amended return The employee must return any excess reimbursement or allowance within a reasonable period of time. Filing amended return Reimbursement of moving expenses. Filing amended return   Reimbursement of moving expenses may be earned income. Filing amended return You must include as earned income: Any reimbursements of, or payments for, nondeductible moving expenses, Reimbursements that are more than your deductible expenses and that you do not return to your employer, Any reimbursements made (or treated as made) under a nonaccountable plan (any plan that does not meet the rules listed above for an accountable plan), even if they are for deductible expenses, and Any reimbursement of moving expenses you deducted in an earlier year. Filing amended return This section discusses reimbursements that must be included in earned income. Filing amended return Publication 521, Moving Expenses, discusses additional rules that apply to moving expense deductions and reimbursements. Filing amended return   The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. Filing amended return   Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year. Filing amended return You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. Filing amended return Move from U. Filing amended return S. Filing amended return to foreign country. Filing amended return   If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. Filing amended return The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least 120 days during that tax year. Filing amended return   If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes 120 days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. Filing amended return To figure the amount earned in the year of the move, multiply the reimbursement by a fraction. Filing amended return The numerator (top number) is the number of days in your qualifying period that fall within the year of the move, and the denominator (bottom number) is the total number of days in the year of the move. Filing amended return   The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move. Filing amended return The part earned in each year is figured as shown in the following example. Filing amended return Example. Filing amended return You are a U. Filing amended return S. Filing amended return citizen working in the United States. Filing amended return You were told in October 2012 that you were being transferred to a foreign country. Filing amended return You arrived in the foreign country on December 15, 2012, and you are a bona fide resident for the remainder of 2012 and all of 2013. Filing amended return Your employer reimbursed you $2,000 in January 2013 for the part of the moving expense that you were not allowed to deduct. Filing amended return Because you did not qualify for the exclusion under the bona fide residence test for at least 120 days in 2012 (the year of the move), the reimbursement is considered pay for services performed in the foreign country for both 2012 and 2013. Filing amended return You figure the part of the reimbursement for services performed in the foreign country in 2012 by multiplying the total reimbursement by a fraction. Filing amended return The fraction is the number of days during which you were a bona fide resident in 2012 (the year of the move) divided by 366. Filing amended return The remaining part of the reimbursement is for services performed in the foreign country in 2013. Filing amended return This computation is used only to determine when the reimbursement is considered earned. Filing amended return You would include the amount of the reimbursement in income in 2013, the year you received it. Filing amended return Move between foreign countries. Filing amended return   If you move between foreign countries, any moving expense reimbursement that you must include in income will be considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days in the year of the move. Filing amended return Move to U. Filing amended return S. Filing amended return   If you move to the United States, the moving expense reimbursement that you must include in income is generally considered to be U. Filing amended return S. Filing amended return source income. Filing amended return   However, if under either an agreement between you and your employer or a statement of company policy that is reduced to writing before your move to the foreign country, your employer will reimburse you for your move back to the United States regardless of whether you continue to work for the employer, the includible reimbursement is considered compensation for past services performed in the foreign country. Filing amended return The includible reimbursement is considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days during that year. Filing amended return Otherwise, you treat the includible reimbursement as received for services performed in the foreign country in the year of the move and the year immediately before the year of the move. Filing amended return   See the discussion under Move from U. Filing amended return S. Filing amended return to foreign country , earlier, to figure the amount of the includible reimbursement considered earned in the year of the move. Filing amended return The amount earned in the year before the year of the move is the difference between the total includible reimbursement and the amount earned in the year of the move. Filing amended return Example. Filing amended return You are a U. Filing amended return S. Filing amended return citizen employed in a foreign country. Filing amended return You retired from employment with your employer on March 31, 2013, and returned to the United States after having been a bona fide resident of the foreign country for several years. Filing amended return A written agreement with your employer entered into before you went abroad provided that you would be reimbursed for your move back to the United States. Filing amended return In April 2013, your former employer reimbursed you $4,000 for the part of the cost of your move back to the United States that you were not allowed to deduct. Filing amended return Because you were not a bona fide resident of a foreign country or countries for a period that included at least 120 days in 2013 (the year of the move), the includible reimbursement is considered pay for services performed in the foreign country for both 2013 and 2012. Filing amended return You figure the part of the moving expense reimbursement for services performed in the foreign country for 2013 by multiplying the total includible reimbursement by a fraction. Filing amended return The fraction is the number of days of foreign residence during the year (90) divided by the number of days in the year (365). Filing amended return The remaining part of the includible reimbursement is for services performed in the foreign country in 2012. Filing amended return You report the amount of the includible reimbursement in 2013, the year you received it. Filing amended return    In this example, if you met the physical presence test for a period that included at least 120 days in 2013, the moving expense reimbursement would be considered earned entirely in the year of the move. Filing amended return Storage expense reimbursements. Filing amended return   If you are reimbursed for storage expenses, the reimbursement is for services you perform during the period of time for which the storage expenses are incurred. Filing amended return U. Filing amended return S. Filing amended return Government Employees For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. Filing amended return This includes amounts paid from both appropriated and nonappropriated funds. Filing amended return The following organizations (and other organizations similarly organized and operated under United States Army, Navy, or Air Force regulations) are integral parts of the Armed Forces, agencies, or instrumentalities of the United States. Filing amended return United States Armed Forces exchanges. Filing amended return Commissioned and noncommissioned officers' messes. Filing amended return Armed Forces motion picture services. Filing amended return Kindergartens on foreign Armed Forces installations. Filing amended return Amounts paid by the United States or its agencies to persons who are not their employees may qualify for exclusion or deduction. Filing amended return If you are a U. Filing amended return S. Filing amended return Government employee paid by a U. Filing amended return S. Filing amended return agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U. Filing amended return S. Filing amended return Government and does not qualify for exclusion or deduction. Filing amended return If you have questions about whether you are an employee or an independent contractor, get Publication 15-A, Employer's Supplemental Tax Guide. Filing amended return American Institute in Taiwan. Filing amended return   Amounts paid by the American Institute in Taiwan are not foreign earned income for purposes of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Filing amended return If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. Filing amended return S. Filing amended return tax up to the amount that equals tax-exempt allowances received by civilian employees of the U. Filing amended return S. Filing amended return Government. Filing amended return Allowances. Filing amended return   Cost-of-living and foreign-area allowances paid under certain acts of Congress to U. Filing amended return S. Filing amended return civilian officers and employees stationed in Alaska and Hawaii or elsewhere outside the 48 contiguous states and the District of Columbia can be excluded from gross income. Filing amended return Post differentials are wages that must be included in gross income, regardless of the act of Congress under which they are paid. Filing amended return More information. Filing amended return   Publication 516, U. Filing amended return S. Filing amended return Government Civilian Employees Stationed Abroad, has more information for U. Filing amended return S. Filing amended return Government employees abroad. Filing amended return Exclusion of Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Filing amended return The meals are furnished: On the business premises of your employer, and For the convenience of your employer. Filing amended return The lodging is furnished: On the business premises of your employer, For the convenience of your employer, and As a condition of your employment. Filing amended return If these conditions are met, do not include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation. Filing amended return Amounts you do not include in income because of these rules are not foreign earned income. Filing amended return If you receive a Form W-2, excludable amounts should not be included in the total reported in box 1 as wages. Filing amended return Family. Filing amended return   Your family, for this purpose, includes only your spouse and your dependents. Filing amended return Lodging. Filing amended return   The value of lodging includes the cost of heat, electricity, gas, water, sewer service, and similar items needed to make the lodging fit to live in. Filing amended return Business premises of employer. Filing amended return   Generally, the business premises of your employer is wherever you work. Filing amended return For example, if you work as a housekeeper, meals and lodging provided in your employer's home are provided on the business premises of your employer. Filing amended return Similarly, meals provided to cowhands while herding cattle on land leased or owned by their employer are considered provided on the premises of their employer. Filing amended return Convenience of employer. Filing amended return   Whether meals or lodging are provided for your employer's convenience must be determined from all the facts and circumstances. Filing amended return Meals furnished at no charge are considered provided for your employer's convenience if there is a good business reason for providing them, other than to give you more pay. Filing amended return   On the other hand, if your employer provides meals to you or your family as a means of giving you more pay, and there is no other business reason for providing them, their value is extra income to you because they are not furnished for the convenience of your employer. Filing amended return Condition of employment. Filing amended return   Lodging is provided as a condition of employment if you must accept the lodging to properly carry out the duties of your job. Filing amended return You must accept lodging to properly carry out your duties if, for example, you must be available for duty at all times or you could not perform your duties if the lodging was not furnished. Filing amended return Foreign camps. Filing amended return   If the lodging is in a camp located in a foreign country, the camp is considered part of your employer's business premises. Filing amended return The camp must be: Provided for your employer's convenience because the place where you work is in a remote area where satisfactory housing is not available to you on the open market within a reasonable commuting distance, Located as close as reasonably possible in the area where you work, and Provided in a common area or enclave that is not available to the general public for lodging or accommodations and that normally houses at least ten employees. Filing amended return Foreign Earned Income Exclusion If your tax home is in a foreign country and you meet the bona fide residence test or the physical presence test, you can choose to exclude from your income a limited amount of your foreign earned income. Filing amended return Foreign earned income was defined earlier in this chapter. Filing amended return You also can choose to exclude from your income a foreign housing amount. Filing amended return This is explained later under Foreign Housing Exclusion. Filing amended return If you choose to exclude a foreign housing amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. Filing amended return Your foreign earned income exclusion is limited to your foreign earned income minus your foreign housing exclusion. Filing amended return If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Filing amended return This includes any expenses, losses, and other normally deductible items allocable to the excluded income. Filing amended return For more information about deductions and credits, see chapter 5 . Filing amended return Limit on Excludable Amount You may be able to exclude up to $97,600 of your foreign earned income in 2013. Filing amended return You cannot exclude more than the smaller of: $97,600, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). Filing amended return If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. Filing amended return You do not both need to meet the same test. Filing amended return Together, you and your spouse can exclude as much as $195,200. Filing amended return Paid in year following work. Filing amended return   Generally, you are considered to have earned income in the year in which you do the work for which you receive the income, even if you work in one year but are not paid until the following year. Filing amended return If you report your income on a cash basis, you report the income on your return for the year you receive it. Filing amended return If you work one year, but are not paid for that work until the next year, the amount you can exclude in the year you are paid is the amount you could have excluded in the year you did the work if you had been paid in that year. Filing amended return For an exception to this general rule, see Year-end payroll period, later. Filing amended return Example. Filing amended return You were a bona fide resident of Brazil for all of 2012 and 2013. Filing amended return You report your income on the cash basis. Filing amended return In 2012, you were paid $84,200 for work you did in Brazil during that year. Filing amended return You excluded all of the $84,200 from your income in 2012. Filing amended return In 2013, you were paid $117,300 for your work in Brazil. Filing amended return $18,800 was for work you did in 2012 and $98,500 was for work you did in 2013. Filing amended return You can exclude $10,900 of the $18,800 from your income in 2013. Filing amended return This is the $95,100 maximum exclusion in 2012 minus the $84,200 actually excluded that year. Filing amended return You must include the remaining $7,900 in income in 2013 because you could not have excluded that income in 2012 if you had received it that year. Filing amended return You can exclude $97,600 of the $98,500 you were paid for work you did in 2013 from your 2013 income. Filing amended return Your total foreign earned income exclusion for 2013 is $108,500 ($10,900 for work you did in 2012 and $97,600 for work you did in 2013). Filing amended return You would include in your 2013 income $8,800 ($7,900 for the work you did in 2012 and $900 for the work you did in 2013). Filing amended return Year-end payroll period. Filing amended return   There is an exception to the general rule that income is considered earned in the year you do the work for which you receive the income. Filing amended return If you are a cash-basis taxpayer, any salary or wage payment you receive after the end of the year in which you do the work for which you receive the pay is considered earned entirely in the year you receive it if all four of the following apply. Filing amended return The period for which the payment is made is a normal payroll period of your employer that regularly applies to you. Filing amended return The payroll period includes the last day of your tax year (December 31 if you figure your taxes on a calendar-year basis). Filing amended return The payroll period is not longer than 16 days. Filing amended return The payday comes at the same time in relation to the payroll period that it would normally come and it comes before the end of the next payroll period. Filing amended return Example. Filing amended return You are paid twice a month. Filing amended return For the normal payroll period that begins on the first of the month and ends on the fifteenth of the month, you are paid on the sixteenth day of the month. Filing amended return For the normal payroll period that begins on the sixteenth of the month and ends on the last day of the month, you are paid on the first day of the following month. Filing amended return Because all of the above conditions are met, the pay you received on January 1, 2013, is considered earned in 2013. Filing amended return Income earned over more than 1 year. Filing amended return   Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. Filing amended return For example, a bonus may be based on work you did over several years. Filing amended return You determine the amount of the bonus that is considered earned in a particular year in two steps. Filing amended return Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. Filing amended return Multiply the result of (1) by the number of months you did the work during the year. Filing amended return This is the amount that is subject to the exclusion limit for that tax year. Filing amended return Income received more than 1 year after it was earned. Filing amended return   You cannot exclude income you receive after the end of the year following the year you do the work to earn it. Filing amended return Example. Filing amended return   You were a bona fide resident of Sweden for 2011, 2012, and 2013. Filing amended return You report your income on the cash basis. Filing amended return In 2011, you were paid $69,000 for work you did in Sweden that year and in 2012 you were paid $74,000 for that year's work in Sweden. Filing amended return You excluded all the income on your 2011 and 2012 returns. Filing amended return   In 2013, you were paid $92,000; $82,000 for your work in Sweden during 2013, and $10,000 for work you did in Sweden in 2011. Filing amended return You cannot exclude any of the $10,000 for work done in 2011 because you received it after the end of the year following the year in which you earned it. Filing amended return You must include the $10,000 in income. Filing amended return You can exclude all of the $82,000 received for work you did in 2013. Filing amended return Community income. Filing amended return   The maximum exclusion applies separately to the earnings of spouses. Filing amended return Ignore any community property laws when you figure your limit on the foreign earned income exclusion. Filing amended return Part-year exclusion. Filing amended return   If the period for which you qualify for the foreign earned income exclusion includes only part of the year, you must adjust the maximum limit based on the number of qualifying days in the year. Filing amended return The number of qualifying days is the number of days in the year within the period on which you both: Have your tax home in a foreign country, and Meet either the bona fide residence test or the physical presence test. Filing amended return   For this purpose, you can count as qualifying days all days within a period of 12 consecutive months once you are physically present and have your tax home in a foreign country for 330 full days. Filing amended return To figure your maximum exclusion, multiply the maximum excludable amount for the year by the number of your qualifying days in the year, and then divide the result by the number of days in the year. Filing amended return Example. Filing amended return You report your income on the calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2013. Filing amended return You can exclude a maximum of 75/365 of $97,600, or $20,055, of your foreign earned income for 2013. Filing amended return If you qualify under the bona fide residence test for all of 2014, you can exclude your foreign earned income up to the 2014 limit. Filing amended return Physical presence test. Filing amended return   Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. Filing amended return If you qualify for the foreign earned income exclusion under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year. Filing amended return Example. Filing amended return You are physically present and have your tax home in a foreign country for a 16-month period from June 1, 2012, through September 30, 2013, except for 16 days in December 2012 when you were on vacation in the United States. Filing amended return You figure the maximum exclusion for 2012 as follows. Filing amended return Beginning with June 1, 2012, count forward 330 full days. Filing amended return Do not count the 16 days you spent in the United States. Filing amended return The 330th day, May 12, 2013, is the last day of a 12-month period. Filing amended return Count backward 12 months from May 11, 2013, to find the first day of this 12-month period, May 12, 2012. Filing amended return This 12-month period runs from May 12, 2012, through May 11, 2013. Filing amended return Count the total days during 2012 that fall within this 12-month period. Filing amended return This is 234 days (May 12, 2012 – December 31, 2012). Filing amended return Multiply $95,100 (the maximum exclusion for 2012) by the fraction 234/366 to find your maximum exclusion for 2012 ($60,802). Filing amended return You figure the maximum exclusion for 2013 in the opposite manner. Filing amended return Beginning with your last full day, September 30, 2013, count backward 330 full days. Filing amended return Do not count the 16 days you spent in the United States. Filing amended return That day, October 20, 2012, is the first day of a 12-month period. Filing amended return Count forward 12 months from October 20, 2012, to find the last day of this 12-month period, October 19, 2013. Filing amended return This 12-month period runs from October 20, 2012, through October 19, 2013. Filing amended return Count the total days during 2013 that fall within this 12-month period. Filing amended return This is 292 days (January 1, 2013 – October 19, 2013). Filing amended return Multiply $97,600, the maximum limit, by the fraction 292/365 to find your maximum exclusion for 2013 ($78,080). Filing amended return Choosing the Exclusion The foreign earned income exclusion is voluntary. Filing amended return You can choose the exclusion by completing the appropriate parts of Form 2555. Filing amended return When You Can Choose the Exclusion Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns. Filing amended return A return filed by the due date (including any extensions). Filing amended return A return amending a timely-filed return. Filing amended return Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid. Filing amended return A return filed within 1 year from the original due date of the return (determined without regard to any extensions). Filing amended return Filing after the above periods. Filing amended return   You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion. Filing amended return If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. Filing amended return Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1. Filing amended return 911-7(a)(2)(i)(D). Filing amended return ” If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. Filing amended return You must request a private letter ruling under Income Tax Regulation 301. Filing amended return 9100-3 and Revenue Procedure 2013-1, 2013-1 I. Filing amended return R. Filing amended return B. Filing amended return 1, available at www. Filing amended return irs. Filing amended return gov/irb/2013-01_IRB/ar06. Filing amended return html. Filing amended return Effect of Choosing the Exclusion Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it. Filing amended return Foreign tax credit or deduction. Filing amended return