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Free 1040 Ez Form

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Free 1040 Ez Form

Free 1040 ez form 6. Free 1040 ez form   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. Free 1040 ez form Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Free 1040 ez form Also use basis to figure depreciation, amortization, depletion, and casualty losses. Free 1040 ez form If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Free 1040 ez form Only the basis allocated to the business or investment use of the property can be depreciated. Free 1040 ez form Your original basis in property is adjusted (increased or decreased) by certain events. Free 1040 ez form For example, if you make improvements to the property, increase your basis. Free 1040 ez form If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Free 1040 ez form Keep accurate records of all items that affect the basis of your assets. Free 1040 ez form For information on keeping records, see chapter 1. Free 1040 ez form 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. Free 1040 ez form Cost Basis The basis of property you buy is usually its cost. Free 1040 ez form Cost is the amount you pay in cash, debt obligations, other property, or services. Free 1040 ez form Your cost includes amounts you pay for sales tax, freight, installation, and testing. Free 1040 ez form The basis of real estate and business assets will include other items, discussed later. Free 1040 ez form Basis generally does not include interest payments. Free 1040 ez form However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Free 1040 ez form You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Free 1040 ez form Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Free 1040 ez form Loans with low or no interest. Free 1040 ez form   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. Free 1040 ez form You generally have unstated interest if your interest rate is less than the applicable federal rate. Free 1040 ez form See the discussion of unstated interest in Publication 537, Installment Sales. Free 1040 ez form Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Free 1040 ez form If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Free 1040 ez form Some of these expenses are discussed next. Free 1040 ez form Lump sum purchase. Free 1040 ez form   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. Free 1040 ez form Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Free 1040 ez form Figure the basis of each asset by multiplying the lump sum by a fraction. Free 1040 ez form The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Free 1040 ez form Fair market value (FMV). Free 1040 ez form   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. Free 1040 ez form Sales of similar property on or about the same date may help in figuring the FMV of the property. Free 1040 ez form 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. Free 1040 ez form Real estate taxes. Free 1040 ez form   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. Free 1040 ez form   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Free 1040 ez form Whether or not you reimburse the seller, do not include that amount in the basis of your property. Free 1040 ez form Settlement costs. Free 1040 ez form   Your basis includes the settlement fees and closing costs for buying the property. Free 1040 ez form See Publication 551 for a detailed list of items you can and cannot include in basis. Free 1040 ez form   Do not include fees and costs for getting a loan on the property. Free 1040 ez form Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free 1040 ez form Points. Free 1040 ez form   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. Free 1040 ez form You may be able to deduct the points currently or over the term of the loan. Free 1040 ez form For more information about deducting points, see Points in chapter 4 of Publication 535. Free 1040 ez form Assumption of a mortgage. Free 1040 ez form   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. Free 1040 ez form Example. Free 1040 ez form If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Free 1040 ez form Constructing assets. Free 1040 ez form   If you build property or have assets built for you, your expenses for this construction are part of your basis. Free 1040 ez form 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. Free 1040 ez form   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Free 1040 ez form You must capitalize them (include them in the asset's basis). Free 1040 ez form Employee wages paid for the construction work, reduced by any employment credits allowed. Free 1040 ez form Depreciation on equipment you own while it is used in the construction. Free 1040 ez form Operating and maintenance costs for equipment used in the construction. Free 1040 ez form The cost of business supplies and materials used in the construction. Free 1040 ez form    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. Free 1040 ez form 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. Free 1040 ez form To determine the basis of these assets or separate items, there must be an allocation of basis. Free 1040 ez form Group of assets acquired. Free 1040 ez form   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Free 1040 ez form Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Free 1040 ez form You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Free 1040 ez form 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. Free 1040 ez form Farming business acquired. Free 1040 ez form   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. Free 1040 ez form Generally, reduce the purchase price by any cash received. Free 1040 ez form 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. Free 1040 ez form See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Free 1040 ez form Transplanted embryo. Free 1040 ez form   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. Free 1040 ez form Allocate the rest of the purchase price to the basis of the calf. Free 1040 ez form Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Free 1040 ez form 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. Free 1040 ez form You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Free 1040 ez form You are not subject to the uniform capitalization rules if the property is produced for personal use. Free 1040 ez form In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Free 1040 ez form Plants. Free 1040 ez form   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. Free 1040 ez form Animals. Free 1040 ez form   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Free 1040 ez form The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Free 1040 ez form Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Free 1040 ez form For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Free 1040 ez form For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Free 1040 ez form Exceptions. Free 1040 ez form   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. Free 1040 ez form   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Free 1040 ez form See Accrual Method Required under Accounting Methods in chapter 2. Free 1040 ez form   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Free 1040 ez form If you make this election, special rules apply. Free 1040 ez form This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Free 1040 ez form 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. Free 1040 ez form    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. Free 1040 ez form See chapter 7, for additional information on depreciation. Free 1040 ez form Example. Free 1040 ez form You grow trees that have a preproductive period of more than 2 years. Free 1040 ez form The trees produce an annual crop. Free 1040 ez form You are an individual and the uniform capitalization rules apply to your farming business. Free 1040 ez form You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Free 1040 ez form You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Free 1040 ez form Preproductive period of more than 2 years. Free 1040 ez form   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Free 1040 ez form Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Free 1040 ez form Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Free 1040 ez form More information. Free 1040 ez form   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Free 1040 ez form 263A-4. Free 1040 ez form Table 6-1. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form Increases to Basis Increase the basis of any property by all items properly added to a capital account. Free 1040 ez form These include the cost of any improvements having a useful life of more than 1 year. Free 1040 ez form The following costs increase the basis of property. Free 1040 ez form The cost of extending utility service lines to property. Free 1040 ez form Legal fees, such as the cost of defending and perfecting title. Free 1040 ez form Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Free 1040 ez form Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Free 1040 ez form Do not deduct these expenses as taxes. Free 1040 ez form However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Free 1040 ez form 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. Free 1040 ez form See chapter 7. Free 1040 ez form Deducting vs. Free 1040 ez form capitalizing costs. Free 1040 ez form   Do not add to your basis costs you can deduct as current expenses. Free 1040 ez form For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Free 1040 ez form However, you can elect either to deduct or to capitalize certain other costs. Free 1040 ez form See chapter 7 in Publication 535. Free 1040 ez form Decreases to Basis The following are some items that reduce the basis of property. Free 1040 ez form Section 179 deduction. Free 1040 ez form Deductions previously allowed or allowable for amortization, depreciation, and depletion. Free 1040 ez form Alternative motor vehicle credit. Free 1040 ez form See Form 8910. Free 1040 ez form Alternative fuel vehicle refueling property credit. Free 1040 ez form See Form 8911. Free 1040 ez form Residential energy efficient property credits. Free 1040 ez form See Form 5695. Free 1040 ez form Investment credit (part or all) taken. Free 1040 ez form Casualty and theft losses and insurance reimbursements. Free 1040 ez form Payments you receive for granting an easement. Free 1040 ez form Exclusion from income of subsidies for energy conservation measures. Free 1040 ez form Certain canceled debt excluded from income. Free 1040 ez form Rebates from a manufacturer or seller. Free 1040 ez form Patronage dividends received from a cooperative association as a result of a purchase of property. Free 1040 ez form See Patronage Dividends in chapter 3. Free 1040 ez form Gas-guzzler tax. Free 1040 ez form See Form 6197. Free 1040 ez form Some of these items are discussed next. Free 1040 ez form For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Free 1040 ez form Depreciation and section 179 deduction. Free 1040 ez form   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. Free 1040 ez form For more information on these deductions, see chapter 7. Free 1040 ez form Section 179 deduction. Free 1040 ez form   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. Free 1040 ez form Depreciation. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Free 1040 ez form   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. Free 1040 ez form   See chapter 7 for information on figuring the depreciation you should have claimed. Free 1040 ez form   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. Free 1040 ez form Casualty and theft losses. Free 1040 ez form   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Free 1040 ez form Also, decrease it by any deductible loss not covered by insurance. Free 1040 ez form See chapter 11 for information about figuring your casualty or theft loss. Free 1040 ez form   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. Free 1040 ez form To make this determination, compare the repaired property to the property before the casualty. Free 1040 ez form Easements. Free 1040 ez form   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Free 1040 ez form It reduces the basis of the affected part of the property. Free 1040 ez form 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. Free 1040 ez form See Easements and rights-of-way in chapter 3. Free 1040 ez form Exclusion from income of subsidies for energy conservation measures. Free 1040 ez form   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. Free 1040 ez form Reduce the basis of the property by the excluded amount. Free 1040 ez form Canceled debt excluded from income. Free 1040 ez form   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. Free 1040 ez form A debt includes any indebtedness for which you are liable or which attaches to property you hold. Free 1040 ez form   You can exclude your canceled debt from income if the debt is any of the following. Free 1040 ez form Debt canceled in a bankruptcy case or when you are insolvent. Free 1040 ez form Qualified farm debt. Free 1040 ez form Qualified real property business debt (provided you are not a C corporation). Free 1040 ez form Qualified principal residence indebtedness. Free 1040 ez form Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Free 1040 ez form If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Free 1040 ez form If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Free 1040 ez form   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Free 1040 ez form For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Free 1040 ez form For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Free 1040 ez form For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Free 1040 ez form Basis Other Than Cost There are times when you cannot use cost as basis. Free 1040 ez form In these situations, the fair market value or the adjusted basis of property may be used. Free 1040 ez form Examples are discussed next. Free 1040 ez form Property changed from personal to business or rental use. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form   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. Free 1040 ez form   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Free 1040 ez form The basis for figuring a gain is your adjusted basis in the property when you sell the property. Free 1040 ez form 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. Free 1040 ez form Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Free 1040 ez form Property received for services. Free 1040 ez form   If you receive property for services, include the property's FMV in income. Free 1040 ez form The amount you include in income becomes your basis. Free 1040 ez form 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. Free 1040 ez form Example. Free 1040 ez form George Smith is an accountant and also operates a farming business. Free 1040 ez form George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Free 1040 ez form The accounting work and the cow are each worth $1,500. Free 1040 ez form George must include $1,500 in income for his accounting services. Free 1040 ez form George's basis in the cow is $1,500. Free 1040 ez form Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Free 1040 ez form A taxable gain or deductible loss also is known as a recognized gain or loss. Free 1040 ez form A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Free 1040 ez form 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. Free 1040 ez form Example. Free 1040 ez form You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Free 1040 ez form You must report a taxable gain of $4,000 for the land. Free 1040 ez form The tractor has a basis of $6,000. Free 1040 ez form 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. Free 1040 ez form Similar or related property. Free 1040 ez form   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. Free 1040 ez form However, make the following adjustments. Free 1040 ez form Decrease the basis by the following amounts. Free 1040 ez form Any loss you recognize on the involuntary conversion. Free 1040 ez form Any money you receive that you do not spend on similar property. Free 1040 ez form Increase the basis by the following amounts. Free 1040 ez form Any gain you recognize on the involuntary conversion. Free 1040 ez form Any cost of acquiring the replacement property. Free 1040 ez form Money or property not similar or related. Free 1040 ez form   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. Free 1040 ez form Allocating the basis. Free 1040 ez form   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Free 1040 ez form Basis for depreciation. Free 1040 ez form   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Free 1040 ez form For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Free 1040 ez form For more information about involuntary conversions, see chapter 11. Free 1040 ez form Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Free 1040 ez form A nontaxable gain or loss also is known as an unrecognized gain or loss. Free 1040 ez form If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Free 1040 ez form Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Free 1040 ez form 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. Free 1040 ez form There must also be an exchange of like-kind property. Free 1040 ez form For more information, see Like-Kind Exchanges in  chapter 8. Free 1040 ez form The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Free 1040 ez form Example 1. Free 1040 ez form You traded a truck you used in your farming business for a new smaller truck to use in farming. Free 1040 ez form The adjusted basis of the old truck was $10,000. Free 1040 ez form The FMV of the new truck is $30,000. Free 1040 ez form 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. Free 1040 ez form Example 2. Free 1040 ez form You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Free 1040 ez form You use both the field cultivator and the planter in your farming business. Free 1040 ez form The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Free 1040 ez form   Exchange expenses generally are the closing costs that you pay. Free 1040 ez form They include such items as brokerage commissions, attorney fees, and deed preparation fees. Free 1040 ez form Add them to the basis of the like-kind property you receive. Free 1040 ez form Property plus cash. Free 1040 ez form   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. Free 1040 ez form Example. Free 1040 ez form You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Free 1040 ez form Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Free 1040 ez form Special rules for related persons. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form Each person reports it on the tax return filed for the year in which the later disposition occurred. Free 1040 ez form If this rule applies, the basis of the property received in the original exchange will be its FMV. Free 1040 ez form For more information, see chapter 8. Free 1040 ez form Exchange of business property. Free 1040 ez form   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Free 1040 ez form For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Free 1040 ez form Basis for depreciation. Free 1040 ez form   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Free 1040 ez form For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Free 1040 ez form Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Free 1040 ez form The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Free 1040 ez form Decrease the basis by the following amounts. Free 1040 ez form Any money you receive. Free 1040 ez form Any loss you recognize on the exchange. Free 1040 ez form Increase the basis by the following amounts. Free 1040 ez form Any additional costs you incur. Free 1040 ez form Any gain you recognize on the exchange. Free 1040 ez form If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Free 1040 ez form Example 1. Free 1040 ez form You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Free 1040 ez form You realize a gain of $40,000. Free 1040 ez form 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). Free 1040 ez form Include your gain in income (recognize gain) only to the extent of the cash received. Free 1040 ez form Your basis in the land you received is figured as follows. Free 1040 ez form 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. Free 1040 ez form You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Free 1040 ez form You realize a gain of $7,250. Free 1040 ez form 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). Free 1040 ez form You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Free 1040 ez form Your basis in the truck you received is figured as follows. Free 1040 ez form 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. Free 1040 ez form   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. Free 1040 ez form The rest is the basis of the like-kind property. Free 1040 ez form Example. Free 1040 ez form You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Free 1040 ez form You also received $1,000 cash and a truck that had an FMV of $3,000. Free 1040 ez form The truck is unlike property. Free 1040 ez form You realized a gain of $1,500. Free 1040 ez form 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). Free 1040 ez form 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. Free 1040 ez form Your basis in the properties you received is figured as follows. Free 1040 ez form 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). Free 1040 ez form This is the truck's FMV. Free 1040 ez form The rest ($12,500) is the basis of the tractor. Free 1040 ez form 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. Free 1040 ez form Example. Free 1040 ez form You used a tractor on your farm for 3 years. Free 1040 ez form Its adjusted basis is $22,000 and its FMV is $40,000. Free 1040 ez form You are interested in a new tractor, which sells for $60,000. Free 1040 ez form Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Free 1040 ez form Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Free 1040 ez form 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. Free 1040 ez form 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). Free 1040 ez form Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Free 1040 ez form 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. Free 1040 ez form You also must know its FMV at the time it was given to you and any gift tax paid on it. Free 1040 ez form FMV equal to or greater than donor's adjusted basis. Free 1040 ez form   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. Free 1040 ez form Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Free 1040 ez form   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. Free 1040 ez form See Adjusted Basis , earlier. Free 1040 ez form   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. Free 1040 ez form Figure the increase by multiplying the gift tax paid by the following fraction. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form Example. Free 1040 ez form In 2013, you received a gift of property from your mother that had an FMV of $50,000. Free 1040 ez form Her adjusted basis was $20,000. Free 1040 ez form The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Free 1040 ez form She paid a gift tax of $7,320. Free 1040 ez form Your basis, $26,076, is figured as follows. Free 1040 ez form 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) × . Free 1040 ez form 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. Free 1040 ez form If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Free 1040 ez form However, your basis cannot exceed the FMV of the gift when it was given to you. Free 1040 ez form FMV less than donor's adjusted basis. Free 1040 ez form   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. Free 1040 ez form Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Free 1040 ez form 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. Free 1040 ez form (See Adjusted Basis , earlier. Free 1040 ez form )   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. Free 1040 ez form Example. Free 1040 ez form You received farmland as a gift from your parents when they retired from farming. Free 1040 ez form At the time of the gift, the land had an FMV of $80,000. Free 1040 ez form Your parents' adjusted basis was $100,000. Free 1040 ez form After you received the land, no events occurred that would increase or decrease your basis. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Free 1040 ez form 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. Free 1040 ez form If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Free 1040 ez form Business property. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Free 1040 ez form 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. Free 1040 ez form If a federal estate return is filed, you can use its appraised value. Free 1040 ez form The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Free 1040 ez form For information on the alternate valuation, see the Instructions for Form 706. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form Special-use valuation method. Free 1040 ez form   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. Free 1040 ez form If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Free 1040 ez form 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. Free 1040 ez form The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form Figure all FMVs without regard to the special-use valuation. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Free 1040 ez form   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Free 1040 ez form 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. Free 1040 ez form 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. Free 1040 ez form The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Free 1040 ez form   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. Free 1040 ez form   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Free 1040 ez form Property inherited from a decedent who died in 2010. Free 1040 ez form   If you inherited property from a decedent who died in 2010, different rules may apply. Free 1040 ez form See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Free 1040 ez form 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. Free 1040 ez form Partner's basis. Free 1040 ez form   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. Free 1040 ez form 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. Free 1040 ez form For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Free 1040 ez form Shareholder's basis. Free 1040 ez form   The basis of property distributed by a corporation to a shareholder is its fair market value. Free 1040 ez form For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Free 1040 ez form Prev  Up  Next   Home   More Online Publications
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The International Tax Gap

Find resources on this page pertaining to the international tax gap — the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time. The tax gap can also be thought of as the sum of non-compliance with the tax law.

International Tax Gap Series

December 2009 Filing Extensions and Tax Return Preparation Assistance for Military Personnel Stationed Abroad or In a Combat Zone
August 2009

Self-Employment Tax for Businesses Abroad

June 2009 U.S. Citizens Performing Services in Foreign and International Airspace
May 2009 Departing Aliens and the Sailing Permit
April 2009 Reaching Out to Americans Abroad
February 2009 Taxation of Nonresident Aliens

January 2009

Foreign Housing Exclusion or Deduction

December 2008

Gifts from Foreign Persons

November 2008

Tax Treaties Can Affect Your Income Tax

October 2008

Taxation of International Pensions and Annuities

September 2008

U.S. Tax Withholding on Effectively Connected Income Allocable to Foreign Partners

August 2008

Foreign Trust Reporting Requirements

July 2008

Withholding of Tax on Dispositions of U.S. Real Property Interests

June 2008

Foreign Tax Credit

May 2008

Foreign Earned Income Exclusion

April 2008

Moving To or From a United States (U.S.) Territory/Possession

March 2008

U.S. Tax Withholding on Payments to Foreign Persons

February 2008

The Tax Gap and International Taxpayers - Filing Requirements


The Tax Gap - News, facts, figures and a fact sheet series on the tax gap in general.
Page Last Reviewed or Updated: 13-Mar-2014

The Free 1040 Ez Form

Free 1040 ez form Publication 542 - Additional Material Prev  Up  Next   Home   More Online Publications