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Free federal tax forms 1. Free federal tax forms   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. Free federal tax forms Amount realized on a recourse debt. Free federal tax forms Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. Free federal tax forms S. Free federal tax forms Individual Income Tax Return 1040X Amended U. Free federal tax forms S. Free federal tax forms Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Free federal tax forms However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Free federal tax forms See chapter 5 for information about getting publications and forms. Free federal tax forms Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. Free federal tax forms An exchange is a transfer of property for other property or services. Free federal tax forms The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. Free federal tax forms Sale or lease. Free federal tax forms    Some agreements that seem to be leases may really be conditional sales contracts. Free federal tax forms The intention of the parties to the agreement can help you distinguish between a sale and a lease. Free federal tax forms   There is no test or group of tests to prove what the parties intended when they made the agreement. Free federal tax forms You should consider each agreement based on its own facts and circumstances. Free federal tax forms For more information, see chapter 3 in Publication 535, Business Expenses. Free federal tax forms Cancellation of a lease. Free federal tax forms    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. Free federal tax forms Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. Free federal tax forms Copyright. Free federal tax forms    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. Free federal tax forms It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. Free federal tax forms Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. Free federal tax forms   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. Free federal tax forms For more information, see Section 1231 Gains and Losses in chapter 3. Free federal tax forms Easement. Free federal tax forms   The amount received for granting an easement is subtracted from the basis of the property. Free federal tax forms If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. Free federal tax forms If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. Free federal tax forms   Any amount received that is more than the basis to be reduced is a taxable gain. Free federal tax forms The transaction is reported as a sale of property. Free federal tax forms   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. Free federal tax forms However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. Free federal tax forms   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. Free federal tax forms Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. Free federal tax forms See Gain or Loss From Condemnations, later. Free federal tax forms Property transferred to satisfy debt. Free federal tax forms   A transfer of property to satisfy a debt is an exchange. Free federal tax forms Note's maturity date extended. Free federal tax forms   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. Free federal tax forms Also, it is not considered a closed and completed transaction that would result in a gain or loss. Free federal tax forms However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. Free federal tax forms Each case must be determined by its own facts. Free federal tax forms For more information, see Regulations section 1. Free federal tax forms 1001-3. Free federal tax forms Transfer on death. Free federal tax forms   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. Free federal tax forms No taxable gain or deductible loss results from the transfer. Free federal tax forms Bankruptcy. Free federal tax forms   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Free federal tax forms Consequently, the transfer generally does not result in gain or loss. Free federal tax forms For more information, see Publication 908, Bankruptcy Tax Guide. Free federal tax forms Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. Free federal tax forms A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. Free federal tax forms A loss is the adjusted basis of the property that is more than the amount you realize. Free federal tax forms   Table 1-1. Free federal tax forms How To Figure Whether You Have a Gain or Loss IF your. Free federal tax forms . Free federal tax forms . Free federal tax forms THEN you have a. Free federal tax forms . Free federal tax forms . Free federal tax forms Adjusted basis is more than the amount realized, Loss. Free federal tax forms Amount realized is more than the adjusted basis, Gain. Free federal tax forms Basis. Free federal tax forms   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. Free federal tax forms The basis of property you buy is usually its cost. Free federal tax forms However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. Free federal tax forms See Basis Other Than Cost in Publication 551, Basis of Assets. Free federal tax forms Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. Free federal tax forms See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. Free federal tax forms Adjusted basis. Free federal tax forms   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. Free federal tax forms Increases include costs of any improvements having a useful life of more than 1 year. Free federal tax forms Decreases include depreciation and casualty losses. Free federal tax forms For more details and additional examples, see Adjusted Basis in Publication 551. Free federal tax forms Amount realized. Free federal tax forms   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. Free federal tax forms The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. Free federal tax forms Fair market value. Free federal tax forms   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. Free federal tax forms If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. Free federal tax forms If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. Free federal tax forms Example. Free federal tax forms You used a building in your business that cost you $70,000. Free federal tax forms You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. Free federal tax forms You sold the building for $100,000 plus property having an FMV of $20,000. Free federal tax forms The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. Free federal tax forms The selling expenses were $4,000. Free federal tax forms Your gain on the sale is figured as follows. Free federal tax forms Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. Free federal tax forms   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. Free federal tax forms Recognized gains must be included in gross income. Free federal tax forms Recognized losses are deductible from gross income. Free federal tax forms However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. Free federal tax forms See Nontaxable Exchanges, later. Free federal tax forms Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. Free federal tax forms Interest in property. Free federal tax forms   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. Free federal tax forms If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. Free federal tax forms Your basis in the property is disregarded. Free federal tax forms This rule does not apply if all interests in the property are disposed of at the same time. Free federal tax forms Example 1. Free federal tax forms Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. Free federal tax forms You decide to sell your life interest in the farm. Free federal tax forms The entire amount you receive is a recognized gain. Free federal tax forms Your basis in the farm is disregarded. Free federal tax forms Example 2. Free federal tax forms The facts are the same as in Example 1, except that your brother joins you in selling the farm. Free federal tax forms The entire interest in the property is sold, so your basis in the farm is not disregarded. Free federal tax forms Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. Free federal tax forms Canceling a sale of real property. Free federal tax forms   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. Free federal tax forms If the buyer returns the property in the year of sale, no gain or loss is recognized. Free federal tax forms This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. Free federal tax forms If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. Free federal tax forms When the property is returned in a later year, you acquire a new basis in the property. Free federal tax forms That basis is equal to the amount you pay to the buyer. Free federal tax forms Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. Free federal tax forms You have a gain if the amount realized is more than your adjusted basis in the property. Free federal tax forms However, you do not have a loss if the amount realized is less than the adjusted basis of the property. Free federal tax forms Bargain sales to charity. Free federal tax forms   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. Free federal tax forms If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. Free federal tax forms The adjusted basis of the part sold is figured as follows. Free federal tax forms Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. Free federal tax forms This allocation rule does not apply if a charitable contribution deduction is not allowable. Free federal tax forms   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. Free federal tax forms Example. Free federal tax forms You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. Free federal tax forms Your adjusted basis in the property is $4,000. Free federal tax forms Your gain on the sale is $1,200, figured as follows. Free federal tax forms Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. Free federal tax forms You must subtract depreciation you took or could have taken from the basis of the business or rental part. Free federal tax forms However, see the special rule below for a home used partly for business or rental. Free federal tax forms You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. Free federal tax forms Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. Free federal tax forms Any gain on the personal part of the property is a capital gain. Free federal tax forms You cannot deduct a loss on the personal part. Free federal tax forms Home used partly for business or rental. Free federal tax forms    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Free federal tax forms See Property Used Partly for Business or Rental, in Publication 523. Free federal tax forms Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. Free federal tax forms You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. Free federal tax forms However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. Free federal tax forms Figure the loss you can deduct as follows. Free federal tax forms Use the lesser of the property's adjusted basis or fair market value at the time of the change. Free federal tax forms Add to (1) the cost of any improvements and other increases to basis since the change. Free federal tax forms Subtract from (2) depreciation and any other decreases to basis since the change. Free federal tax forms Subtract the amount you realized on the sale from the result in (3). Free federal tax forms If the amount you realized is more than the result in (3), treat this result as zero. Free federal tax forms The result in (4) is the loss you can deduct. Free federal tax forms Example. Free federal tax forms You changed your main home to rental property 5 years ago. Free federal tax forms At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. Free federal tax forms This year, you sold the property for $55,000. Free federal tax forms You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. Free federal tax forms Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. Free federal tax forms Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. Free federal tax forms   If you have a gain on the sale, you generally must recognize the full amount of the gain. Free federal tax forms You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. Free federal tax forms   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Free federal tax forms However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. Free federal tax forms   For more information, see Business Use or Rental of Home in Publication 523. Free federal tax forms In addition, special rules apply if the home sold was acquired in a like-kind exchange. Free federal tax forms See Special Situations in Publication 523. Free federal tax forms Also see Like-Kind Exchanges, later. Free federal tax forms Abandonments The abandonment of property is a disposition of property. Free federal tax forms You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Free federal tax forms Generally, abandonment is not treated as a sale or exchange of the property. Free federal tax forms If the amount you realize (if any) is more than your adjusted basis, then you have a gain. Free federal tax forms If your adjusted basis is more than the amount you realize (if any), then you have a loss. Free federal tax forms Loss from abandonment of business or investment property is deductible as a loss. Free federal tax forms A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. Free federal tax forms This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. Free federal tax forms If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. Free federal tax forms The abandonment loss is deducted in the tax year in which the loss is sustained. Free federal tax forms If the abandoned property is secured by debt, special rules apply. Free federal tax forms The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). Free federal tax forms For more information, including examples, see chapter 3 of Publication 4681. Free federal tax forms You cannot deduct any loss from abandonment of your home or other property held for personal use only. Free federal tax forms Cancellation of debt. Free federal tax forms   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. Free federal tax forms This income is separate from any loss realized from abandonment of the property. Free federal tax forms   You must report this income on your tax return unless one of the following applies. Free federal tax forms The cancellation is intended as a gift. Free federal tax forms The debt is qualified farm debt. Free federal tax forms The debt is qualified real property business debt. Free federal tax forms You are insolvent or bankrupt. Free federal tax forms The debt is qualified principal residence indebtedness. Free federal tax forms File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. Free federal tax forms For more information, including other exceptions and exclusion, see Publication 4681. Free federal tax forms Forms 1099-A and 1099-C. Free federal tax forms   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. Free federal tax forms However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. Free federal tax forms The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free federal tax forms For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Free federal tax forms Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Free federal tax forms The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. Free federal tax forms This is true even if you voluntarily return the property to the lender. Free federal tax forms You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. Free federal tax forms Buyer's (borrower's) gain or loss. Free federal tax forms   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. Free federal tax forms The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. Free federal tax forms See Gain or Loss From Sales and Exchanges, earlier. Free federal tax forms You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. Free federal tax forms Amount realized on a nonrecourse debt. Free federal tax forms   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. Free federal tax forms The full canceled debt is included even if the fair market value of the property is less than the canceled debt. Free federal tax forms Example 1. Free federal tax forms Chris bought a new car for $15,000. Free federal tax forms He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. Free federal tax forms Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. Free federal tax forms The credit company repossessed the car because he stopped making loan payments. Free federal tax forms The balance due after taking into account the payments Chris made was $10,000. Free federal tax forms The fair market value of the car when repossessed was $9,000. Free federal tax forms The amount Chris realized on the repossession is $10,000. Free federal tax forms That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. Free federal tax forms Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). Free federal tax forms He has a $5,000 nondeductible loss. Free federal tax forms Example 2. Free federal tax forms Abena paid $200,000 for her home. Free federal tax forms She paid $15,000 down and borrowed the remaining $185,000 from a bank. Free federal tax forms Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. Free federal tax forms The bank foreclosed on the loan because Abena stopped making payments. Free federal tax forms When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. Free federal tax forms The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. Free federal tax forms She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). Free federal tax forms She has a $5,000 realized gain. Free federal tax forms Amount realized on a recourse debt. Free federal tax forms   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. Free federal tax forms You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. Free federal tax forms The amount realized does not include the canceled debt that is your income from cancellation of debt. Free federal tax forms See Cancellation of debt, below. Free federal tax forms Seller's (lender's) gain or loss on repossession. Free federal tax forms   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. Free federal tax forms For more information, see Repossession in Publication 537. Free federal tax forms    Table 1-2. Free federal tax forms Worksheet for Foreclosures and Repossessions Part 1. Free federal tax forms Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Free federal tax forms Complete this part only  if you were personally liable for the debt. Free federal tax forms Otherwise,  go to Part 2. Free federal tax forms   1. Free federal tax forms Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. Free federal tax forms Enter the fair market value of the transferred property   3. Free federal tax forms Ordinary income from cancellation of debt upon foreclosure or    repossession. Free federal tax forms * Subtract line 2 from line 1. Free federal tax forms   If less than zero, enter zero   Part 2. Free federal tax forms Figure your gain or loss from foreclosure or repossession. Free federal tax forms   4. Free federal tax forms If you completed Part 1, enter the smaller of line 1 or line 2. Free federal tax forms   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. Free federal tax forms Enter any proceeds you received from the foreclosure sale   6. Free federal tax forms Add lines 4 and 5   7. Free federal tax forms Enter the adjusted basis of the transferred property   8. Free federal tax forms Gain or loss from foreclosure or repossession. Free federal tax forms Subtract line 7  from line 6   * The income may not be taxable. Free federal tax forms See Cancellation of debt. Free federal tax forms Cancellation of debt. Free federal tax forms   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. Free federal tax forms This income is separate from any gain or loss realized from the foreclosure or repossession. Free federal tax forms Report the income from cancellation of a debt related to a business or rental activity as business or rental income. Free federal tax forms    You can use Table 1-2 to figure your income from cancellation of debt. Free federal tax forms   You must report this income on your tax return unless one of the following applies. Free federal tax forms The cancellation is intended as a gift. Free federal tax forms The debt is qualified farm debt. Free federal tax forms The debt is qualified real property business debt. Free federal tax forms You are insolvent or bankrupt. Free federal tax forms The debt is qualified principal residence indebtedness. Free federal tax forms File Form 982 to report the income exclusion. Free federal tax forms Example 1. Free federal tax forms Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). Free federal tax forms In this case, the amount he realizes is $9,000. Free federal tax forms This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). Free federal tax forms Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). Free federal tax forms He has a $6,000 nondeductible loss. Free federal tax forms He also is treated as receiving ordinary income from cancellation of debt. Free federal tax forms That income is $1,000 ($10,000 − $9,000). Free federal tax forms This is the part of the canceled debt not included in the amount realized. Free federal tax forms Example 2. Free federal tax forms Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). Free federal tax forms In this case, the amount she realizes is $170,000. Free federal tax forms This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). Free federal tax forms Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). Free federal tax forms She has a $5,000 nondeductible loss. Free federal tax forms She also is treated as receiving ordinary income from cancellation of debt. Free federal tax forms (The debt is not exempt from tax as discussed under Cancellation of debt, above. Free federal tax forms ) That income is $10,000 ($180,000 − $170,000). Free federal tax forms This is the part of the canceled debt not included in the amount realized. Free federal tax forms Forms 1099-A and 1099-C. Free federal tax forms   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. Free federal tax forms However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. Free federal tax forms The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free federal tax forms For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Free federal tax forms Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Free federal tax forms Involuntary conversions are also called involuntary exchanges. Free federal tax forms Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. Free federal tax forms You report the gain or deduct the loss on your tax return for the year you realize it. Free federal tax forms You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. Free federal tax forms However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. Free federal tax forms Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. Free federal tax forms Your basis for the new property is the same as your basis for the converted property. Free federal tax forms This means that the gain is deferred until a taxable sale or exchange occurs. Free federal tax forms If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. Free federal tax forms This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. Free federal tax forms If you have a gain or loss from the destruction or theft of property, see Publication 547. Free federal tax forms Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. Free federal tax forms The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. Free federal tax forms The owner receives a condemnation award (money or property) in exchange for the property taken. Free federal tax forms A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. Free federal tax forms Example. Free federal tax forms A local government authorized to acquire land for public parks informed you that it wished to acquire your property. Free federal tax forms After the local government took action to condemn your property, you went to court to keep it. Free federal tax forms But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. Free federal tax forms This is a condemnation of private property for public use. Free federal tax forms Threat of condemnation. Free federal tax forms   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. Free federal tax forms You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. Free federal tax forms   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. Free federal tax forms If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. Free federal tax forms Reports of condemnation. Free federal tax forms   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. Free federal tax forms You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. Free federal tax forms If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. Free federal tax forms Example. Free federal tax forms Your property lies along public utility lines. Free federal tax forms The utility company has the authority to condemn your property. Free federal tax forms The company informs you that it intends to acquire your property by negotiation or condemnation. Free federal tax forms A threat of condemnation exists when you receive the notice. Free federal tax forms Related property voluntarily sold. Free federal tax forms   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. Free federal tax forms A substantial economic relationship exists if together the properties were one economic unit. Free federal tax forms You also must show that the condemned property could not reasonably or adequately be replaced. Free federal tax forms You can elect to postpone reporting the gain by buying replacement property. Free federal tax forms See Postponement of Gain, later. Free federal tax forms Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. Free federal tax forms If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. Free federal tax forms You can postpone reporting gain from a condemnation if you buy replacement property. Free federal tax forms If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. Free federal tax forms See Postponement of Gain, later. Free federal tax forms If your net condemnation award is less than your adjusted basis, you have a loss. Free federal tax forms If your loss is from property you held for personal use, you cannot deduct it. Free federal tax forms You must report any deductible loss in the tax year it happened. Free federal tax forms You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. Free federal tax forms Main home condemned. Free federal tax forms   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Free federal tax forms You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). Free federal tax forms For information on this exclusion, see Publication 523. Free federal tax forms If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. Free federal tax forms See Postponement of Gain, later. Free federal tax forms Table 1-3. Free federal tax forms Worksheet for Condemnations Part 1. Free federal tax forms Gain from severance damages. Free federal tax forms  If you did not receive severance damages, skip Part 1 and go to Part 2. Free federal tax forms   1. Free federal tax forms Enter gross severance damages received   2. Free federal tax forms Enter your expenses in getting severance damages   3. Free federal tax forms Subtract line 2 from line 1. Free federal tax forms If less than zero, enter -0-   4. Free federal tax forms Enter any special assessment on remaining property taken out of your award   5. Free federal tax forms Net severance damages. Free federal tax forms Subtract line 4 from line 3. Free federal tax forms If less than zero, enter -0-   6. Free federal tax forms Enter the adjusted basis of the remaining property   7. Free federal tax forms Gain from severance damages. Free federal tax forms Subtract line 6 from line 5. Free federal tax forms If less than zero, enter -0-   8. Free federal tax forms Refigured adjusted basis of the remaining property. Free federal tax forms Subtract line 5 from line 6. Free federal tax forms If less than zero, enter -0-   Part 2. Free federal tax forms Gain or loss from condemnation award. Free federal tax forms   9. Free federal tax forms Enter the gross condemnation award received   10. Free federal tax forms Enter your expenses in getting the condemnation award   11. Free federal tax forms If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. Free federal tax forms If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. Free federal tax forms Otherwise, enter -0-   12. Free federal tax forms Add lines 10 and 11   13. Free federal tax forms Net condemnation award. Free federal tax forms Subtract line 12 from line 9   14. Free federal tax forms Enter the adjusted basis of the condemned property   15. Free federal tax forms Gain from condemnation award. Free federal tax forms If line 14 is more than line 13, enter -0-. Free federal tax forms Otherwise, subtract line 14 from  line 13 and skip line 16   16. Free federal tax forms Loss from condemnation award. Free federal tax forms Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. Free federal tax forms )   Part 3. Free federal tax forms Postponed gain from condemnation. Free federal tax forms  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. Free federal tax forms )   17. Free federal tax forms If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. Free federal tax forms Otherwise, enter -0-   18. Free federal tax forms If line 15 is more than zero, enter the amount from line 13. Free federal tax forms Otherwise, enter -0-   19. Free federal tax forms Add lines 17 and 18. Free federal tax forms If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. Free federal tax forms Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. Free federal tax forms Subtract line 20 from line 19. Free federal tax forms If less than zero, enter -0-   22. Free federal tax forms If you completed Part 1, add lines 7 and 15. Free federal tax forms Otherwise, enter the amount from line 15. Free federal tax forms If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. Free federal tax forms Recognized gain. Free federal tax forms Enter the smaller of line 21 or line 22. Free federal tax forms   24. Free federal tax forms Postponed gain. Free federal tax forms Subtract line 23 from line 22. Free federal tax forms If less than zero, enter -0-   Condemnation award. Free federal tax forms   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. Free federal tax forms The award is also the amount you are paid for the sale of your property under threat of condemnation. Free federal tax forms Payment of your debts. Free federal tax forms   Amounts taken out of the award to pay your debts are considered paid to you. Free federal tax forms Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. Free federal tax forms Example. Free federal tax forms The state condemned your property for public use. Free federal tax forms The award was set at $200,000. Free federal tax forms The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. Free federal tax forms You are considered to have received the entire $200,000 as a condemnation award. Free federal tax forms Interest on award. Free federal tax forms   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. Free federal tax forms You must report the interest separately as ordinary income. Free federal tax forms Payments to relocate. Free federal tax forms   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. Free federal tax forms Do not include them in your income. Free federal tax forms Replacement housing payments used to buy new property are included in the property's basis as part of your cost. Free federal tax forms Net condemnation award. Free federal tax forms   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. Free federal tax forms If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. Free federal tax forms This is discussed later under Special assessment taken out of award. Free federal tax forms Severance damages. Free federal tax forms    Severance damages are not part of the award paid for the property condemned. Free federal tax forms They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. Free federal tax forms   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. Free federal tax forms Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. Free federal tax forms   The contracting parties should agree on the specific amount of severance damages in writing. Free federal tax forms If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. Free federal tax forms   You cannot make a completely new allocation of the total award after the transaction is completed. Free federal tax forms However, you can show how much of the award both parties intended for severance damages. Free federal tax forms The severance damages part of the award is determined from all the facts and circumstances. Free federal tax forms Example. Free federal tax forms You sold part of your property to the state under threat of condemnation. Free federal tax forms The contract you and the condemning authority signed showed only the total purchase price. Free federal tax forms It did not specify a fixed sum for severance damages. Free federal tax forms However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. Free federal tax forms You may treat this part as severance damages. Free federal tax forms Treatment of severance damages. Free federal tax forms   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. Free federal tax forms Use them to reduce the basis of the remaining property. Free federal tax forms If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. Free federal tax forms   If your net severance damages are more than the basis of your retained property, you have a gain. Free federal tax forms You may be able to postpone reporting the gain. Free federal tax forms See Postponement of Gain, later. Free federal tax forms    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. Free federal tax forms Net severance damages. Free federal tax forms   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. Free federal tax forms You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. Free federal tax forms The balance is your net severance damages. Free federal tax forms Expenses of obtaining a condemnation award and severance damages. Free federal tax forms   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. Free federal tax forms Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. Free federal tax forms If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. Free federal tax forms Example. Free federal tax forms You receive a condemnation award and severance damages. Free federal tax forms One-fourth of the total was designated as severance damages in your agreement with the condemning authority. Free federal tax forms You had legal expenses for the entire condemnation proceeding. Free federal tax forms You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. Free federal tax forms You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. Free federal tax forms Special assessment retained out of award. Free federal tax forms   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. Free federal tax forms An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. Free federal tax forms Examples of improvements that may cause a special assessment are widening a street and installing a sewer. Free federal tax forms   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. Free federal tax forms Example. Free federal tax forms To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. Free federal tax forms You were awarded $5,000 for this and spent $300 to get the award. Free federal tax forms Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. Free federal tax forms The city then paid you only $4,300. Free federal tax forms Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). Free federal tax forms If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). Free federal tax forms The net award would not change, even if you later paid the assessment from the amount you received. Free federal tax forms Severance damages received. Free federal tax forms   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. Free federal tax forms Any balance of the special assessment is used to reduce the condemnation award. Free federal tax forms Example. Free federal tax forms You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. Free federal tax forms You spent $300 to obtain the severance damages. Free federal tax forms A special assessment of $800 was retained out of the award. Free federal tax forms The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. Free federal tax forms Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. Free federal tax forms Part business or rental. Free federal tax forms   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. Free federal tax forms Figure your gain or loss separately because gain or loss on each part may be treated differently. Free federal tax forms   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. Free federal tax forms Example. Free federal tax forms You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. Free federal tax forms You rented half the building and lived in the other half. Free federal tax forms You paid $25,000 for the building and spent an additional $1,000 for a new roof. Free federal tax forms You claimed allowable depreciation of $4,600 on the rental half. Free federal tax forms You spent $200 in legal expenses to obtain the condemnation award. Free federal tax forms Figure your gain or loss as follows. Free federal tax forms     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. Free federal tax forms Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. Free federal tax forms Your basis for the new property is the same as your basis for the old. Free federal tax forms Money or unlike property received. Free federal tax forms   You ordinarily must report the gain if you receive money or unlike property. Free federal tax forms You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. Free federal tax forms You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. Free federal tax forms See Controlling interest in a corporation, later. Free federal tax forms   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. Free federal tax forms If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. Free federal tax forms   The basis of the replacement property is its cost, reduced by the postponed gain. Free federal tax forms Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. Free federal tax forms See Controlling interest in a corporation, later. Free federal tax forms You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. Free federal tax forms Postponing gain on severance damages. Free federal tax forms   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. Free federal tax forms See Treatment of severance damages, earlier. Free federal tax forms You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). Free federal tax forms   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. Free federal tax forms If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. Free federal tax forms   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. Free federal tax forms Postponing gain on the sale of related property. Free federal tax forms   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. Free federal tax forms You must meet the requirements explained earlier under Related property voluntarily sold. Free federal tax forms You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). Free federal tax forms Buying replacement property from a related person. Free federal tax forms   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. Free federal tax forms For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. Free federal tax forms   This rule applies to the following taxpayers. Free federal tax forms C corporations. Free federal tax forms Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. Free federal tax forms All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. Free federal tax forms   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. Free federal tax forms If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Free federal tax forms If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Free federal tax forms Exception. Free federal tax forms   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. Free federal tax forms Advance payment. Free federal tax forms   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). Free federal tax forms Replacement property. Free federal tax forms   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. Free federal tax forms You do not have to use the actual funds from the condemnation award to acquire the replacement property. Free federal tax forms Property you acquire by gift or inheritance does not qualify as replacement property. Free federal tax forms Similar or related in service or use. Free federal tax forms   Your replacement property must be similar or related in service or use to the property it replaces. Free federal tax forms   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. Free federal tax forms For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. Free federal tax forms Owner-user. Free federal tax forms   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Free federal tax forms Example. Free federal tax forms Your home was condemned and you invested the proceeds from the condemnation in a grocery store. Free federal tax forms Your replacement property is not similar or related in service or use to the condemned property. Free federal tax forms To be similar or related in service or use, your replacement property must also be used by you as your home. Free federal tax forms Owner-investor. Free federal tax forms   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. Free federal tax forms You decide this by determining all the following information. Free federal tax forms Whether the properties are of similar service to you. Free federal tax forms The nature of the business risks connected with the properties. Free federal tax forms What the properties demand of you in the way of management, service, and relations to your tenants. Free federal tax forms Example. Free federal tax forms You owned land and a building you rented to a manufacturing company. Free federal tax forms The building was condemned. Free federal tax forms During the replacement period, you had a new building built on other land you already owned. Free federal tax forms You rented out the new building for use as a wholesale grocery warehouse. Free federal tax forms The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. Free federal tax forms Your management activities. Free federal tax forms The amount and kind of services you provide to your tenants. Free federal tax forms The nature of your business risks connected with the properties. Free federal tax forms Leasehold replaced with fee simple property. Free federal tax forms   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. Free federal tax forms   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. Free federal tax forms A leasehold is property held under a lease, usually for a term of years. Free federal tax forms Outdoor advertising display replaced with real property. Free federal tax forms   You can elect to treat an outdoor advertising display as real property. Free federal tax forms If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. Free federal tax forms For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. Free federal tax forms   You can make this election only if you did not claim a section 179 deduction for the display. Free federal tax forms You cannot cancel this election unless you get the consent of the IRS. Free federal tax forms   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. Free federal tax forms Substituting replacement property. Free federal tax forms   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. Free federal tax forms But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. Free federal tax forms Controlling interest in a corporation. Free federal tax forms   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. Free federal tax forms You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. Free federal tax forms Basis adjustment to corporation's property. Free federal tax forms   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. Free federal tax forms You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). Free federal tax forms   Allocate this reduction to the following classes of property in the order shown below. Free federal tax forms Property that is similar or related in service or use to the condemned property. Free federal tax forms Depreciable property not reduced in (1). Free federal tax forms All other property. Free federal tax forms If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. Free federal tax forms The reduced basis of any single property cannot be less than zero. Free federal tax forms Main home replaced. Free federal tax forms   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. Free federal tax forms The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. Free federal tax forms   You must reduce the basis of your replacement property by the postponed gain. Free federal tax forms Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. Free federal tax forms Example. Free federal tax forms City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. Free federal tax forms The city paid you a condemnation award of $400,000. Free federal tax forms Your adjusted basis in the property was $80,000. Free federal tax forms You realize a gain of $320,000 ($400,000 − $80,000). Free federal tax forms You purchased a new home for $100,000. Free federal tax forms You can exclude $250,000 of the realized gain from your gross income. Free federal tax forms The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). Free federal tax forms You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). Free federal tax forms The remaining $20,000 of realized gain is postponed. Free federal tax forms Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). Free federal tax forms Replacement period. Free federal tax forms   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. Free federal tax forms This is the replacement period. Free federal tax forms   The replacement period for a condemnation begins on the earlier of the following dates. Free federal tax forms The date on which you disposed of the condemned property. Free federal tax forms The date on which the threat of condemnation began. Free federal tax forms   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Free federal tax forms However, see the exceptions below. Free federal tax forms Three-year replacement period for certain property. Free federal tax forms   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. Free federal tax forms However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. Free federal tax forms Five-year replacement period for certain property. Free federal tax forms   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. Free federal tax forms Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. Free federal tax forms Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. Free federal tax forms Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Free federal tax forms Extended replacement period for taxpayers affected by other federally declared disasters. Free federal tax forms    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. Free federal tax forms For more information visit www. Free federal tax forms irs. Free federal tax forms gov/uac/Tax-Relief-in-Disaster-Situations. Free federal tax forms Weather-related sales of livestock in an area eligible for federal assistance. Free federal tax forms   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Free federal tax forms    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. Free federal tax forms See Notice 2006-82. Free federal tax forms You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. Free federal tax forms irs. Free federal tax forms gov/irb/2006-39_IRB/ar13. Free federal tax forms html. Free federal tax forms    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Free federal tax forms If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. Free federal tax forms You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. Free federal tax forms irs. Free federal tax forms gov/irb/2013-45_IRB/ar04. Free federal tax forms html. Free federal tax forms The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. Free federal tax forms Determining when gain is realized. Free federal tax forms   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. Free federal tax forms If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. Free federal tax forms   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. Free federal tax forms A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. Free federal tax forms   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. Free federal tax forms All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. Free federal tax forms All or part of the award is actually or constructively received. Free federal tax forms For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. Free federal tax forms Replacement property bought before the condemnation. Free federal tax forms   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. Free federal tax forms Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. Free federal tax forms Example. Free federal tax forms On April 3, 2012, city authorities notified you that your property would be condemned. Free federal tax forms On June 5, 2012, you acquired property to replace the property to be condemned. Free federal tax forms You still had the new property when the city took possession of your old property on September 4, 2013. Free federal tax forms You have made a replacement within the replacement period. Free federal tax forms Extension. Free federal tax forms   You can request an extension of the replacement period from the IRS director for your area. Free federal tax forms You should apply before the end of the replacement period. Free federal tax forms Your request should explain in detail why you need an extension. Free federal tax forms The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. Free federal tax forms An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. Free federal tax forms   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. Free federal tax forms Extensions are usually limited to a period of 1 year or less. Free federal tax forms The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. Free federal tax forms If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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Record of Account

Record of Account Transcripts combine the information from tax account and tax return transcripts.

Page Last Reviewed or Updated: 10-Jan-2014

The Free Federal Tax Forms

Free federal tax forms Index A Affected taxpayer, Affected taxpayer. Free federal tax forms B Book inventories, charitable deduction for, Charitable Deduction for Contributions of Book Inventories to Public Schools C Cancellation of indebtedness, Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Casualty and theft losses, Casualty and Theft Losses Charitable contributions, Temporary Suspension of Limits on Charitable Contributions Charitable deduction: Book inventory, Charitable Deduction for Contributions of Book Inventories to Public Schools Food inventory, Charitable Deduction for Contributions of Food Inventory Child tax credit, Earned Income Credit and Child Tax Credit Clean-up costs, Demolition and Clean-up Costs Copy of tax return, request for, Request for copy of tax return. Free federal tax forms Core disaster area, Gulf Opportunity (GO) Zone (Core Disaster Area) Covered disaster area: Katrina, Katrina Covered Disaster Area Rita, Hurricane Rita Disaster Area (Rita Covered Disaster Area) Wilma, Wilma Covered Disaster Area Credits: Child tax, Earned Income Credit and Child Tax Credit Earned income, Earned Income Credit and Child Tax Credit Education, Education Credits Employee retention, Employee Retention Credit Hurricane Katrina housing, Hurricane Katrina Housing Credit Rehabilitation tax, Increase in Rehabilitation Tax Credit Work opportunity, Work Opportunity Credit D Deadlines, extended, Extended Tax Deadlines Demolition costs, Demolition and Clean-up Costs Depreciation: Qualified GO Zone property, Qualified GO Zone property. Free federal tax forms Special allowance, Special Depreciation Allowance Disaster area: Hurricane Katrina, Hurricane Katrina Disaster Area Hurricane Rita, Hurricane Rita Disaster Area (Rita Covered Disaster Area) Hurricane Wilma, Hurricane Wilma Disaster Area Distributions: Home purchase or construction, Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Qualified hurricane, Qualified hurricane distribution. Free federal tax forms Repayment of, Repayment of Qualified Hurricane Distributions Taxation of, Taxation of Qualified Hurricane Distributions E Earned income credit, Earned Income Credit and Child Tax Credit Education credits, Education Credits Eligible retirement plan, Eligible retirement plan. Free federal tax forms Employee retention credit, Employee Retention Credit Exemption, additional for housing, Additional Exemption for Housing Individuals Displaced by Hurricane Katrina F Federal mortgage subsidy, recapture of, Recapture of Federal Mortgage Subsidy Food inventory, charitable deduction for, Charitable Deduction for Contributions of Food Inventory G Gulf Opportunity (GO) Zone, Gulf Opportunity (GO) Zone (Core Disaster Area) H Help: How to get, How To Get Tax Help Phone number, How To Get Tax Help Special IRS assistance, How To Get Tax Help Website, How To Get Tax Help Hope credit (see Education credits) Hurricane Katrina disaster area, Hurricane Katrina Disaster Area Hurricane Katrina housing credit, Hurricane Katrina Housing Credit Hurricane Rita disaster area, Hurricane Rita Disaster Area (Rita Covered Disaster Area) Hurricane Wilma disaster area, Hurricane Wilma Disaster Area I Involuntary conversion (see Replacement period for nonrecognition of gain) IRAs and other retirement plans, IRAs and Other Retirement Plans L Lifetime learning credit (see Education credits) M Mileage reimbursements, charitable volunteers, Mileage Reimbursements to Charitable Volunteers N Net operating losses, Net Operating Losses Q Qualified GO Zone loss, Qualified GO Zone loss. Free federal tax forms Qualified hurricane distribution, Qualified hurricane distribution. Free federal tax forms R Reforestation costs, Reforestation Costs Rehabilitation tax credit, Increase in Rehabilitation Tax Credit Relocation, temporary, Tax Relief for Temporary Relocation Replacement period for nonrecognition of gain, Replacement Period for Nonrecognition of Gain Retirement plan, eligible, Eligible retirement plan. Free federal tax forms Retirement plans, IRAs and Other Retirement Plans Rita GO Zone, Rita GO Zone S Section 179 deduction, Increased Section 179 Deduction Standard mileage rate, charitable use, Standard Mileage Rate for Charitable Use of Vehicles T Tax return: Request for copy, Request for copy of tax return. Free federal tax forms Request for transcript, Request for transcript of tax return. Free federal tax forms Taxpayer Advocate, Contacting your Taxpayer Advocate. Free federal tax forms Temporary relocation, Tax Relief for Temporary Relocation Theft losses, Casualty and Theft Losses Timber: 5-year NOL carryback, 5-year NOL carryback of certain timber losses. Free federal tax forms Reforestation costs, Reforestation Costs Transcript of tax return, request for, Request for transcript of tax return. Free federal tax forms W Wilma GO Zone, Wilma GO Zone Work opportunity credit, Work Opportunity Credit Prev  Up     Home   More Online Publications