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Help Filling Out 1040x

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Help Filling Out 1040x

Help filling out 1040x 13. Help filling out 1040x   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Help filling out 1040x It is divided into the following sections. Help filling out 1040x Cost basis. Help filling out 1040x Adjusted basis. Help filling out 1040x Basis other than cost. Help filling out 1040x Your basis is the amount of your investment in property for tax purposes. Help filling out 1040x Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Help filling out 1040x Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Help filling out 1040x If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Help filling out 1040x Only the basis allocated to the business or investment use of the property can be depreciated. Help filling out 1040x Your original basis in property is adjusted (increased or decreased) by certain events. Help filling out 1040x For example, if you make improvements to the property, increase your basis. Help filling out 1040x If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Help filling out 1040x Keep accurate records of all items that affect the basis of your property. Help filling out 1040x For more information on keeping records, see chapter 1. Help filling out 1040x Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Help filling out 1040x The cost is the amount you pay in cash, debt obligations, other property, or services. Help filling out 1040x Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Help filling out 1040x In addition, the basis of real estate and business assets may include other items. Help filling out 1040x Loans with low or no interest. Help filling out 1040x    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 any amount considered to be unstated interest. Help filling out 1040x You generally have unstated interest if your interest rate is less than the applicable federal rate. Help filling out 1040x   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Help filling out 1040x Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Help filling out 1040x If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Help filling out 1040x Lump sum purchase. Help filling out 1040x   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Help filling out 1040x Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Help filling out 1040x Figure the basis of each asset by multiplying the lump sum by a fraction. Help filling out 1040x The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Help filling out 1040x    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Help filling out 1040x Fair market value (FMV). Help filling out 1040x   FMV is the price at which the 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 the necessary facts. Help filling out 1040x Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Help filling out 1040x Assumption of mortgage. Help filling out 1040x   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Help filling out 1040x Settlement costs. Help filling out 1040x   Your basis includes the settlement fees and closing costs you paid for buying the property. Help filling out 1040x (A fee for buying property is a cost that must be paid even if you buy the property for cash. Help filling out 1040x ) Do not include fees and costs for getting a loan on the property in your basis. Help filling out 1040x   The following are some of the settlement fees or closing costs you can include in the basis of your property. Help filling out 1040x Abstract fees (abstract of title fees). Help filling out 1040x Charges for installing utility services. Help filling out 1040x Legal fees (including fees for the title search and preparation of the sales contract and deed). Help filling out 1040x Recording fees. Help filling out 1040x Survey fees. Help filling out 1040x Transfer taxes. Help filling out 1040x Owner's title insurance. Help filling out 1040x Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Help filling out 1040x   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Help filling out 1040x   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Help filling out 1040x Casualty insurance premiums. Help filling out 1040x Rent for occupancy of the property before closing. Help filling out 1040x Charges for utilities or other services related to occupancy of the property before closing. Help filling out 1040x Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Help filling out 1040x Fees for refinancing a mortgage. Help filling out 1040x Real estate taxes. Help filling out 1040x   If you pay 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. Help filling out 1040x You cannot deduct them as an expense. Help filling out 1040x    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Help filling out 1040x Do not include that amount in the basis of your property. Help filling out 1040x If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Help filling out 1040x Points. Help filling out 1040x   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Help filling out 1040x Generally, you deduct the points over the term of the loan. Help filling out 1040x For more information on how to deduct points, see chapter 23. Help filling out 1040x Points on home mortgage. Help filling out 1040x   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Help filling out 1040x If certain requirements are met, you can deduct the points in full for the year in which they are paid. Help filling out 1040x Reduce the basis of your home by any seller-paid points. Help filling out 1040x 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 (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Help filling out 1040x The result is the adjusted basis. Help filling out 1040x Increases to Basis Increase the basis of any property by all items properly added to a capital account. Help filling out 1040x Examples of items that increase basis are shown in Table 13-1. Help filling out 1040x These include the items discussed below. Help filling out 1040x Improvements. Help filling out 1040x   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Help filling out 1040x For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Help filling out 1040x Assessments for local improvements. Help filling out 1040x   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Help filling out 1040x Do not deduct them as taxes. Help filling out 1040x However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Help filling out 1040x Example. Help filling out 1040x Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Help filling out 1040x Add the assessment to your property's basis. Help filling out 1040x In this example, the assessment is a depreciable asset. Help filling out 1040x Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Help filling out 1040x Examples of items that decrease basis are shown in Table 13-1. Help filling out 1040x These include the items discussed below. Help filling out 1040x Table 13-1. Help filling out 1040x Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Help filling out 1040x   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Help filling out 1040x    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Help filling out 1040x   For more information on casualty and theft losses, see chapter 25. Help filling out 1040x Depreciation and section 179 deduction. Help filling out 1040x   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Help filling out 1040x   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Help filling out 1040x Example. Help filling out 1040x You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Help filling out 1040x You added an improvement to the duplex that cost $10,000. Help filling out 1040x In February last year, the duplex was damaged by fire. Help filling out 1040x Up to that time, you had been allowed depreciation of $23,000. Help filling out 1040x You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Help filling out 1040x You deducted a casualty loss of $1,000 on your income tax return for last year. Help filling out 1040x You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Help filling out 1040x You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Help filling out 1040x Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Help filling out 1040x Your basis in the land is its original cost of $5,000. Help filling out 1040x Easements. Help filling out 1040x   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Help filling out 1040x It reduces the basis of the affected part of the property. Help filling out 1040x 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. Help filling out 1040x   If the gain is on a capital asset, see chapter 16 for information about how to report it. Help filling out 1040x If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Help filling out 1040x Exclusion of subsidies for energy conservation measures. Help filling out 1040x   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. Help filling out 1040x Reduce the basis of the property for which you received the subsidy by the excluded amount. Help filling out 1040x For more information about this subsidy, see chapter 12. Help filling out 1040x Postponed gain from sale of home. Help filling out 1040x    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Help filling out 1040x For more information on the rules for the sale of a home, see chapter 15. Help filling out 1040x Basis Other Than Cost There are many times when you cannot use cost as basis. Help filling out 1040x In these cases, the fair market value or the adjusted basis of the property can be used. Help filling out 1040x Fair market value (FMV) and adjusted basis were discussed earlier. Help filling out 1040x Property Received for Services If you receive property for your services, include the FMV of the property in income. Help filling out 1040x The amount you include in income becomes your basis. Help filling out 1040x 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. Help filling out 1040x Restricted property. Help filling out 1040x   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Help filling out 1040x However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Help filling out 1040x Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Help filling out 1040x For more information, see Restricted Property in Publication 525. Help filling out 1040x Bargain purchases. Help filling out 1040x   A bargain purchase is a purchase of an item for less than its FMV. Help filling out 1040x If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Help filling out 1040x Your basis in the property is its FMV (your purchase price plus the amount you include in income). Help filling out 1040x   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Help filling out 1040x However, your basis in the property is still its FMV. Help filling out 1040x See Employee Discounts in Publication 15-B. Help filling out 1040x Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Help filling out 1040x A taxable gain or deductible loss also is known as a recognized gain or loss. Help filling out 1040x 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. Help filling out 1040x Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Help filling out 1040x Similar or related property. Help filling out 1040x   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Help filling out 1040x Decrease the basis by the following. Help filling out 1040x Any loss you recognize on the involuntary conversion. Help filling out 1040x Any money you receive that you do not spend on similar property. Help filling out 1040x Increase the basis by the following. Help filling out 1040x Any gain you recognize on the involuntary conversion. Help filling out 1040x Any cost of acquiring the replacement property. Help filling out 1040x Money or property not similar or related. Help filling out 1040x    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 conversion. Help filling out 1040x Example. Help filling out 1040x The state condemned your property. Help filling out 1040x The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Help filling out 1040x You realized a gain of $5,000 ($31,000 − $26,000). Help filling out 1040x You bought replacement property similar in use to the converted property for $29,000. Help filling out 1040x You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Help filling out 1040x Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Help filling out 1040x The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Help filling out 1040x   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Help filling out 1040x Basis for depreciation. Help filling out 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Help filling out 1040x For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Help filling out 1040x Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Help filling out 1040x If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Help filling out 1040x See Nontaxable Trades in chapter 14. Help filling out 1040x Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Help filling out 1040x To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Help filling out 1040x Qualifying property. Help filling out 1040x Like-kind property. Help filling out 1040x The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Help filling out 1040x If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Help filling out 1040x Qualifying property. Help filling out 1040x   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Help filling out 1040x Like-kind property. Help filling out 1040x   There must be an exchange of like-kind property. Help filling out 1040x Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Help filling out 1040x The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Help filling out 1040x Example. Help filling out 1040x You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Help filling out 1040x The dealer allows you $2,000 on the old truck, and you pay $4,800. Help filling out 1040x This is a like-kind exchange. Help filling out 1040x The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Help filling out 1040x If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Help filling out 1040x The basis of the new truck is the price you pay the dealer. Help filling out 1040x Partially nontaxable exchanges. Help filling out 1040x   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Help filling out 1040x The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Help filling out 1040x Decrease the basis by the following amounts. Help filling out 1040x Any money you receive. Help filling out 1040x Any loss you recognize on the exchange. Help filling out 1040x Increase the basis by the following amounts. Help filling out 1040x Any additional costs you incur. Help filling out 1040x Any gain you recognize on the exchange. Help filling out 1040x If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Help filling out 1040x Allocation of basis. Help filling out 1040x   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. Help filling out 1040x The rest is the basis of the like-kind property. Help filling out 1040x More information. Help filling out 1040x   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Help filling out 1040x Basis for depreciation. Help filling out 1040x   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Help filling out 1040x For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Help filling out 1040x 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. Help filling out 1040x The same rule applies to a transfer by your former spouse that is incident to divorce. Help filling out 1040x 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. Help filling out 1040x If the property transferred to you is a series E, series EE, or series I U. Help filling out 1040x S. Help filling out 1040x savings bond, the transferor must include in income the interest accrued to the date of transfer. Help filling out 1040x Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Help filling out 1040x For more information on these bonds, see chapter 7. Help filling out 1040x At the time of the transfer, 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. Help filling out 1040x For more information about the transfer of property from a spouse, see chapter 14. Help filling out 1040x Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Help filling out 1040x FMV less than donor's adjusted basis. Help filling out 1040x   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. Help filling out 1040x Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Help filling out 1040x 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. Help filling out 1040x See Adjusted Basis , earlier. Help filling out 1040x Example. Help filling out 1040x You received an acre of land as a gift. Help filling out 1040x At the time of the gift, the land had an FMV of $8,000. Help filling out 1040x The donor's adjusted basis was $10,000. Help filling out 1040x After you received the property, no events occurred to increase or decrease your basis. Help filling out 1040x If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Help filling out 1040x If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Help filling out 1040x If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Help filling out 1040x Business property. Help filling out 1040x   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. Help filling out 1040x FMV equal to or greater than donor's adjusted basis. Help filling out 1040x   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 at the time you received the gift. Help filling out 1040x Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Help filling out 1040x   Also, for figuring gain or loss from a sale or other disposition 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. Help filling out 1040x See Adjusted Basis , earlier. Help filling out 1040x   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. Help filling out 1040x Figure the increase by multiplying the gift tax paid by a fraction. Help filling out 1040x The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Help filling out 1040x   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Help filling out 1040x 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. Help filling out 1040x Example. Help filling out 1040x In 2013, you received a gift of property from your mother that had an FMV of $50,000. Help filling out 1040x Her adjusted basis was $20,000. Help filling out 1040x The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Help filling out 1040x She paid a gift tax of $7,320 on the property. Help filling out 1040x Your basis is $26,076, figured as follows: 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) × . Help filling out 1040x 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. Help filling out 1040x If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Help filling out 1040x However, your basis cannot exceed the FMV of the gift at the time it was given to you. Help filling out 1040x 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. Help filling out 1040x The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Help filling out 1040x The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Help filling out 1040x The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Help filling out 1040x 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. Help filling out 1040x For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Help filling out 1040x Property inherited from a decedent who died in 2010. Help filling out 1040x   If you inherited property from a decedent who died in 2010, special rules may apply. Help filling out 1040x For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Help filling out 1040x Community property. Help filling out 1040x   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Help filling out 1040x When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Help filling out 1040x For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Help filling out 1040x Example. Help filling out 1040x You and your spouse owned community property that had a basis of $80,000. Help filling out 1040x When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Help filling out 1040x The FMV of the community interest was $100,000. Help filling out 1040x The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Help filling out 1040x The basis of the other half to your spouse's heirs is also $50,000. Help filling out 1040x For more information about community property, see Publication 555, Community Property. Help filling out 1040x Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Help filling out 1040x To do so, you must figure its basis for depreciation at the time of the change. Help filling out 1040x An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Help filling out 1040x Basis for depreciation. Help filling out 1040x   The basis for depreciation is the lesser of the following amounts. Help filling out 1040x The FMV of the property on the date of the change. Help filling out 1040x Your adjusted basis on the date of the change. Help filling out 1040x Example. Help filling out 1040x Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Help filling out 1040x You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Help filling out 1040x Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Help filling out 1040x Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Help filling out 1040x On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Help filling out 1040x The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Help filling out 1040x Sale of property. Help filling out 1040x   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Help filling out 1040x Gain. Help filling out 1040x   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Help filling out 1040x Example. Help filling out 1040x Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Help filling out 1040x Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Help filling out 1040x Loss. Help filling out 1040x   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. Help filling out 1040x Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Help filling out 1040x Example. Help filling out 1040x Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Help filling out 1040x In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Help filling out 1040x Reduce that amount ($180,000) by the depreciation deductions ($37,500). Help filling out 1040x The basis for loss is $142,500 ($180,000 − $37,500). Help filling out 1040x Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Help filling out 1040x If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Help filling out 1040x You must adjust the basis of stocks for certain events that occur after purchase. Help filling out 1040x For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Help filling out 1040x This rule applies only when the additional stock received is identical to the stock held. Help filling out 1040x Also reduce your basis when you receive nontaxable distributions. Help filling out 1040x They are a return of capital. Help filling out 1040x Example. Help filling out 1040x In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Help filling out 1040x In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Help filling out 1040x In 2013 XYZ declared a 2-for-1 stock split. Help filling out 1040x You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Help filling out 1040x Other basis. Help filling out 1040x   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Help filling out 1040x For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Help filling out 1040x Identifying stocks or bonds sold. Help filling out 1040x   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Help filling out 1040x If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Help filling out 1040x For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Help filling out 1040x Mutual fund shares. Help filling out 1040x   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Help filling out 1040x For more information, see Publication 550. Help filling out 1040x Bond premium. Help filling out 1040x   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Help filling out 1040x See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Help filling out 1040x Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Help filling out 1040x Original issue discount (OID) on debt instruments. Help filling out 1040x   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Help filling out 1040x See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Help filling out 1040x Tax-exempt obligations. Help filling out 1040x    OID on tax-exempt obligations is generally not taxable. Help filling out 1040x However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Help filling out 1040x The accrued OID is added to the basis of the obligation to determine your gain or loss. Help filling out 1040x See chapter 4 of Publication 550. Help filling out 1040x Prev  Up  Next   Home   More Online Publications
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Help filling out 1040x Publication 4492 - Main Contents Table of Contents DefinitionsHurricane Katrina Disaster Area Katrina Covered Disaster Area Gulf Opportunity (GO) Zone (Core Disaster Area) Hurricane Rita Disaster Area (Rita Covered Disaster Area) Rita GO Zone Hurricane Wilma Disaster Area Wilma Covered Disaster Area Wilma GO Zone Extended Tax Deadlines Charitable Giving IncentivesTemporary Suspension of Limits on Charitable Contributions Standard Mileage Rate for Charitable Use of Vehicles Mileage Reimbursements to Charitable Volunteers Charitable Deduction for Contributions of Food Inventory Charitable Deduction for Contributions of Book Inventories to Public Schools Casualty and Theft LossesTime limit for making election. Help filling out 1040x Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Hurricane Distributions Repayment of Qualified Hurricane Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for IndividualsEarned Income Credit and Child Tax Credit Additional Exemption for Housing Individuals Displaced by Hurricane Katrina Education Credits Recapture of Federal Mortgage Subsidy Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Tax Relief for Temporary Relocation Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Work Opportunity Credit Employee Retention Credit Hurricane Katrina Housing Credit Reforestation Costs Demolition and Clean-up Costs Increase in Rehabilitation Tax Credit Request for Copy or Transcript of Tax Return How To Get Tax Help Definitions The following definitions are used throughout this publication. Help filling out 1040x Hurricane Katrina Disaster Area The Hurricane Katrina disaster area covers the area for which the President declared a major disaster before September 14, 2005, because of Hurricane Katrina. Help filling out 1040x The Hurricane Katrina disaster area covers the entire states of Alabama, Florida, Louisiana, and Mississippi. Help filling out 1040x Katrina Covered Disaster Area A portion of the Hurricane Katrina disaster area has been designated by the IRS as a covered disaster area. Help filling out 1040x The Katrina covered disaster area covers the following areas in four states. Help filling out 1040x Alabama. Help filling out 1040x   The counties of Baldwin, Bibb, Choctaw, Clarke, Colbert, Cullman, Greene, Hale, Jefferson, Lamar, Lauderdale, Marengo, Marion, Mobile, Monroe, Perry, Pickens, Sumter, Tuscaloosa, Washington, Wilcox, and Winston. Help filling out 1040x Florida. Help filling out 1040x   The counties of Bay, Broward, Collier, Escambia, Franklin, Gulf, Miami-Dade, Monroe, Okaloosa, Santa Rosa, and Walton. Help filling out 1040x Louisiana. Help filling out 1040x   All parishes. Help filling out 1040x Mississippi. Help filling out 1040x   All counties. Help filling out 1040x Gulf Opportunity (GO) Zone (Core Disaster Area) The GO Zone (also called the core disaster area) covers the portion of the Hurricane Katrina disaster area determined by the Federal Emergency Management Agency (FEMA) to be eligible for either individual only or both individual and public assistance from the Federal Government. Help filling out 1040x The GO Zone covers the following areas in three states. Help filling out 1040x Alabama. Help filling out 1040x   The counties of Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington. Help filling out 1040x Louisiana. Help filling out 1040x   The parishes of Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. Help filling out 1040x Bernard, St. Help filling out 1040x Charles, St. Help filling out 1040x Helena, St. Help filling out 1040x James, St. Help filling out 1040x John the Baptist, St. Help filling out 1040x Martin, St. Help filling out 1040x Mary, St. Help filling out 1040x Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana. Help filling out 1040x Mississippi. Help filling out 1040x   The counties of Adams, Amite, Attala, Choctaw, Claiborne, Clarke, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Holmes, Humphreys, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston, and Yazoo. Help filling out 1040x Hurricane Rita Disaster Area (Rita Covered Disaster Area) The Hurricane Rita disaster area (also designated by the IRS as the Rita covered disaster area) covers the area for which the President declared a major disaster before October 6, 2005, because of Hurricane Rita. Help filling out 1040x This area covers the entire states of Louisiana and Texas. Help filling out 1040x Rita GO Zone The Rita GO Zone covers the portion of the Hurricane Rita disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. Help filling out 1040x The Rita GO Zone covers the following areas in two states. Help filling out 1040x Louisiana. Help filling out 1040x   The parishes of Acadia, Allen, Ascension, Beauregard, Calcasieu, Cameron, Evangeline, Iberia, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Plaquemines, Sabine, St. Help filling out 1040x Landry, St. Help filling out 1040x Martin, St. Help filling out 1040x Mary, St. Help filling out 1040x Tammany, Terrebonne, Vermilion, Vernon, and West Baton Rouge. Help filling out 1040x Texas. Help filling out 1040x   The counties of Angelina, Brazoria, Chambers, Fort Bend, Galveston, Hardin, Harris, Jasper, Jefferson, Liberty, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Shelby, Trinity, Tyler, and Walker. Help filling out 1040x Hurricane Wilma Disaster Area The Hurricane Wilma disaster area covers the area for which the President declared a major disaster before November 14, 2005, because of Hurricane Wilma. Help filling out 1040x The Hurricane Wilma disaster area covers the entire state of Florida. Help filling out 1040x Wilma Covered Disaster Area A portion of the Hurricane Wilma disaster area has been designated by the IRS as a covered disaster area. Help filling out 1040x The Wilma covered disaster area covers the following counties. Help filling out 1040x Florida. Help filling out 1040x   Brevard, Broward, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Osceola, Palm Beach, Polk, St. Help filling out 1040x Lucie, and Sarasota. Help filling out 1040x Wilma GO Zone The Wilma GO Zone covers the portion of the Hurricane Wilma disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. Help filling out 1040x The Wilma GO Zone covers the following counties. Help filling out 1040x Florida. Help filling out 1040x   Brevard, Broward, Collier, Glades, Hendry, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Palm Beach, and St. Help filling out 1040x Lucie. Help filling out 1040x Extended Tax Deadlines The IRS has extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Katrina, Rita, or Wilma, until February 28, 2006. Help filling out 1040x The extension applies to deadlines (either an original or extended due date) that occur during the following periods. Help filling out 1040x After August 28, 2005 (August 23, 2005, for Florida affected taxpayers), and before February 28, 2006, for taxpayers affected by Hurricane Katrina. Help filling out 1040x After September 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Rita. Help filling out 1040x After October 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Wilma. Help filling out 1040x Affected taxpayer. Help filling out 1040x   The following taxpayers are eligible for the extension. Help filling out 1040x Any individual whose main home is located in a covered disaster area. Help filling out 1040x Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Help filling out 1040x Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained or whose tax professional's office is in a covered disaster area. Help filling out 1040x The main home or principal place of business does not have to be located in the covered area. Help filling out 1040x Any individual visiting a county or parish in the Hurricane Katrina or Hurricane Rita covered disaster area that was injured or killed (and the estate of an individual killed) as a result of the hurricane or its aftermath. Help filling out 1040x Any estate or trust whose tax records needed to meet a filing or payment deadline are maintained in a covered disaster area. Help filling out 1040x Generally, any individual who is a worker assisting in the relief activities in a covered disaster area. Help filling out 1040x However, a relief worker assisting in the Wilma covered disaster area is not an affected taxpayer unless the worker is affiliated with a recognized government or philanthropic organization assisting in the relief activities. Help filling out 1040x The spouse of an affected taxpayer, solely with regard to a joint income tax return with that taxpayer. Help filling out 1040x   To ensure correct processing, affected taxpayers should write the assigned disaster designation (for example, “Hurricane Katrina”) in red ink at the top of any forms or documents filed with the IRS. Help filling out 1040x Affected taxpayers can also identify themselves to the IRS or ask hurricane-related questions by calling the special IRS disaster hotline at 1-866-562-5227. Help filling out 1040x Acts extended. Help filling out 1040x   Deadlines for performing the following acts are extended. Help filling out 1040x Filing any return of income, estate, gift, generation-skipping transfer, excise, or employment tax. Help filling out 1040x Paying any income, estate, gift, generation-skipping transfer, excise, or employment tax. Help filling out 1040x This includes making estimated tax payments. Help filling out 1040x Making certain contributions, distributions, recharacterizing contributions, or making a rollover to or from a qualified retirement plan. Help filling out 1040x Filing certain petitions with the Tax Court. Help filling out 1040x Filing a claim for credit or refund of any tax. Help filling out 1040x Bringing suit upon a claim for credit or refund. Help filling out 1040x Certain other acts described in Revenue Procedure 2005-27. Help filling out 1040x You can find Revenue Procedure 2005-27 on page 1050 of Internal Revenue Bulletin 2005-20 at www. Help filling out 1040x irs. Help filling out 1040x gov/pub/irs-irbs/irb05-20. Help filling out 1040x pdf. Help filling out 1040x Forgiveness of interest and penalties. Help filling out 1040x   The IRS may forgive the interest and penalties on any underpaid income, estate, gift, employment, or excise tax for the length of any extension. Help filling out 1040x Charitable Giving Incentives Temporary Suspension of Limits on Charitable Contributions Individuals. Help filling out 1040x   Qualified contributions are not subject to the overall limit on itemized deductions or the 50% adjusted gross income (AGI) limit. Help filling out 1040x A qualified contribution is a charitable contribution paid in cash or by check after August 27, 2005, and before January 1, 2006, to a 50% limit organization (other than certain private foundations described in section 509(a)(3)) if you make an election to have the 50% limit not apply to these contributions. Help filling out 1040x   Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. Help filling out 1040x You can carry over any contributions you are not able to deduct for 2005 because of this limit. Help filling out 1040x In 2006, treat the carryover of your unused qualified contributions as a carryover of contributions subject to the 50% limit. Help filling out 1040x Exception. Help filling out 1040x   Qualified contributions do not include a contribution to a segregated fund or account for which you (or any person you appoint or designate) have or expect to have advisory privileges with respect to distributions or investments based on your contribution. Help filling out 1040x Corporations. Help filling out 1040x   A corporation may elect to deduct qualified cash contributions without regard to the 10% taxable income limit if the contributions were made after August 27, 2005, and before January 1, 2006, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3)), for Hurricane Katrina, Rita, or Wilma relief efforts. Help filling out 1040x The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. Help filling out 1040x Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% limit. Help filling out 1040x Partners and shareholders. Help filling out 1040x   Each partner in a partnership and each shareholder in an S corporation makes a separate election to have the appropriate limit not apply. Help filling out 1040x More information. Help filling out 1040x   For more information, see Publication 526 or Publication 542, Corporations. Help filling out 1040x Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions. Help filling out 1040x Standard Mileage Rate for Charitable Use of Vehicles The following are special standard mileage rates in effect in 2005 and 2006 for the cost of operating your automobile for providing charitable services solely related to Hurricane Katrina. Help filling out 1040x 29 cents per mile for the period August 25 through August 31, 2005. Help filling out 1040x 34 cents per mile for the period September 1 through December 31, 2005. Help filling out 1040x 32 cents per mile for the period January 1 through December 31, 2006. Help filling out 1040x Mileage Reimbursements to Charitable Volunteers You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger automobile for the benefit of a qualified charitable organization in providing relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on December 31, 2006. Help filling out 1040x You cannot claim a deduction or credit for amounts you receive as a mileage reimbursement. Help filling out 1040x You must keep records of miles driven, time, place (or use), and purpose of the mileage. Help filling out 1040x The amount you can exclude from income cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods. Help filling out 1040x 40. Help filling out 1040x 5 cents per mile for the period August 25 through August 31, 2005. Help filling out 1040x 48. Help filling out 1040x 5 cents per mile for the period September 1 through December 31, 2005. Help filling out 1040x 44. Help filling out 1040x 5 cents per mile for the period January 1 through December 31, 2006. Help filling out 1040x Charitable Deduction for Contributions of Food Inventory Any taxpayer engaged in a trade or business is eligible to claim a deduction for a contribution of “apparently wholesome food” inventory to a qualified charitable organization described in section 501(c)(3) (except for private nonoperating foundations) after August 27, 2005, and before January 1, 2006. Help filling out 1040x “Apparently wholesome food” is food that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. Help filling out 1040x The deduction is equal to the lesser of: The basis of the donated food plus one-half of the gain that would have been realized if the donated food had been sold at fair market value on the date of the donation, or Two times the basis of the donated food. Help filling out 1040x The taxpayer must receive written certification from the donee stating: The donated food is related to the purpose or function of the donee's basis for exemption under section 501(c)(3) and is to be used solely for the care of the ill, the needy, or infants; and The food was not given in exchange for money, other property, or services. Help filling out 1040x For a taxpayer other than a C corporation, the deduction is limited to 10% of the taxpayer's total net income from all trades or businesses from which the food contributions were made (figured without regard to the deduction for charitable contributions). Help filling out 1040x For example, if a taxpayer is a sole proprietor, a shareholder in an S corporation, and a partner in a partnership, and each made a contribution of apparently wholesome food inventory, the taxpayer's deduction is limited to 10% of the taxpayer's total net income from the sole proprietorship, S corporation, and partnership (figured without regard to the deduction for charitable contributions). Help filling out 1040x Charitable Deduction for Contributions of Book Inventories to Public Schools A corporation (other than an S corporation) may be allowed a charitable deduction for a qualified book contribution made after August 27, 2005, and before January 1, 2006, to a public school that: Provides elementary or secondary education (kindergarten through grade 12), and Normally maintains a regular faculty and curriculum and has a regular enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Help filling out 1040x . Help filling out 1040x The deduction is equal to the lesser of: The basis of the donated books plus one-half of the gain that would have been realized if the donated books had been sold at fair market value on the date of the donation, or Two times the basis of the donated books. Help filling out 1040x The corporation must receive written certification from the school stating that the donated books are suitable for the organization's educational programs and will be used for such programs. Help filling out 1040x Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that were caused by Hurricane Katrina, Rita, or Wilma. Help filling out 1040x For more information, see Publication 547. Help filling out 1040x Limits on personal casualty or theft losses caused by Hurricane Katrina, Rita, or Wilma. Help filling out 1040x   The following losses to personal use property are not subject to the $100 or 10% of adjusted gross income limits. Help filling out 1040x Losses that arose in the Hurricane Katrina disaster area after August 24, 2005, and that were caused by Hurricane Katrina. Help filling out 1040x Losses that arose in the Hurricane Rita disaster area after September 22, 2005, and that were caused by Hurricane Rita. Help filling out 1040x Losses that arose in the Hurricane Wilma disaster area after October 22, 2005, and that were caused by Hurricane Wilma. Help filling out 1040x Qualifying losses include losses from flooding or other casualty, and from theft, that arose in the hurricane disaster area and that were caused by the hurricane. Help filling out 1040x Special instructions for individuals who elect to claim a Hurricane Katrina, Rita, or Wilma casualty or theft loss for 2004. Help filling out 1040x   Casualty and theft losses are generally deductible only in the year the casualty occurred or theft was discovered. Help filling out 1040x However, Hurricane Katrina, Rita, and Wilma are Presidentially declared disasters. Help filling out 1040x Therefore, you can elect to deduct losses from these hurricanes on your tax return for the previous year. Help filling out 1040x If you make this election, use the following additional instructions to complete your forms. Help filling out 1040x   Individuals filing or amending their 2004 tax return whose only casualty or theft losses to personal use property claimed on that return were caused by Hurricane Katrina, Rita, or Wilma should write “Hurricane Katrina,” “Hurricane Rita,” or “Hurricane Wilma” at the top of Form 1040 or 1040X. Help filling out 1040x They must also complete and attach the 2004 Form 4684 and write “Hurricane Katrina,”“Hurricane Rita,” or “Hurricane Wilma” on the dotted line next to line 11 and enter -0- on lines 11 and 17. Help filling out 1040x   Individuals filing or amending their 2004 tax return who also have casualty or theft losses to personal use property not related to Hurricane Katrina, Rita, or Wilma should disregard the caution directing taxpayers to use only one Form 4684, located above line 13, and complete lines 13 through 18 on two Forms 4684. Help filling out 1040x The Form 1040 or 1040X and the first Form 4684 should be prepared as explained above for Hurricane Katrina, Rita, or Wilma losses only. Help filling out 1040x The second Form 4684 should be prepared in the normal manner for all gains and non-Hurricane Katrina, Rita or Wilma losses. Help filling out 1040x If both Forms 4684 have a loss on line 18, they should carry the combined losses from that line to Schedule A (Form 1040), line 19. Help filling out 1040x If there is a gain on line 15 of the second Form 4684, disregard the instruction to enter it on Schedule D (Form 1040), and instead enter on Schedule A (Form 1040), line 19, the excess of the loss from the first Form 4684 over the gain on line 15 of the second Form 4684. Help filling out 1040x , Time limit for making election. Help filling out 1040x   You must make this election to claim your casualty or theft loss in 2004 by the later of the following dates. Help filling out 1040x The due date (without extensions) for filing your 2005 income tax return. Help filling out 1040x The due date (with extensions) for filing your 2004 income tax return. Help filling out 1040x Example. Help filling out 1040x If you are a calendar year individual taxpayer, you have until April 17, 2006, to amend your 2004 tax return to claim a casualty or theft loss that occurred during 2005. Help filling out 1040x Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. Help filling out 1040x Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). Help filling out 1040x However, for property that was involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Help filling out 1040x For more information, see the Instructions for Form 4684. Help filling out 1040x Net Operating Losses Qualified GO Zone loss. Help filling out 1040x   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. Help filling out 1040x However, the portion of an NOL that is a qualified GO Zone loss can be carried back to the 5 tax years before the NOL year. Help filling out 1040x In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. Help filling out 1040x   A qualified GO Zone loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified GO Zone casualty loss (as defined below), Moving expenses paid or incurred after August 27, 2005, and before January 1, 2008, for the employment of an individual whose main home was in the GO Zone before August 28, 2005, who was unable to remain in that home because of Hurricane Katrina, and whose main job location (after the move) is in the GO Zone, Temporary housing expenses paid or incurred after August 27, 2005, and before January 1, 2008, to house employees of the taxpayer whose main job location is in the GO Zone, Depreciation or amortization allowable for any qualified GO Zone property (even if you elected not to claim the special GO Zone depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after August 27, 2005, and before January 1, 2008, for any damage from Hurricane Katrina to property located in the GO Zone. Help filling out 1040x Qualified GO Zone casualty loss. Help filling out 1040x   A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone if the loss was caused by Hurricane Katrina. Help filling out 1040x For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by Hurricane Katrina of property located in the GO Zone. Help filling out 1040x Any such loss taken into account in figuring your qualified GO Zone loss is not eligible for the election to be treated as having occurred in the previous tax year. Help filling out 1040x 5-year NOL carryback of certain timber losses. Help filling out 1040x   Generally, you can carry the portion of an NOL due to income and deductions attributable to a farming business back to the 5 tax years before the NOL year. Help filling out 1040x You can treat income and deductions attributable to qualified timber property as attributable to a farming business if any portion of the property is located in the GO Zone, Rita GO Zone, or Wilma GO Zone, and the income and deductions are allocable to the part of your tax year which is after the applicable date below. Help filling out 1040x August 27, 2005, if any portion of the property is located in the GO Zone. Help filling out 1040x September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). Help filling out 1040x October 22, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the RITA GO Zone). Help filling out 1040x   These rules will not apply after 2006. Help filling out 1040x   However, these rules apply only to a timber producer who: Held qualified timber property (defined in Publication 535, Business Expenses) on the applicable date below: August 28, 2005, if any portion of the property is located in the GO Zone, September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or October 23, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone); Is not a corporation with stock publicly traded on an established securities market; Is not a real estate investment trust; and Did not hold more than 500 acres of qualified timber property on the applicable date above. Help filling out 1040x More information. Help filling out 1040x   For more information on NOLs, see Publication 536 or Publication 542, Corporations. Help filling out 1040x IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of Hurricane Katrina, Rita, or Wilma. Help filling out 1040x Definitions Qualified hurricane distribution. Help filling out 1040x   A qualified hurricane distribution is any distribution you received from an eligible retirement plan if all of the following apply. Help filling out 1040x The distribution was made: After August 24, 2005, and before January 1, 2007, for Hurricane Katrina; After September 22, 2005, and before January 1, 2007, for Hurricane Rita; or After October 22, 2005, and before January 1, 2007, for Hurricane Wilma. Help filling out 1040x Your main home was located in a hurricane disaster area listed below on the date shown for that area. Help filling out 1040x August 28, 2005, for the Hurricane Katrina disaster area. Help filling out 1040x September 23, 2005, for the Hurricane Rita disaster area. Help filling out 1040x October 23, 2005, for the Hurricane Wilma disaster area. Help filling out 1040x You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster area on the date shown in (2) above for that hurricane. Help filling out 1040x Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Help filling out 1040x   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution was made on account of Hurricane Katrina, Rita, or Wilma. Help filling out 1040x Qualified hurricane distributions are permitted without regard to your need or the actual amount of your economic loss. Help filling out 1040x   The total of your qualified hurricane distributions from all plans is limited to $100,000. Help filling out 1040x If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. Help filling out 1040x   A reduction or offset (after August 24, 2005, for Katrina; after September 22, 2005, for Rita; or after October 22, 2005, for Wilma) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified hurricane distribution. Help filling out 1040x Eligible retirement plan. Help filling out 1040x   An eligible retirement plan can be any of the following. Help filling out 1040x A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). Help filling out 1040x A qualified annuity plan. Help filling out 1040x A tax-sheltered annuity contract. Help filling out 1040x A governmental section 457 deferred compensation plan. Help filling out 1040x A traditional, SEP, SIMPLE, or Roth IRA. Help filling out 1040x Main home. Help filling out 1040x   Generally, your main home is the home where you live most of the time. Help filling out 1040x A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. Help filling out 1040x Taxation of Qualified Hurricane Distributions Qualified hurricane distributions are included in income in equal amounts over three years. Help filling out 1040x However, if you elect, you can include the entire distribution in your income in the year it was received. Help filling out 1040x Qualified hurricane distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Help filling out 1040x However, any distributions you receive in excess of the $100,000 qualified hurricane distribution limit may be subject to the additional tax on early distributions. Help filling out 1040x For more information, see Form 8915. Help filling out 1040x Repayment of Qualified Hurricane Distributions If you choose, you generally can repay any portion of a qualified hurricane distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Help filling out 1040x Also, you can repay a qualified hurricane distribution made on account of a hardship from a retirement plan. Help filling out 1040x However, see Exceptions below for qualified hurricane distributions you cannot repay. Help filling out 1040x You have three years from the day after the date you received the distribution to make a repayment. Help filling out 1040x Amounts that are repaid are treated as a qualified rollover and are not included in income. Help filling out 1040x Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Help filling out 1040x See Form 8915 for more information on how to report repayments. Help filling out 1040x Exceptions. Help filling out 1040x   You cannot repay the following types of distributions. Help filling out 1040x Qualified hurricane distributions received as a beneficiary (other than a surviving spouse). Help filling out 1040x Required minimum distributions. Help filling out 1040x Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. Help filling out 1040x Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area, you can repay that distribution before March 1, 2006, to an eligible retirement plan after August 24, 2005 (Katrina); after September 22, 2005 (Rita); or after October 22, 2005 (Wilma). Help filling out 1040x For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. Help filling out 1040x To be a qualified distribution, the distribution must meet all of the following requirements. Help filling out 1040x The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. Help filling out 1040x The distribution was received in 2005 after February 28 and before: August 29 for Hurricane Katrina; September 24 for Hurricane Rita; or October 24 for Hurricane Wilma. Help filling out 1040x The distribution was to be used to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area that was not purchased or constructed because of Hurricane Katrina, Rita, or Wilma. Help filling out 1040x Amounts that are repaid before March 1, 2006, are treated as a qualified rollover and are not included in income. Help filling out 1040x Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Help filling out 1040x A qualified distribution not repaid before March 1, 2006, may be taxable for 2005 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. Help filling out 1040x You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before March 1, 2006. Help filling out 1040x Loans From Qualified Plans The following benefits are available to qualified individuals. Help filling out 1040x Increases to the limits for distributions treated as loans from employer plans. Help filling out 1040x A 1-year suspension for payments due on plan loans. Help filling out 1040x Qualified individual. Help filling out 1040x   You are a qualified individual if any of the following apply. Help filling out 1040x Your main home on August 28, 2005, was located in the Hurricane Katrina disaster area and you had an economic loss because of Hurricane Katrina. Help filling out 1040x Your main home on September 23, 2005, was located in the Hurricane Rita disaster area and you had an economic loss because of Hurricane Rita. Help filling out 1040x Your main home on October 23, 2005, was located in the Hurricane Wilma disaster area and you had an economic loss because of Hurricane Wilma. Help filling out 1040x Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Help filling out 1040x Limits on plan loans. Help filling out 1040x   The $50,000 limit for distributions treated as plan loans is increased to $100,000. Help filling out 1040x In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. Help filling out 1040x The higher limits apply only to loans received during the following period. Help filling out 1040x If your main home was located in the Hurricane Katrina disaster area, the period began on September 24, 2005, and ends on December 31, 2006. Help filling out 1040x If your main home was located in the Hurricane Rita or Wilma disaster area, the period began on December 21, 2005, and ends on December 31, 2006. Help filling out 1040x If you are a qualified individual based on Hurricane Katrina and another hurricane, use the period based on Hurricane Katrina. Help filling out 1040x One-year suspension of loan payments. Help filling out 1040x   Payments on plan loans due before 2007 may be suspended for 1 year by the plan administrator. Help filling out 1040x To qualify for the suspension, the due date for any loan payment must occur during the period beginning on: August 28, 2005, if your main home was located in the Hurricane Katrina disaster area. Help filling out 1040x September 23, 2005, if your main home was located in the Hurricane Rita disaster area. Help filling out 1040x October 23, 2005, if your main home was located in the Hurricane Wilma disaster area. Help filling out 1040x If you are a qualified individual based on more than one hurricane, use the period with the earliest beginning date. Help filling out 1040x Additional Tax Relief for Individuals Earned Income Credit and Child Tax Credit You can elect to use your 2004 earned income to figure your earned income credit (EIC) and additional child tax credit for 2005 if: Your 2005 earned income is less than your 2004 earned income, and At least one of the following statements is true. Help filling out 1040x Your main home on August 25, 2005, was in the Gulf Opportunity (GO) Zone. Help filling out 1040x Your main home on August 25, 2005, was in the Hurricane Katrina disaster area and you were displaced from that home because of Hurricane Katrina. Help filling out 1040x Your main home on September 23, 2005, was in the Rita GO Zone. Help filling out 1040x Your main home on September 23, 2005, was in the Hurricane Rita disaster area and you were displaced from that home because of Hurricane Rita. Help filling out 1040x Your main home on October 23, 2005, was in the Wilma GO Zone. Help filling out 1040x Your main home on October 23, 2005, was in the Hurricane Wilma disaster area and you were displaced from that home because of Hurricane Wilma. Help filling out 1040x Earned income. Help filling out 1040x    For the purpose of this election, your earned income for both the EIC and the additional child tax credit is the amount of earned income used to figure your EIC, even if you did not take the EIC and even if that amount is different than your earned income for the additional child tax credit. Help filling out 1040x If you are claiming only the additional child tax credit, you must figure the amount of your earned income for EIC purposes to determine your eligibility to make the election and the amount of the credit. Help filling out 1040x Joint returns. Help filling out 1040x   If you file a joint return, you qualify to make this election even if only one spouse meets the requirements. Help filling out 1040x If you make the election, your 2004 earned income is the sum of your 2004 earned income and your spouse's 2004 earned income. Help filling out 1040x Making the election. Help filling out 1040x   If you make the election to use your 2004 earned income, the election applies for figuring both the EIC and the additional child tax credit. Help filling out 1040x However, you can make the election for the additional child tax credit even if you do not take the EIC. Help filling out 1040x   Electing to use your 2004 earned income may increase or decrease your EIC. Help filling out 1040x Take the following steps to decide whether to make the election. Help filling out 1040x Figure your 2005 EIC using your 2004 earned income. Help filling out 1040x Figure your 2005 additional child tax credit using your 2004 earned income for EIC purposes. Help filling out 1040x Add the results of (1) and (2). Help filling out 1040x Figure your 2005 EIC using your 2005 earned income. Help filling out 1040x Figure your 2005 additional child tax credit using your 2005 earned income for additional child tax credit purposes. Help filling out 1040x Add the results of (4) and (5). Help filling out 1040x Compare the results of (3) and (6). Help filling out 1040x If (3) is larger than (6), it is to your benefit to make the election. Help filling out 1040x If (3) is equal to or smaller than (6), making the election will not help you. Help filling out 1040x   If you elect to use your 2004 earned income and you are claiming the EIC, enter “PYEI” and the amount of your 2004 earned income on the dotted line next to line 66a of Form 1040, on the line next to line 41a of Form 1040A, or in the space to the left of line 8a of Form 1040EZ. Help filling out 1040x   If you elect to use your 2004 earned income and you are claiming the additional child tax credit, enter your 2004 earned income for EIC purposes (even if you did not claim the EIC) on Form 8812, Additional Child Tax Credit, line 4a, and check the box on that line. Help filling out 1040x   Because Form 8812 was released before the GO Zone legislation was enacted, the instructions refer only to individuals whose main home was in the Hurricane Katrina disaster area. Help filling out 1040x When completing Form 8812, line 4a, use the above rules to determine your eligibility to make the election (instead of the Form 8812 instructions). Help filling out 1040x Getting your 2004 tax return information. Help filling out 1040x   If you do not have your 2004 tax records, you can get the amount of earned income used to figure your 2004 EIC by calling 1-866-562-5227. Help filling out 1040x You can also get this information by visiting the IRS website at www. Help filling out 1040x irs. Help filling out 1040x gov. Help filling out 1040x   If you prefer to figure your 2004 earned income yourself, copies or transcripts of your filed and processed tax returns can help you reconstruct your tax records. Help filling out 1040x See Request for Copy or Transcript of Tax Return on page 16. Help filling out 1040x Additional Exemption for Housing Individuals Displaced by Hurricane Katrina You may be able to claim an additional exemption amount of $500 for providing housing in your main home for each individual displaced by Hurricane Katrina. Help filling out 1040x The additional exemption amount is claimed on new Form 8914. Help filling out 1040x The additional exemption amount is allowable once per taxpayer for a specific individual in 2005 or 2006, but not in both years. Help filling out 1040x The maximum additional exemption amount you can claim for all displaced individuals is $2,000 ($1,000 if married filing separately). Help filling out 1040x The additional exemption amount you claim for displaced individuals in 2005 will reduce the $2,000 maximum for 2006. Help filling out 1040x If two or more taxpayers share the same main home, only one taxpayer in that main home can claim the additional exemption amount for a specific displaced individual. Help filling out 1040x If married filing separately, only one spouse may claim the additional exemption amount for a specific displaced individual. Help filling out 1040x In order for you to be considered to have provided housing, you must have a legal interest in the main home (that is, own or rent the home). Help filling out 1040x To qualify as a displaced individual, the individual: Must have had his or her main home in the Hurricane Katrina disaster area on August 28, 2005, and he or she must have been displaced from that home. Help filling out 1040x If the individual's main home was located outside the core disaster area, that home must have been damaged by Hurricane Katrina or the individual must have been evacuated from that home because of Hurricane Katrina, Must have been provided housing in your main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed, and Cannot be your spouse or dependent. Help filling out 1040x You cannot claim the additional exemption amount if you received rent (or any other amount) from any source for providing the housing. Help filling out 1040x You are permitted to receive payments or reimbursements that do not relate to normal housing costs, including the following. Help filling out 1040x Food, clothing, or personal items consumed or used by the displaced individual. Help filling out 1040x Reimbursement for the cost of any long distance telephone calls made by the displaced individual. Help filling out 1040x Reimbursement for the cost of gasoline for the displaced individual's use of your vehicle. Help filling out 1040x However, you cannot claim the additional exemption amount if you received any reimbursement for the extra costs of heat, electricity, or water used by the displaced individual. Help filling out 1040x Also, you must report on Form 8914 the displaced individual's social security number or individual taxpayer identification number to claim an additional exemption amount. Help filling out 1040x For more information, see Form 8914. Help filling out 1040x Education Credits The education credits have been expanded for students attending an eligible educational institution located in the Gulf Opportunity Zone (GOZ students) for any tax year beginning in 2005 or 2006. Help filling out 1040x The Hope credit for a GOZ student is increased to 100% of the first $2,000 in qualified education expenses and 50% of the next $2,000 of qualified education expenses for a maximum credit of $3,000 per student. Help filling out 1040x The lifetime learning credit rate for a GOZ student is increased from 20% to 40%. Help filling out 1040x The definition of qualified education expenses for a GOZ student also has been expanded. Help filling out 1040x In addition to tuition and fees required for the student's enrollment or attendance at an eligible educational institution, qualified education expenses for a GOZ student include the following. Help filling out 1040x Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Help filling out 1040x For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution. Help filling out 1040x For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts. Help filling out 1040x The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Help filling out 1040x The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Help filling out 1040x You will need to contact the eligible educational institution for qualified room and board costs. Help filling out 1040x For more information, see Form 8863. Help filling out 1040x Recapture of Federal Mortgage Subsidy Generally, if you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Help filling out 1040x However, you do not have to recapture any benefit if your mortgage loan was a qualified home improvement loan of not more than $15,000. Help filling out 1040x This amount is increased to $150,000 if the loan was provided before 2011 and was used to: Repair damage caused by Hurricane Katrina to a residence in the Hurricane Katrina disaster area, or Alter, repair, or improve an existing owner-occupied residence in the GO Zone, Rita GO Zone, or Wilma GO Zone. Help filling out 1040x Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Generally, discharges of nonbusiness debts (such as mortgages) made after August 24, 2005, and before January 1, 2007, are excluded from income for individuals whose main home was in the Hurricane Katrina disaster area on August 25, 2005. Help filling out 1040x If the individual's main home was located outside the core disaster area, the individual also must have had an economic loss because of Hurricane Katrina. Help filling out 1040x Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Help filling out 1040x This relief does not apply to any debt secured by real property located outside the Hurricane Katrina disaster area. Help filling out 1040x You may also have to reduce certain tax attributes by the amount excluded. Help filling out 1040x For more information, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Help filling out 1040x Tax Relief for Temporary Relocation Under the Gulf Opportunity Zone Act of 2005, the IRS may adjust the internal revenue laws to ensure that taxpayers do not lose a deduction or credit or experience a change of filing status in 2005 or 2006 as a result of a temporary relocation caused by Hurricane Katrina, Rita, or Wilma. Help filling out 1040x However, any such adjustment must ensure that an individual is not taken into account by more than one taxpayer for the same tax benefit. Help filling out 1040x The IRS has exercised this authority as follows. Help filling out 1040x In determining whether you furnished over one-half of the cost of maintaining a household, you can exclude from total household costs any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. Help filling out 1040x In determining whether you provided more than one-half of an individual's support, you can disregard any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. Help filling out 1040x You can treat as a student an individual who enrolled in school before August 25, 2005, and who is unable to attend classes because of Hurricane Katrina, for each month of the enrollment period that individual is prevented by Hurricane Katrina from attending school as planned. Help filling out 1040x You can treat as a student an individual who enrolled in school before September 23, 2005, and who is unable to attend classes because of Hurricane Rita, for each month of the enrollment period that individual is prevented by Hurricane Rita from attending school as planned. Help filling out 1040x You can treat as a student an individual who enrolled in school before October 23, 2005, and who is unable to attend classes because of Hurricane Wilma, for each month of the enrollment period that individual is prevented by Hurricane Wilma from attending school as planned. Help filling out 1040x Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified Gulf Opportunity (GO) Zone property (as defined below) you place in service after August 27, 2005. Help filling out 1040x The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). Help filling out 1040x The special allowance applies only for the first year the property is placed in service. Help filling out 1040x The allowance is deductible for both the regular tax and the alternative minimum tax (AMT). Help filling out 1040x There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Help filling out 1040x You can elect not to deduct the special GO Zone depreciation allowance for qualified property. Help filling out 1040x If you make this election for any property, it applies to all property in the same class placed in service during the year. Help filling out 1040x Qualified GO Zone property. Help filling out 1040x   Property that qualifies for the special GO Zone depreciation allowance includes the following. Help filling out 1040x Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Help filling out 1040x Water utility property. Help filling out 1040x Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Help filling out 1040x (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Help filling out 1040x ) Qualified leasehold improvement property. Help filling out 1040x Nonresidential real property and residential rental property. Help filling out 1040x   For more information on this property, see Publication 946. Help filling out 1040x Other tests to be met. Help filling out 1040x   To be qualified GO Zone property, the property must also meet all of the following tests. Help filling out 1040x You must have acquired the property, by purchase, after August 27, 2005, but only if no binding written contract for the acquisition was in effect before August 28, 2005. Help filling out 1040x The property must be placed in service before 2008 (2009 in the case of nonresidential real property and residential rental property). Help filling out 1040x Substantially all of the use of the property must be in the GO Zone and in the active conduct of your trade or business in the GO Zone. Help filling out 1040x The original use of the property in the GO Zone must begin with you after August 27, 2005. Help filling out 1040x Used property can be qualified GO Zone property if it has not previously been used within the GO Zone. Help filling out 1040x Also, additional capital expenditures you incurred after August 27, 2005, to recondition or rebuild your property meet the original use test if the original use of the property in the GO Zone began with you. Help filling out 1040x Excepted property. Help filling out 1040x   Qualified GO Zone property does not include any of the following. Help filling out 1040x Property required to be depreciated using the Alternative Depreciation System (ADS). Help filling out 1040x Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. Help filling out 1040x Property for which you are claiming a commercial revitalization deduction. Help filling out 1040x Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. Help filling out 1040x Any gambling or animal racing property (as defined below). Help filling out 1040x Property in the same class as that for which you elected not to claim the special GO Zone depreciation allowance. Help filling out 1040x   Gambling or animal racing property is: Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and The portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet. Help filling out 1040x Recapture of special allowance. Help filling out 1040x   If, in any year after the year you claim the special allowance, the property ceases to be qualified GO Zone property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. Help filling out 1040x Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 Gulf Opportunity (GO) Zone property (as defined later) placed in service in the GO Zone. Help filling out 1040x Increased dollar limit. Help filling out 1040x   The limit on the section 179 deduction ($105,000 for 2005, $108,000 for 2006) for qualified section 179 GO Zone property acquired after August 27, 2005, is increased by the smaller of: $100,000, or The cost of qualified section 179 GO Zone property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). Help filling out 1040x   The amount for which you can make the election is reduced if the cost of all qualified section 179 GO Zone property you placed in service during the year exceeds $420,000 for 2005 ($430,000 for 2006) increased by the smaller of: $600,000, or The cost of qualified section 179 GO Zone property placed in service during the year. Help filling out 1040x Qualified section 179 GO Zone property. Help filling out 1040x   Qualified section 179 GO Zone property is section 179 property that is qualified GO Zone property (explained earlier under Special Depreciation Allowance). Help filling out 1040x Section 179 property does not include nonresidential real property or residential rental property. Help filling out 1040x For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. Help filling out 1040x Work Opportunity Credit For the work opportunity credit, the definition of “targeted group employee” has been expanded to include a Hurricane Katrina employee. Help filling out 1040x Hurricane Katrina employee. Help filling out 1040x   A Hurricane Katrina employee is: A person who, on August 28, 2005, had a main home in the core disaster area and, within a two-year period beginning on that date, is hired to perform services principally in the core disaster area; or A person who, on August 28, 2005, had a main home in the core disaster area, was displaced from that main home as a result of Hurricane Katrina, and was hired during the period beginning on August 28, 2005, and ending on December 31, 2005. Help filling out 1040x Qualified wages. Help filling out 1040x   Generally, qualified wages do not include wages you paid to a targeted group employee who worked for you previously. Help filling out 1040x However, wages will qualify if: You paid them to an employee who is a Hurricane Katrina employee, The employee was not in your employment on August 28, 2005, and This is your first hire of the employee as a Hurricane Katrina employee after August 28, 2005. Help filling out 1040x   For more information, see Form 5884. Help filling out 1040x Certification requirements. Help filling out 1040x   An employee must provide to the employer reasonable evidence that he or she is a Hurricane Katrina employee. Help filling out 1040x An employer may accept a completed Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, as such evidence. Help filling out 1040x The certification requirements described in Form 8850 do not apply to a Hurricane Katrina employee. Help filling out 1040x Do not send any Forms 8850 that have only box 1 checked to the state employment security agency. Help filling out 1040x Instead, the employer should keep these Forms 8850 with the employer's other records. Help filling out 1040x For more information, see Form 8850 and its instructions. Help filling out 1040x Employee Retention Credit An eligible employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone, the Rita GO Zone, or the Wilma GO Zone can claim the employee retention credit. Help filling out 1040x The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Help filling out 1040x Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Help filling out 1040x Use Form 5884-A to claim the credit. Help filling out 1040x See the following rules and definitions for each hurricane. Help filling out 1040x Employers affected by Hurricane Katrina. Help filling out 1040x   The following definitions apply to employers affected by Hurricane Katrina. Help filling out 1040x Eligible employer. Help filling out 1040x   For this purpose, an eligible employer is any employer who conducted an active trade or business on August 28, 2005, in the GO Zone and whose trade or business was inoperable on any day after August 28, 2005, and before January 1, 2006, because of damage caused by Hurricane Katrina. Help filling out 1040x Eligible employee. Help filling out 1040x   For this purpose, an eligible employee is an employee whose principal place of employment on August 28, 2005, with such eligible employer was in the GO Zone. Help filling out 1040x An employee is not an eligible employee for purposes of Hurricane Katrina if the employee is treated as an eligible employee for the work opportunity credit. Help filling out 1040x Employers affected by Hurricane Rita. Help filling out 1040x   The following definitions apply to employers affected by Hurricane Rita. Help filling out 1040x Eligible employer. Help filling out 1040x   For this purpose, an eligible employer is any employer who conducted an active trade or business on September 23, 2005, in the Rita GO Zone and whose trade or business was inoperable on any day after September 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Rita. Help filling out 1040x Eligible employee. Help filling out 1040x   For this purpose, an eligible employee is an employee whose principal place of employment on September 23, 2005, with such eligible employer was in the Rita GO Zone. Help filling out 1040x An employee is not an eligible employee for purposes of Hurricane Rita if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina employee retention credit. Help filling out 1040x Employers affected by Hurricane Wilma. Help filling out 1040x   The following definitions apply to employers affected by Hurricane Wilma. Help filling out 1040x Eligible employer. Help filling out 1040x   For this purpose, an eligible employer is any employer who conducted an active trade or business on October 23, 2005, in the Wilma GO Zone and whose trade or business was inoperable on any day after October 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Wilma. Help filling out 1040x Eligible employee. Help filling out 1040x   For this purpose, an eligible employee is an employee whose principal place of employment on October 23, 2005, with such eligible employer was in the Wilma GO Zone. Help filling out 1040x An employee is not an eligible employee for purposes of Hurricane Wilma if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina or Rita employee retention credit. Help filling out 1040x Qualified wages. Help filling out 1040x   Qualified wages are wages you paid or incurred before January 1, 2006, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable hurricane, and ending on the date your trade or business resumed significant operations at that place. Help filling out 1040x In addition, the wages must have been paid or incurred after the following date. Help filling out 1040x August 28, 2005, for Hurricane Katrina. Help filling out 1040x September 23, 2005, for Hurricane Rita. Help filling out 1040x October 23, 2005, for Hurricane Wilma. Help filling out 1040x    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. Help filling out 1040x    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Help filling out 1040x Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Help filling out 1040x Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. Help filling out 1040x   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. Help filling out 1040x For a special rule that applies to railroad employees, see section 51(h)(1)(B). Help filling out 1040x   Qualified wages do not include the following. Help filling out 1040x Wages paid to your dependent or a related individual. Help filling out 1040x See section 51(i)(1). Help filling out 1040x Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. Help filling out 1040x Wages for services of replacement workers during a strike or lockout. Help filling out 1040x   For more information, see Form 5884-A. Help filling out 1040x Hurricane Katrina Housing Credit An employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone can claim the Hurricane Katrina housing credit. Help filling out 1040x The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from January 1, 2006, through July 1, 2006. Help filling out 1040x The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). Help filling out 1040x Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Help filling out 1040x The employer must use Form 5884-A to claim the credit. Help filling out 1040x A qualified employee is an individual who had a main home in the GO Zone on August 28, 2005, and who performs substantially all employment services in the GO Zone for the employer furnishing the lodging. Help filling out 1040x The employee cannot be your dependent or a related individual. Help filling out 1040x See section 51(i)(1). Help filling out 1040x For more information, see Form 5884-A. Help filling out 1040x Reforestation Costs You may be able to elect to deduct a limited amount of reforestation costs for each qualified timber property. Help filling out 1040x The deduction for any tax year generally is limited to $10,000 ($5,000 if married filing separately, $0 for a trust). Help filling out 1040x However, this limit is increased if you paid or incurred reforestation costs after the applicable date below and any portion of the qualified timber property is located in one of the following areas. Help filling out 1040x August 27, 2005, if any portion of the property is located in the GO Zone. Help filling out 1040x September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). Help filling out 1040x October 22, 2005, if any portion of the property is located in the Wilma GO Zone. Help filling out 1040x The limit for each qualified timber property is increased by the smaller of: $10,000 ($5,000 if married filing separately, $0 for a trust), or The amount of reforestation costs you paid or incurred after the applicable date for the qualified timber property, any portion of which is located in the zone described above. Help filling out 1040x The increase in the limit applies only to costs paid or incurred before 2008. Help filling out 1040x However, these rules do not apply to any timber producer who: Held more than 500 acres of qualified timber property at any time during the tax year, Is a corporation with stock publicly traded on an established securities market, or Is a real estate investment trust. Help filling out 1040x For more information about the election to deduct reforestation costs, see chapter 8 in Publication 535, Business Expenses. Help filling out 1040x Demolition and Clean-up Costs You can elect to deduct 50% of any qualified GO Zone clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Help filling out 1040x Qualified GO Zone clean-up costs are any amounts paid or incurred after August 27, 2005, and before January 1, 2008, for the removal of debris from, or the demolition of structures on, real property located in the GO Zone that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. Help filling out 1040x Increase in Rehabilitation Tax Credit The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred after August 27, 2005, and before January 1, 2009, on buildings located in the GO Zone as follows. Help filling out 1040x For pre-1936 buildings (other than certified historic structures), the credit percentage is increased from 10% to 13%. Help filling out 1040x For certified historic structures, the credit percentage is increased from 20% to 26%. Help filling out 1040x For more information, see Form 3468, Investment Credit. Help filling out 1040x Request for Copy or Transcript of Tax Return Request for copy of tax return. Help filling out 1040x   You can use Form 4506 to order a copy of your tax return. Help filling out 1040x Generally, there is a $39. Help filling out 1040x 00 fee for requesting each copy of a tax return. Help filling out 1040x If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Hurricane Katrina”) is written in red across the top of the form when filed. Help filling out 1040x Request for transcript of tax return. Help filling out 1040x   You can use Form 4506-T to order a free transcript of your tax return. Help filling out 1040x A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. Help filling out 1040x You can also call 1-800-829-1040 to order a transcript. Help filling out 1040x How To Get Tax Help Special IRS assistance. Help filling out 1040x   The IRS is providing special help for those affected by Hurricane Katrina, Rita, or Wilma, as well as survivors and personal representatives of the victims. Help filling out 1040x We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by Hurricane Katrina, Rita, or Wilma, or who have other tax issues related to the hurricanes. Help filling out 1040x Call 1-866-562-5227 Monday through Friday In English-7 a. Help filling out 1040x m. Help filling out 1040x to 10 p. Help filling out 1040x m. Help filling out 1040x local time In Spanish-8 a. Help filling out 1040x m. Help filling out 1040x to 9:30 p. Help filling out 1040x m. Help filling out 1040x local time   The IRS website at www. Help filling out 1040x irs. Help filling out 1040x gov has notices and other tax relief information. Help filling out 1040x Check it periodically for any new guidance. Help filling out 1040x Other help from the IRS. Help filling out 1040x   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. Help filling out 1040x By selecting the method that is best for you, you will have quick and easy access to tax help. Help filling out 1040x Contacting your Taxpayer Advocate. Help filling out 1040x   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. Help filling out 1040x   The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. Help filling out 1040x While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. Help filling out 1040x   To contact your Taxpayer Advocate: Call the Taxpayer Advocate toll free at 1-877-777-4778. Help filling out 1040x Call, write, or fax the Taxpayer Advocate office in your area. Help filling out 1040x Call 1-800-829-4059 if you are a TTY/TDD user. Help filling out 1040x Visit www. Help filling out 1040x irs. Help filling out 1040x gov/advocate. Help filling out 1040x   For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese, Korean, Russian, and Vietnamese, in addition to English and Spanish). Help filling out 1040x Free tax services. Help filling out 1040x   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Help filling out 1040x It contains a list of free tax publications and an index of tax topics. Help filling out 1040x It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Help filling out 1040x Internet. Help filling out 1040x You can access the IRS website 24 hours a day, 7 days a week, at www. Help filling out 1040x irs. Help filling out 1040x gov to: E-file your return. Help filling out 1040x Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Help filling out 1040x Check the status of your refund. Help filling out 1040x Click on Where's My Refund. Help filling out 1040x Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Help filling out 1040x Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. Help filling out 1040x Download forms, instructions, and publications. Help filling out 1040x Order IRS products online. Help filling out 1040x Research your tax questions online. Help filling out 1040x Search publications online by topic or keyword. Help filling out 1040x View Internal Revenue Bulletins (IRBs) published in the last few years. Help filling out 1040x Figure your withholdin