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How To Do 2012 Tax Return

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How To Do 2012 Tax Return

How to do 2012 tax return 5. How to do 2012 tax return   Credits Table of Contents Credit for the Elderly or the DisabledCan You Take the Credit? Figuring the Credit Child and Dependent Care Credit Earned Income Credit (EIC)Do You Qualify for the Earned Income Credit (EIC)? Figuring the EIC This chapter briefly discusses the credit for the elderly or disabled, the child and dependent care credit, and the earned income credit. How to do 2012 tax return You may be able to reduce your federal income tax by claiming one or more of these credits. How to do 2012 tax return Credit for the Elderly or the Disabled This section explains who qualifies for the credit for the elderly or the disabled and how to figure this credit. How to do 2012 tax return For more information, see Publication 524, Credit for the Elderly or the Disabled. How to do 2012 tax return You can take the credit only if you file Form 1040 or Form 1040A. How to do 2012 tax return You cannot take the credit if you file Form 1040EZ or Form 1040NR. How to do 2012 tax return Can You Take the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. How to do 2012 tax return You are a qualified individual. How to do 2012 tax return Your income is not more than certain limits. How to do 2012 tax return  You can use Figure 5-A and Figure 5-B as guides to see if you are eligible for the credit. How to do 2012 tax return   Qualified Individual You are a qualified individual for this credit if you are a U. How to do 2012 tax return S. How to do 2012 tax return citizen or resident alien, and either of the following applies. How to do 2012 tax return You were age 65 or older at the end of 2013. How to do 2012 tax return You were under age 65 at the end of 2013 and all three of the following statements are true. How to do 2012 tax return You retired on permanent and total disability (explained later). How to do 2012 tax return You received taxable disability income for 2013. How to do 2012 tax return On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). How to do 2012 tax return Age 65. How to do 2012 tax return You are considered to be age 65 on the day before your 65th birthday. How to do 2012 tax return Therefore, you are considered to be age 65 at the end of 2013 if you were born before January 2, 1949. How to do 2012 tax return Figure 5-A. How to do 2012 tax return Are You a Qualified Individual? This image is too large to be displayed in the current screen. How to do 2012 tax return Please click the link to view the image. How to do 2012 tax return Figure 5-A, Are you a qualified individual? U. How to do 2012 tax return S. How to do 2012 tax return citizen or resident alien. How to do 2012 tax return   You must be a U. How to do 2012 tax return S. How to do 2012 tax return citizen or resident alien (or be treated as a resident alien) to take the credit. How to do 2012 tax return Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. How to do 2012 tax return Exceptions. How to do 2012 tax return   You may be able to take the credit if you are a nonresident alien who is married to a U. How to do 2012 tax return S. How to do 2012 tax return citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. How to do 2012 tax return S. How to do 2012 tax return resident alien. How to do 2012 tax return If you make that choice, both you and your spouse are taxed on your worldwide income. How to do 2012 tax return   If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. How to do 2012 tax return S. How to do 2012 tax return citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. How to do 2012 tax return S. How to do 2012 tax return resident alien for the entire year. How to do 2012 tax return In that case, you may be allowed to take the credit. How to do 2012 tax return   For information on these choices, see chapter 1 of Publication 519, U. How to do 2012 tax return S. How to do 2012 tax return Tax Guide for Aliens. How to do 2012 tax return Married persons. How to do 2012 tax return   Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. How to do 2012 tax return However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. How to do 2012 tax return Head of household. How to do 2012 tax return   You can file as head of household and qualify to take the credit even if your spouse lived with you during the first 6 months of the year if you meet certain tests. How to do 2012 tax return See Publication 524 and Publication 501. How to do 2012 tax return Under age 65. How to do 2012 tax return   If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability and have taxable disability income (discussed later under Disability income ). How to do 2012 tax return You are considered to be under age 65 at the end of 2013 if you were born after January 1, 1949. How to do 2012 tax return You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the end of the tax year. How to do 2012 tax return   Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. How to do 2012 tax return If you retired on disability before 1977 and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. How to do 2012 tax return Permanent and total disability. How to do 2012 tax return   You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. How to do 2012 tax return A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. How to do 2012 tax return See Physician's statement , later. How to do 2012 tax return Substantial gainful activity. How to do 2012 tax return   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. How to do 2012 tax return   Full-time work (or part-time work done at the employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. How to do 2012 tax return   Substantial gainful activity is not work you do to take care of yourself or your home. How to do 2012 tax return It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. How to do 2012 tax return However, doing this kind of work may show that you are able to engage in substantial gainful activity. How to do 2012 tax return    Figure 5-B. How to do 2012 tax return Income Limits IF your filing status is. How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return THEN even if you qualify (see Figure 5-A), you CANNOT take the credit if: Your adjusted gross income (AGI)* is equal to or more than. How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return single, head of household, or qualifying widow(er) with dependent child $17,500 $5,000 married filing jointly and only one spouse qualifies in Figure 5-A $20,000 $5,000 married filing jointly and both spouses qualify in Figure 5-A $25,000 $7,500 married filing separately and you lived apart from your spouse for all of 2013 $12,500 $3,750 *AGI is the amount on Form 1040A, line 22, or Form 1040, line 38      The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. How to do 2012 tax return Physician's statement. How to do 2012 tax return   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. How to do 2012 tax return   You do not have to file this statement with your tax return, but you must keep it for your records. How to do 2012 tax return The Instructions for Schedule R (Form 1040A or 1040) include a statement your physician can complete and that you can keep for your records. How to do 2012 tax return Veterans. How to do 2012 tax return   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. How to do 2012 tax return VA Form 21-0172 must be signed by a person authorized by the VA to do so. How to do 2012 tax return You can get this form from your local VA regional office. How to do 2012 tax return Physician's statement obtained in earlier year. How to do 2012 tax return   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. How to do 2012 tax return For a detailed explanation of the conditions you must meet, see the instructions for Schedule R (Form 1040A or 1040), Part II. How to do 2012 tax return If you meet the required conditions, you must check the box on Schedule R (Form 1040A or 1040), Part II, line 2. How to do 2012 tax return   If you checked Schedule R (Form 1040A or 1040), Part I, box 4, 5, or 6, print in the space above the box in Part II, line 2, the first name(s) of the spouse(s) for whom the box is checked. How to do 2012 tax return Disability income. How to do 2012 tax return   If you are under age 65, you must also have taxable disability income to qualify for the credit. How to do 2012 tax return   Disability income must meet the following two requirements. How to do 2012 tax return It must be paid under your employer's accident or health plan or pension plan. How to do 2012 tax return It must be included in your income as wages (or payments in lieu of wages) for the time you are absent from work because of permanent and total disability. How to do 2012 tax return Payments that are not disability income. How to do 2012 tax return   Any payment you receive from a plan that does not provide for disability retirement is not disability income. How to do 2012 tax return Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. How to do 2012 tax return   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. How to do 2012 tax return Mandatory retirement age is the age set by your employer at which you would have had to retire had you not become disabled. How to do 2012 tax return Figuring the Credit You can figure the credit yourself, or the IRS will figure it for you. How to do 2012 tax return Figuring the credit yourself. How to do 2012 tax return   If you figure the credit yourself, fill out the front of Schedule R (Form 1040A or 1040). How to do 2012 tax return Next, fill out Schedule R (Form 1040A or 1040), Part III. How to do 2012 tax return Credit figured for you. How to do 2012 tax return   If you can take the credit and you want the IRS to figure the credit for you, see Publication 524 or the Instructions for Schedule R (Form 1040A or 1040). How to do 2012 tax return If you want the IRS to figure your tax, see chapter 30 of Publication 17, Your Federal Income Tax. How to do 2012 tax return Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. How to do 2012 tax return The credit can be up to 35% of your expenses. How to do 2012 tax return To qualify, you must pay these expenses so you can work or look for work. How to do 2012 tax return If you claim this credit, you must include on your return the name and taxpayer identification number (generally the social security number) of each qualifying person for whom care is provided. How to do 2012 tax return If the correct information is not shown, the credit may be reduced or disallowed. How to do 2012 tax return You also must show on your return the name, address, and the taxpayer identification number of the person(s) or organization(s) that provided the care. How to do 2012 tax return For more information, see Publication 503, Child and Dependent Care Expenses. How to do 2012 tax return Earned Income Credit (EIC) The earned income credit (EIC) is a refundable tax credit for certain people who work and have earned income under $51,567. How to do 2012 tax return The EIC is available to persons with or without a qualifying child. How to do 2012 tax return Credit has no effect on certain welfare benefits. How to do 2012 tax return   Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. How to do 2012 tax return These programs include the following. How to do 2012 tax return Medicaid and supplemental security income (SSI). How to do 2012 tax return Supplemental Nutrition Assistance Program (food stamps). How to do 2012 tax return Low-income housing. How to do 2012 tax return Temporary Assistance for Needy Families (TANF). How to do 2012 tax return  In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. How to do 2012 tax return Check with your local benefit coordinator to find out if your refund will affect your benefits. How to do 2012 tax return Do You Qualify for the Earned Income Credit (EIC)? Use Table 5-1 as an initial guide to the rules you must meet in order to qualify for the EIC. How to do 2012 tax return The specific rules you must meet depend on whether you have a qualifying child. How to do 2012 tax return If you have a qualifying child, the rules in Parts A, B, and D apply to you. How to do 2012 tax return If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. How to do 2012 tax return  If, after reading all the rules in each part that applies to you, you think you may qualify for the credit, see Publication 596, Earned Income Credit, for more details about the EIC. How to do 2012 tax return You can also find information about the EIC in the instructions for Form 1040 (line 64a), Form 1040A (line 38a), or Form 1040EZ (line 8a). How to do 2012 tax return The sections that follow provide additional information for some of the rules. How to do 2012 tax return Adjusted gross income (AGI). How to do 2012 tax return   Under Rule 1, you cannot claim the EIC unless your AGI is less than the applicable limit shown in Part A of Table 5-1. How to do 2012 tax return Your AGI is the amount on line 37 (Form 1040), line 21 (Form 1040A), or line 4 (Form 1040EZ). How to do 2012 tax return Table 5-1. How to do 2012 tax return Earned Income Credit (EIC) in a Nutshell First, you must meet all the rules in this column. How to do 2012 tax return Second, you must meet all the rules in one of these columns, whichever applies. How to do 2012 tax return Third, you must meet the rule in this column. How to do 2012 tax return Part A. How to do 2012 tax return  Rules for Everyone Part B. How to do 2012 tax return  Rules If You Have a Qualifying Child Part C. How to do 2012 tax return  Rules If You Do Not Have a Qualifying Child Part D. How to do 2012 tax return  Figuring and Claiming the EIC 1. How to do 2012 tax return Your adjusted gross income (AGI) must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. How to do 2012 tax return 2. How to do 2012 tax return You must have a valid social security number. How to do 2012 tax return  3. How to do 2012 tax return Your filing status cannot be “Married filing separately. How to do 2012 tax return ” 4. How to do 2012 tax return You must be a U. How to do 2012 tax return S. How to do 2012 tax return citizen or resident alien all year. How to do 2012 tax return  5. How to do 2012 tax return You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). How to do 2012 tax return  6. How to do 2012 tax return Your investment income must be $3,300 or less. How to do 2012 tax return  7. How to do 2012 tax return You must have earned income. How to do 2012 tax return 8. How to do 2012 tax return Your child must meet the relationship, age, residency, and joint return tests. How to do 2012 tax return  9. How to do 2012 tax return Your qualifying child cannot be used by more than one person to claim the EIC. How to do 2012 tax return  10. How to do 2012 tax return You generally cannot be a qualifying child of another person. How to do 2012 tax return 11. How to do 2012 tax return You must be at least age 25 but under age 65. How to do 2012 tax return  12. How to do 2012 tax return You cannot be the dependent of another person. How to do 2012 tax return  13. How to do 2012 tax return You generally cannot be a qualifying child of another person. How to do 2012 tax return  14. How to do 2012 tax return You must have lived in the United States more than half of the year. How to do 2012 tax return 15. How to do 2012 tax return Your earned income must be less than: •$46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, •$43,038 ($48,378 for married filing jointly) if you have two qualifying children, •$37,870 ($43,210 for married filing jointly) if you have one qualifying child, or •$14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. How to do 2012 tax return Social security number. How to do 2012 tax return   Under Rule 2, you (and your spouse if you are married filing jointly) must have a valid social security number (SSN) issued by the Social Security Administration (SSA). How to do 2012 tax return Any qualifying child listed on Schedule EIC also must have a valid SSN. How to do 2012 tax return (See Qualifying child , later, if you have a qualifying child. How to do 2012 tax return )   If your social security card (or your spouse's if you are married filing jointly) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. How to do 2012 tax return An example of a federally funded benefit is Medicaid. How to do 2012 tax return Investment income. How to do 2012 tax return   Under Rule 6, you cannot claim the EIC unless your investment income is $3,300 or less. How to do 2012 tax return If your investment income is more than $3,300, you cannot claim the credit. How to do 2012 tax return For most people, investment income is the total of the following amounts. How to do 2012 tax return Taxable interest (line 8a of Form 1040 or 1040A). How to do 2012 tax return Tax-exempt interest (line 8b of Form 1040 or 1040A). How to do 2012 tax return Dividend income (line 9a of Form 1040 or 1040A). How to do 2012 tax return Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). How to do 2012 tax return  If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. How to do 2012 tax return   For more information about investment income, see Publication 596, Earned Income Credit. How to do 2012 tax return Earned income. How to do 2012 tax return   Under Rule 7, you must have earned income to claim the EIC. How to do 2012 tax return Under Rule 15, you cannot claim the EIC unless your earned income is less than the applicable limit shown in Table 5-1, Part D. How to do 2012 tax return Earned income includes all of the following types of income. How to do 2012 tax return Wages, salaries, tips, and other taxable employee pay. How to do 2012 tax return Employee pay is earned income only if it is taxable. How to do 2012 tax return Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. How to do 2012 tax return But there is an exception for nontaxable combat pay, which you can choose to include in earned income. How to do 2012 tax return Net earnings from self-employment. How to do 2012 tax return Gross income received as a statutory employee. How to do 2012 tax return Gross income defined. How to do 2012 tax return   Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). How to do 2012 tax return Do not include any social security benefits unless (a) you are married filing a separate tax return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). How to do 2012 tax return If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b to figure the taxable part of social security benefits you must include in gross income. How to do 2012 tax return Self-employed persons. How to do 2012 tax return   If you are self-employed and your net earnings are $400 or more, be sure to correctly fill out Schedule SE (Form 1040), Self-Employment Tax, and pay the proper amount of self-employment tax. How to do 2012 tax return If you do not, you may not get all the credit to which you are entitled. How to do 2012 tax return Disability benefits. How to do 2012 tax return   If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. How to do 2012 tax return Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. How to do 2012 tax return Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. How to do 2012 tax return   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. How to do 2012 tax return It does not matter whether you have reached minimum retirement age. How to do 2012 tax return If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code J. How to do 2012 tax return Income that is not earned income. How to do 2012 tax return   Examples of items that are not earned income under Rule 7 include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits — except for payments covered under Disability benefits earlier), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. How to do 2012 tax return Do not include any of these items in your earned income. How to do 2012 tax return Workfare payments. How to do 2012 tax return   Nontaxable workfare payments are not earned income for the EIC. How to do 2012 tax return These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. How to do 2012 tax return Qualifying child. How to do 2012 tax return   Under Rule 8, your child is a qualifying child if your child meets four tests. How to do 2012 tax return The four tests are: Relationship, Age, Residency, and Joint return. How to do 2012 tax return   The four tests are illustrated in Figure 5-C. How to do 2012 tax return See Publication 596 for more information about each test. How to do 2012 tax return Figure 5-C. How to do 2012 tax return Tests for Qualifying Child A qualifying child for the EIC is a child who is your. How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return Son, daughter, stepchild, foster child,  or a descendant of any of them (for example, your grandchild) OR Brother, sister, half brother, half sister, stepbrother,  stepsister, or a descendant of any of them (for example, your  niece or nephew) was . How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return Under age 19 at the end of 2013 and younger than you (or your spouse if filing jointly) OR Under age 24 at the end of 2013, a student, and younger than you (or your spouse if filing jointly) OR Permanently and totally disabled at any time during the year, regardless of age who. How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return Is not filing a joint return for 2013  (or is filing a joint return for 2013 only as a claim for refund of income tax withheld or estimated tax paid) who. How to do 2012 tax return . How to do 2012 tax return . How to do 2012 tax return Lived with you in the United States for more than half of 2013. How to do 2012 tax return  If the child did not live with you for the required time, see Publication 596 for more information. How to do 2012 tax return Figuring the EIC To figure the amount of your credit, you have two choices. How to do 2012 tax return Have the IRS figure the EIC for you. How to do 2012 tax return If you want to do this, see IRS Will Figure the EIC for You in Publication 596. How to do 2012 tax return Figure the EIC yourself. How to do 2012 tax return If you want to do this, see How To Figure the EIC Yourself in Publication 596. How to do 2012 tax return Prev  Up  Next   Home   More Online Publications
 

The How To Do 2012 Tax Return

How to do 2012 tax return Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). How to do 2012 tax return Cost Basis The basis of property you buy is usually its cost. How to do 2012 tax return The cost is the amount you pay in cash, debt obligations, other property, or services. How to do 2012 tax return Your cost also includes amounts you pay for the following items. How to do 2012 tax return 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 assumed for the seller). How to do 2012 tax return  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. How to do 2012 tax return Loans with low or no interest. How to do 2012 tax return   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. How to do 2012 tax return You generally have unstated interest if your interest rate is less than the applicable federal rate. How to do 2012 tax return For more information, see Unstated Interest and Original Issue Discount in Publication 537. How to do 2012 tax return Purchase of a business. How to do 2012 tax return   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. How to do 2012 tax return Allocate the price among the various assets, including any section 197 intangibles. How to do 2012 tax return See Allocating the Basis, later. How to do 2012 tax return Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. How to do 2012 tax return If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. How to do 2012 tax return You must adjust the basis of stocks for certain events that occur after purchase. How to do 2012 tax return See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. How to do 2012 tax return Identifying stock or bonds sold. How to do 2012 tax return   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. How to do 2012 tax return If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. How to do 2012 tax return For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How to do 2012 tax return Mutual fund shares. How to do 2012 tax return   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. How to do 2012 tax return For more information, see Publication 550. How to do 2012 tax return Real Property Real property, also called real estate, is land and generally anything built on or attached to it. How to do 2012 tax return If you buy real property, certain fees and other expenses become part of your cost basis in the property. How to do 2012 tax return Real estate taxes. How to do 2012 tax return   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. How to do 2012 tax return You cannot deduct them as taxes. How to do 2012 tax return   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. How to do 2012 tax return Do not include that amount in the basis of the property. How to do 2012 tax return If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How to do 2012 tax return Settlement costs. How to do 2012 tax return   Your basis includes the settlement fees and closing costs for buying property. How to do 2012 tax return You cannot include in your basis the fees and costs for getting a loan on property. How to do 2012 tax return A fee for buying property is a cost that must be paid even if you bought the property for cash. How to do 2012 tax return   The following items are some of the settlement fees or closing costs you can include in the basis of your property. How to do 2012 tax return Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and 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. How to do 2012 tax return   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. How to do 2012 tax return   The following items are some settlement fees and closing costs you cannot include in the basis of the property. How to do 2012 tax return Casualty insurance premiums. How to do 2012 tax return Rent for occupancy of the property before closing. How to do 2012 tax return Charges for utilities or other services related to occupancy of the property before closing. How to do 2012 tax return Charges connected with getting a loan. How to do 2012 tax return The following are examples of these charges. How to do 2012 tax return Points (discount points, loan origination fees). How to do 2012 tax return Mortgage insurance premiums. How to do 2012 tax return Loan assumption fees. How to do 2012 tax return Cost of a credit report. How to do 2012 tax return Fees for an appraisal required by a lender. How to do 2012 tax return Fees for refinancing a mortgage. How to do 2012 tax return If these costs relate to business property, items (1) through (3) are deductible as business expenses. How to do 2012 tax return Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. How to do 2012 tax return Points. How to do 2012 tax return   If you pay points to obtain 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. How to do 2012 tax return Generally, you deduct the points over the term of the loan. How to do 2012 tax return For more information on how to deduct points, see Points in chapter 4 of Publication 535. How to do 2012 tax return Points on home mortgage. How to do 2012 tax return   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. How to do 2012 tax return If certain requirements are met, you can deduct the points in full for the year in which they are paid. How to do 2012 tax return Reduce the basis of your home by any seller-paid points. How to do 2012 tax return For more information, see Points in Publication 936, Home Mortgage Interest Deduction. How to do 2012 tax return Assumption of mortgage. How to do 2012 tax return   If you buy property and assume (or buy 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. How to do 2012 tax return Example. How to do 2012 tax return If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. How to do 2012 tax return Constructing assets. How to do 2012 tax return   If you build property or have assets built for you, your expenses for this construction are part of your basis. How to do 2012 tax return Some of these expenses include the following costs. How to do 2012 tax return Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. How to do 2012 tax return In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. How to do 2012 tax return You must include them in the asset's basis. How to do 2012 tax return Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. How to do 2012 tax return    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. How to do 2012 tax return Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. How to do 2012 tax return If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. How to do 2012 tax return In certain circumstances, you may be subject to the uniform capitalization rules, next. How to do 2012 tax return Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. How to do 2012 tax return Activities subject to the rules. How to do 2012 tax return   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. How to do 2012 tax return Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. How to do 2012 tax return However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. How to do 2012 tax return   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. How to do 2012 tax return Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. How to do 2012 tax return Tangible personal property includes films, sound recordings, video tapes, books, or similar property. How to do 2012 tax return    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. How to do 2012 tax return To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. How to do 2012 tax return You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. How to do 2012 tax return   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. How to do 2012 tax return Example. How to do 2012 tax return If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. How to do 2012 tax return The nondeductible part of the cost is not subject to the uniform capitalization rules. How to do 2012 tax return More information. How to do 2012 tax return   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. How to do 2012 tax return Exceptions. How to do 2012 tax return   The following are not subject to the uniform capitalization rules. How to do 2012 tax return Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. How to do 2012 tax return For other exceptions to the uniform capitalization rules, see section 1. How to do 2012 tax return 263A-1(b) of the regulations. How to do 2012 tax return   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. How to do 2012 tax return Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. How to do 2012 tax return The basis of an intangible asset is usually the cost to buy or create it. How to do 2012 tax return If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. How to do 2012 tax return The basis of certain intangibles can be amortized. How to do 2012 tax return See chapter 8 of Publication 535 for information on the amortization of these costs. How to do 2012 tax return Patents. How to do 2012 tax return   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. How to do 2012 tax return If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. How to do 2012 tax return The value of the inventor's time spent on an invention is not part of the basis. How to do 2012 tax return Copyrights. How to do 2012 tax return   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. How to do 2012 tax return Do not include the value of your time as the author, or any other person's time you did not pay for. How to do 2012 tax return Franchises, trademarks, and trade names. How to do 2012 tax return   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. How to do 2012 tax return Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. How to do 2012 tax return You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. How to do 2012 tax return See Trade or Business Acquired below. How to do 2012 tax return Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. How to do 2012 tax return If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. How to do 2012 tax return However, see Trade or Business Acquired, next. How to do 2012 tax return Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. How to do 2012 tax return Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. How to do 2012 tax return Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. How to do 2012 tax return Certificates of deposit, U. How to do 2012 tax return S. How to do 2012 tax return Government securities, foreign currency, and actively traded personal property, including stock and securities. How to do 2012 tax return Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. How to do 2012 tax return Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. How to do 2012 tax return All other assets except section 197 intangibles, goodwill, and going concern value. How to do 2012 tax return Section 197 intangibles except goodwill and going concern value. How to do 2012 tax return Goodwill and going concern value (whether or not they qualify as section 197 intangibles). How to do 2012 tax return Agreement. How to do 2012 tax return   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. How to do 2012 tax return This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How to do 2012 tax return Reporting requirement. How to do 2012 tax return   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How to do 2012 tax return Use Form 8594 to provide this information. How to do 2012 tax return The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How to do 2012 tax return More information. How to do 2012 tax return   See Sale of a Business in chapter 2 of Publication 544 for more information. How to do 2012 tax return Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. How to do 2012 tax return Figure the basis of each asset by multiplying the lump sum by a fraction. How to do 2012 tax return The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. How to do 2012 tax return If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. How to do 2012 tax return Demolition of building. How to do 2012 tax return   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. How to do 2012 tax return Do not claim the costs as a current deduction. How to do 2012 tax return Modification of building. How to do 2012 tax return   A modification of a building will not be treated as a demolition if the following conditions are satisfied. How to do 2012 tax return 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. How to do 2012 tax return   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. How to do 2012 tax return   If these conditions are met, add the costs of the modifications to the basis of the building. How to do 2012 tax return Subdivided lots. How to do 2012 tax return   If you buy a tract of land and subdivide it, you must determine the basis of each lot. How to do 2012 tax return This is necessary because you must figure the gain or loss on the sale of each individual lot. How to do 2012 tax return As a result, you do not recover your entire cost in the tract until you have sold all of the lots. How to do 2012 tax return   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. How to do 2012 tax return The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. How to do 2012 tax return Future improvement costs. How to do 2012 tax return   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. How to do 2012 tax return See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. How to do 2012 tax return Use of erroneous cost basis. How to do 2012 tax return   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. How to do 2012 tax return Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. How to do 2012 tax return Example. How to do 2012 tax return You bought a tract of land to which you assigned a cost of $15,000. How to do 2012 tax return You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. How to do 2012 tax return You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. How to do 2012 tax return Several years later you determine that your original basis in the tract was $22,500 and not $15,000. How to do 2012 tax return You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. How to do 2012 tax return You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). How to do 2012 tax return You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. How to do 2012 tax return Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. How to do 2012 tax return The result of these adjustments to the basis is the adjusted basis. How to do 2012 tax return Increases to Basis Increase the basis of any property by all items properly added to a capital account. How to do 2012 tax return These include the cost of any improvements having a useful life of more than 1 year. How to do 2012 tax return Rehabilitation expenses also increase basis. How to do 2012 tax return However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. How to do 2012 tax return If you have to recapture any of the credit, increase your basis by the recaptured amount. How to do 2012 tax return If you make additions or improvements to business property, keep separate accounts for them. How to do 2012 tax return Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. How to do 2012 tax return For more information, see Publication 946. How to do 2012 tax return The following items increase the basis of property. How to do 2012 tax return The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. How to do 2012 tax return Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. How to do 2012 tax return Do not deduct them as taxes. How to do 2012 tax return However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. How to do 2012 tax return Example. How to do 2012 tax return Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. How to do 2012 tax return Add the assessment to your property's basis. How to do 2012 tax return In this example, the assessment is a depreciable asset. How to do 2012 tax return Deducting vs. How to do 2012 tax return Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. How to do 2012 tax return For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. How to do 2012 tax return However, you can choose either to deduct or to capitalize certain other costs. How to do 2012 tax return If you capitalize these costs, include them in your basis. How to do 2012 tax return If you deduct them, do not include them in your basis. How to do 2012 tax return See Uniform Capitalization Rules earlier. How to do 2012 tax return The costs you can choose to deduct or to capitalize include the following. How to do 2012 tax return Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. How to do 2012 tax return If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. How to do 2012 tax return For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. How to do 2012 tax return Table 1. How to do 2012 tax return Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. How to do 2012 tax return Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. How to do 2012 tax return Some of these items are discussed next. How to do 2012 tax return Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. How to do 2012 tax return You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. How to do 2012 tax return To make this determination, compare the repaired property to the property before the casualty. How to do 2012 tax return For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. How to do 2012 tax return Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. How to do 2012 tax return It reduces the basis of the affected part of the property. How to do 2012 tax return If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. How to do 2012 tax return Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. How to do 2012 tax return For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. How to do 2012 tax return Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. How to do 2012 tax return This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. How to do 2012 tax return If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. How to do 2012 tax return Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. How to do 2012 tax return For more information about the section 179 deduction, see Publication 946. How to do 2012 tax return Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. How to do 2012 tax return Reduce the basis of the property for which you received the subsidy by the excluded amount. How to do 2012 tax return For more information on this subsidy, see Publication 525. How to do 2012 tax return Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. How to do 2012 tax return If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. How to do 2012 tax return If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. How to do 2012 tax return Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. How to do 2012 tax return If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. How to do 2012 tax return In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. How to do 2012 tax return For information on figuring depreciation, see Publication 946. How to do 2012 tax return If you are claiming depreciation on a business vehicle, see Publication 463. How to do 2012 tax return If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. How to do 2012 tax return Include the excess depreciation in your gross income and add it to your basis in the property. How to do 2012 tax return For information on the computation of excess depreciation, see chapter 4 in Publication 463. How to do 2012 tax return Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. How to do 2012 tax return A debt includes any indebtedness for which you are liable or which attaches to property you hold. How to do 2012 tax return You can exclude canceled debt from income in the following situations. How to do 2012 tax return Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). How to do 2012 tax return If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. How to do 2012 tax return However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. How to do 2012 tax return For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. How to do 2012 tax return For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. How to do 2012 tax return For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. How to do 2012 tax return Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. How to do 2012 tax return For more information on the rules for the sale of a home, see Publication 523. How to do 2012 tax return Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. How to do 2012 tax return This also applies to amounts you received under an employer's adoption assistance program and excluded from income. How to do 2012 tax return For more information Form 8839, Qualified Adoption Expenses. How to do 2012 tax return Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. How to do 2012 tax return You must reduce your basis in that property by the credit claimed. How to do 2012 tax return For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. How to do 2012 tax return Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. How to do 2012 tax return You also paid commissions of $2,000 and title search and legal fees of $600. How to do 2012 tax return You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. How to do 2012 tax return Immediately you spent $20,000 in remodeling the building before you placed it in service. How to do 2012 tax return You were allowed depreciation of $14,526 for the years 2005 through 2009. How to do 2012 tax return In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. How to do 2012 tax return You claimed a deduction for this loss. How to do 2012 tax return You spent $5,500 to repair the damages and extend the useful life of the building. How to do 2012 tax return The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. How to do 2012 tax return It is not affected by any of the above adjustments. How to do 2012 tax return Basis Other Than Cost There are many times when you cannot use cost as basis. How to do 2012 tax return In these cases, the fair market value or the adjusted basis of property may be used. How to do 2012 tax return Adjusted basis is discussed earlier. How to do 2012 tax return Fair market value (FMV). How to do 2012 tax return   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. How to do 2012 tax return Sales of similar property on or about the same date may be helpful in figuring the property's FMV. How to do 2012 tax return Property Received for Services If you receive property for services, include the property's FMV in income. How to do 2012 tax return The amount you include in income becomes your basis. How to do 2012 tax return If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. How to do 2012 tax return Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. How to do 2012 tax return If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. How to do 2012 tax return Your basis in the property is its FMV (your purchase price plus the amount you include in income). How to do 2012 tax return If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. How to do 2012 tax return However, your basis in the property is still its FMV. How to do 2012 tax return See Employee Discounts in Publication 15-B. How to do 2012 tax return Restricted Property 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 unless you make the election discussed later. How to do 2012 tax return Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. How to do 2012 tax return There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. How to do 2012 tax return When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. How to do 2012 tax return Example. How to do 2012 tax return Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. How to do 2012 tax return The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. How to do 2012 tax return You do not report any income until you have completed the 5 years of service that satisfy the condition. How to do 2012 tax return Fair market value. How to do 2012 tax return   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. How to do 2012 tax return Example. How to do 2012 tax return You received stock from your employer for services you performed. How to do 2012 tax return If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. How to do 2012 tax return At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. How to do 2012 tax return This is a restriction that by its terms will never end and you must consider it when you figure the FMV. How to do 2012 tax return Election. How to do 2012 tax return   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. How to do 2012 tax return If you make this choice, the substantially vested rules do not apply. How to do 2012 tax return Your basis is the amount you paid plus the amount you included in income. How to do 2012 tax return   See the discussion of Restricted Property in Publication 525 for more information. How to do 2012 tax return Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. How to do 2012 tax return A taxable gain or deductible loss is also known as a recognized gain or loss. How to do 2012 tax return If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. How to do 2012 tax return A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. How to do 2012 tax return Example. How to do 2012 tax return You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. How to do 2012 tax return You must report a taxable gain of $3,000 for the land. How to do 2012 tax return The tractor has a basis of $6,000. How to do 2012 tax return Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. How to do 2012 tax return Similar or related property. How to do 2012 tax return   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. How to do 2012 tax return However, make the following adjustments. How to do 2012 tax return Decrease the basis by the following. How to do 2012 tax return Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. How to do 2012 tax return Increase the basis by the following. How to do 2012 tax return Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. How to do 2012 tax return Money or property not similar or related. How to do 2012 tax return   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. How to do 2012 tax return Example. How to do 2012 tax return The state condemned your property. How to do 2012 tax return The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. How to do 2012 tax return You realized a gain of $5,000 ($31,000 − $26,000). How to do 2012 tax return You bought replacement property similar in use to the converted property for $29,000. How to do 2012 tax return You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. How to do 2012 tax return Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. How to do 2012 tax return The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. How to do 2012 tax return   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. How to do 2012 tax return Example. How to do 2012 tax return The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. How to do 2012 tax return Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. How to do 2012 tax return More information. How to do 2012 tax return   For more information about condemnations, see Involuntary Conversions in Publication 544. How to do 2012 tax return For more information about casualty and theft losses, see Publication 547. How to do 2012 tax return Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. How to do 2012 tax return If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. How to do 2012 tax return A nontaxable gain or loss is also known as an unrecognized gain or loss. How to do 2012 tax return Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. How to do 2012 tax return To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. How to do 2012 tax return There must also be an exchange of like-kind property. How to do 2012 tax return For more information, see Like-Kind Exchanges in Publication 544. How to do 2012 tax return The basis of the property you receive is the same as the basis of the property you gave up. How to do 2012 tax return Example. How to do 2012 tax return You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. How to do 2012 tax return Your basis in the new property is the same as the basis of the old ($50,000). How to do 2012 tax return Exchange expenses. How to do 2012 tax return   Exchange expenses are generally the closing costs you pay. How to do 2012 tax return They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. How to do 2012 tax return Add them to the basis of the like-kind property received. How to do 2012 tax return Property plus cash. How to do 2012 tax return   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. How to do 2012 tax return Example. How to do 2012 tax return You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. How to do 2012 tax return Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). How to do 2012 tax return Special rules for related persons. How to do 2012 tax return   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. How to do 2012 tax return Each person must report any gain or loss not recognized on the original exchange. How to do 2012 tax return Each person reports it on the tax return filed for the year in which the later disposition occurs. How to do 2012 tax return If this rule applies, the basis of the property received in the original exchange will be its fair market value. How to do 2012 tax return   These rules generally do not apply to the following kinds of property dispositions. How to do 2012 tax return Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. How to do 2012 tax return Related persons. How to do 2012 tax return   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. How to do 2012 tax return   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. How to do 2012 tax return ), see Nondeductible Loss in chapter 2 of Publication 544. How to do 2012 tax return Exchange of business property. How to do 2012 tax return   Exchanging the assets of one business for the assets of another business is a multiple property exchange. How to do 2012 tax return For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. How to do 2012 tax return Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. How to do 2012 tax return The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. How to do 2012 tax return Decrease the basis by the following amounts. How to do 2012 tax return Any money you receive, and Any loss you recognize on the exchange. How to do 2012 tax return Increase the basis by the following amounts. How to do 2012 tax return Any additional costs you incur, and Any gain you recognize on the exchange. How to do 2012 tax return If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. How to do 2012 tax return Example. How to do 2012 tax return You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. How to do 2012 tax return You realized a gain of $200 ($6,200 − $6,000). How to do 2012 tax return This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). How to do 2012 tax return You include all the gain in income (recognized gain) because the gain is less than the cash received. How to do 2012 tax return Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. How to do 2012 tax return   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. How to do 2012 tax return The rest is the basis of the like property. How to do 2012 tax return Example. How to do 2012 tax return You had an adjusted basis of $15,000 in real estate you held for investment. How to do 2012 tax return You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. How to do 2012 tax return The truck is unlike property. How to do 2012 tax return You realized a gain of $1,500 ($16,500 − $15,000). How to do 2012 tax return This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). How to do 2012 tax return You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. How to do 2012 tax return Your basis in the properties you received is figured as follows. How to do 2012 tax return Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). How to do 2012 tax return This is the truck's FMV. How to do 2012 tax return The rest ($12,500) is the basis of the real estate. How to do 2012 tax return Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. How to do 2012 tax return Example. How to do 2012 tax return You are a salesperson and you use one of your cars 100% for business. How to do 2012 tax return You have used this car in your sales activities for 2 years and have depreciated it. How to do 2012 tax return Your adjusted basis in the car is $22,600 and its FMV is $23,100. How to do 2012 tax return You are interested in a new car, which sells for $28,000. How to do 2012 tax return If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). How to do 2012 tax return However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. How to do 2012 tax return Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). How to do 2012 tax return Your basis for depreciating the new car is $27,500, the same as if you traded the old car. How to do 2012 tax return Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. How to do 2012 tax return The first is an exchange of like-kind property. How to do 2012 tax return The second is personal-use property on which gain is recognized and loss is not recognized. How to do 2012 tax return First, figure your adjusted basis in the property as if you transferred two separate properties. How to do 2012 tax return Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. How to do 2012 tax return Deduct the depreciation you took or could have taken from the adjusted basis of the business part. How to do 2012 tax return Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. How to do 2012 tax return The business part of the property is permitted to be exchanged tax free. How to do 2012 tax return However, you must recognize any gain from the exchange of the nonbusiness part. How to do 2012 tax return You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. How to do 2012 tax return The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. How to do 2012 tax return If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. How to do 2012 tax return For more information, see Publication 523. How to do 2012 tax return Trade of car used partly in business. How to do 2012 tax return   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. How to do 2012 tax return   For information on figuring your basis for depreciation, see Publication 463. How to do 2012 tax return Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. How to do 2012 tax return However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. How to do 2012 tax return This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. How to do 2012 tax return If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. How to do 2012 tax return 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. How to do 2012 tax return For more information on these bonds, see Publication 550. How to do 2012 tax return At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. How to do 2012 tax return For more information, see Publication 504, Divorced or Separated Individuals. How to do 2012 tax return Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. How to do 2012 tax return FMV Less Than Donor's Adjusted Basis 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. How to do 2012 tax return Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. How to do 2012 tax return Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). How to do 2012 tax return If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. How to do 2012 tax return Example. How to do 2012 tax return You received an acre of land as a gift. How to do 2012 tax return At the time of the gift, the land had an FMV of $8,000. How to do 2012 tax return The donor's adjusted basis was $10,000. How to do 2012 tax return After you received the land, no events occurred to increase or decrease your basis. How to do 2012 tax return If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. How to do 2012 tax return If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. How to do 2012 tax return If the sales price is between $8,000 and $10,000, you have neither gain nor loss. How to do 2012 tax return For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. How to do 2012 tax return If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. How to do 2012 tax return Business property. How to do 2012 tax return   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. How to do 2012 tax return FMV Equal to or More Than Donor's Adjusted Basis 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. How to do 2012 tax return Increase your basis by all or part of any gift tax paid, depending on the date of the gift. How to do 2012 tax return Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. How to do 2012 tax return See Adjusted Basis earlier. How to do 2012 tax return Gift received before 1977. How to do 2012 tax return   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. How to do 2012 tax return However, do not increase your basis above the FMV of the gift at the time it was given to you. How to do 2012 tax return Example 1. How to do 2012 tax return You were given a house in 1976 with an FMV of $21,000. How to do 2012 tax return The donor's adjusted basis was $20,000. How to do 2012 tax return The donor paid a gift tax of $500. How to do 2012 tax return Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. How to do 2012 tax return Example 2. How to do 2012 tax return If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. How to do 2012 tax return This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. How to do 2012 tax return Gift received after 1976. How to do 2012 tax return   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. How to do 2012 tax return Figure the increase by multiplying the gift tax paid by a fraction. How to do 2012 tax return The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. How to do 2012 tax return   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. How to do 2012 tax return The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. How to do 2012 tax return For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. How to do 2012 tax return Example. How to do 2012 tax return In 2010, you received a gift of property from your mother that had an FMV of $50,000. How to do 2012 tax return Her adjusted basis was $20,000. How to do 2012 tax return The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). How to do 2012 tax return She paid a gift tax of $9,000. How to do 2012 tax return Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . How to do 2012 tax return 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. How to do 2012 tax return See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. How to do 2012 tax return If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. How to do 2012 tax return The FMV of the property at the date of the individual's death. How to do 2012 tax return The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. How to do 2012 tax return For information on the alternate valuation date, see the Instructions for Form 706. How to do 2012 tax return The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. How to do 2012 tax return This method is discussed later. How to do 2012 tax return 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. How to do 2012 tax return For information on a qualified conservation easement, see the Instructions for Form 706. How to do 2012 tax return If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. How to do 2012 tax return For more information, see the Instructions for Form 706. How to do 2012 tax return Appreciated property. How to do 2012 tax return   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. How to do 2012 tax return Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. How to do 2012 tax return Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. How to do 2012 tax return Community Property 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. How to do 2012 tax return 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. How to do 2012 tax return For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. How to do 2012 tax return For example, you and your spouse owned community property that had a basis of $80,000. How to do 2012 tax return When your spouse died, half the FMV of the community interest was includible in your spouse's estate. How to do 2012 tax return The FMV of the community interest was $100,000. How to do 2012 tax return The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). How to do 2012 tax return The basis of the other half to your spouse's heirs is also $50,000. How to do 2012 tax return For more information on community property, see Publication 555, Community Property. How to do 2012 tax return Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. How to do 2012 tax return Example. How to do 2012 tax return John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. How to do 2012 tax return John furnished two-thirds of the purchase price and Jim furnished one-third. How to do 2012 tax return Depreciation deductions allowed before John's death were $12,000. How to do 2012 tax return Under local law, each had a half interest in the income from the property. How to do 2012 tax return At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. How to do 2012 tax return Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. How to do 2012 tax return This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. How to do 2012 tax return If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. How to do 2012 tax return Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. How to do 2012 tax return It does not matter how much each spouse contributed to the purchase price. How to do 2012 tax return Also, it does not matter which spouse dies first. How to do 2012 tax return A qualified joint interest is any interest in property held by husband and wife as either of the following. How to do 2012 tax return Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. How to do 2012 tax return Basis. How to do 2012 tax return   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. How to do 2012 tax return Decrease the cost by any deductions allowed to you for depreciation and depletion. How to do 2012 tax return Increase the reduced cost by your basis in the half you inherited. How to do 2012 tax return Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. How to do 2012 tax return If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. How to do 2012 tax return If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. How to do 2012 tax return Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. How to do 2012 tax return Special-use valuation. How to do 2012 tax return   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. How to do 2012 tax return Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. How to do 2012 tax return Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. How to do 2012 tax return Figure all FMVs without regard to the special-use valuation. How to do 2012 tax return   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. How to do 2012 tax return This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. How to do 2012 tax return   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. How to do 2012 tax return If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. How to do 2012 tax return The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. How to do 2012 tax return   You make the election by filing with Form 706-A a statement that does all of the following. How to do 2012 tax return Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. How to do 2012 tax return   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. How to do 2012 tax return Property Changed 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 must figure its basis for depreciation. How to do 2012 tax return An example of changing property held for personal use to business use would be renting out your former main home. How to do 2012 tax return Basis for depreciation. How to do 2012 tax return   The basis for depreciation is the lesser of the following amounts. How to do 2012 tax return The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. How to do 2012 tax return Example. How to do 2012 tax return Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. How to do 2012 tax return 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. How to do 2012 tax return Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. How to do 2012 tax return Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). How to do 2012 tax return 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. How to do 2012 tax return The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). How to do 2012 tax return Sale of property. How to do 2012 tax return   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. How to do 2012 tax return Gain. How to do 2012 tax return   The basis for figuring a gain is your adjusted basis when you sell the property. How to do 2012 tax return Example. How to do 2012 tax return 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. How to do 2012 tax return Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). How to do 2012 tax return Loss. How to do 2012 tax return   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. How to do 2012 tax return Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. How to do 2012 tax return Example. How to do 2012 tax return 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. How to do 2012 tax return 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) on that date. How to do 2012 tax return Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). How to do 2012 tax return How To Get Tax Help 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. How to do 2012 tax return By selecting the method that is best for you, you will have quick and easy access to tax help. How to do 2012 tax return Contacting your Taxpayer Advocate. How to do 2012 tax return   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. How to do 2012 tax return We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. How to do 2012 tax return Here are seven things every taxpayer should know about TAS. How to do 2012 tax return TAS is your voice at the IRS. 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How to do 2012 tax return com/YourVoiceAtIRS, or by following our tweets at www. How to do 2012 tax return twitter. How to do 2012 tax return com/YourVoiceAtIRS. How to do 2012 tax return Low Income Taxpayer Clinics (LITCs). How to do 2012 tax return   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. How to do 2012 tax return LITCs are independent from the IRS. How to do 2012 tax return Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. How to do 2012 tax return If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. How to do 2012 tax return For more information, see Publication 4134, Low Income Taxpayer Clinic List. How to do 2012 tax return This publication is available at IRS. 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