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How To File An Amended Federal Tax Return

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How To File An Amended Federal Tax Return

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

How to file an amended federal tax return 3. How to file an amended federal tax return   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. How to file an amended federal tax return Dual use of assets or facilities. How to file an amended federal tax return Exploitation of exempt functions. How to file an amended federal tax return ExamplesExceptions. How to file an amended federal tax return Excluded Trade or Business ActivitiesQualified sponsorship payment. How to file an amended federal tax return Advertising. How to file an amended federal tax return Exception for contingent payments. How to file an amended federal tax return Exception for periodicals. How to file an amended federal tax return Exception for conventions and trade shows. How to file an amended federal tax return Legal definition. How to file an amended federal tax return Legal where played. How to file an amended federal tax return No for-profit games where played. How to file an amended federal tax return Unrelated business income. How to file an amended federal tax return   Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. How to file an amended federal tax return   Certain trade or business activities are not treated as an unrelated trade or business. How to file an amended federal tax return See Excluded Trade or Business Activities, later. How to file an amended federal tax return Trade or business. How to file an amended federal tax return   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. How to file an amended federal tax return An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. How to file an amended federal tax return   For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. How to file an amended federal tax return Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. How to file an amended federal tax return Regularly conducted. How to file an amended federal tax return   Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. How to file an amended federal tax return   For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. How to file an amended federal tax return The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. How to file an amended federal tax return However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. How to file an amended federal tax return Not substantially related. How to file an amended federal tax return    A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). How to file an amended federal tax return Whether an activity contributes importantly depends in each case on the facts involved. How to file an amended federal tax return   In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. How to file an amended federal tax return For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. How to file an amended federal tax return The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. How to file an amended federal tax return   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. How to file an amended federal tax return Selling of products of exempt functions. How to file an amended federal tax return   Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. How to file an amended federal tax return Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. How to file an amended federal tax return   However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. How to file an amended federal tax return For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. How to file an amended federal tax return But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. How to file an amended federal tax return , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. How to file an amended federal tax return Dual use of assets or facilities. How to file an amended federal tax return   If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. How to file an amended federal tax return The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. How to file an amended federal tax return   For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. How to file an amended federal tax return The theater is a principal feature of the museum and operates continuously while the museum is open to the public. How to file an amended federal tax return If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. How to file an amended federal tax return   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. How to file an amended federal tax return Exploitation of exempt functions. How to file an amended federal tax return   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. How to file an amended federal tax return When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. How to file an amended federal tax return Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. How to file an amended federal tax return   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. How to file an amended federal tax return Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. How to file an amended federal tax return Sales commissions. How to file an amended federal tax return   An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. How to file an amended federal tax return Artists' facilities. How to file an amended federal tax return   An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. How to file an amended federal tax return These two activities do not contribute importantly to accomplishing the organization's exempt purpose. How to file an amended federal tax return Therefore, they are unrelated trades or businesses. How to file an amended federal tax return Membership list sales. How to file an amended federal tax return   An exempt educational organization regularly sells membership mailing lists to business firms. How to file an amended federal tax return This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. How to file an amended federal tax return Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. How to file an amended federal tax return Hospital facilities. How to file an amended federal tax return   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. How to file an amended federal tax return The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. How to file an amended federal tax return The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. How to file an amended federal tax return   The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. How to file an amended federal tax return These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. How to file an amended federal tax return Book publishing. How to file an amended federal tax return   An exempt organization engages primarily in activities that further its exempt purposes. How to file an amended federal tax return It also owns the publication rights to a book that does not relate to any of its exempt purposes. How to file an amended federal tax return The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. How to file an amended federal tax return These activities constitute a trade or business regularly conducted. How to file an amended federal tax return Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. How to file an amended federal tax return   However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. How to file an amended federal tax return See Royalties under Exclusions in chapter 4. How to file an amended federal tax return School handicraft shop. How to file an amended federal tax return   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. How to file an amended federal tax return The students are paid a percentage of the sales price. How to file an amended federal tax return In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. How to file an amended federal tax return The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. How to file an amended federal tax return Although many local participants are former students of the school, any qualified person may participate in the program. How to file an amended federal tax return The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. How to file an amended federal tax return School facilities. How to file an amended federal tax return   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. How to file an amended federal tax return During the summer, the school operates a tennis club open to the general public. How to file an amended federal tax return Employees of the school run the club, including collecting membership fees and scheduling court time. How to file an amended federal tax return   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. How to file an amended federal tax return The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. How to file an amended federal tax return   In both situations, the exempt purpose is the advancement of education. How to file an amended federal tax return Furnishing tennis facilities in the manner described does not further that exempt purpose. How to file an amended federal tax return These activities are unrelated trades or businesses. How to file an amended federal tax return However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. How to file an amended federal tax return See Rents under Exclusions in chapter 4. How to file an amended federal tax return Services provided with lease. How to file an amended federal tax return   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. How to file an amended federal tax return Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. How to file an amended federal tax return It also provides dressing room, linen, and stadium security services for the professional team. How to file an amended federal tax return   Leasing of the stadium is an unrelated trade or business. How to file an amended federal tax return In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. How to file an amended federal tax return Therefore, the income from this lease is rent from real property and unrelated business taxable income. How to file an amended federal tax return Broadcasting rights. How to file an amended federal tax return   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. How to file an amended federal tax return Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. How to file an amended federal tax return An athletic program is considered an integral part of the educational process of a university. How to file an amended federal tax return   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. How to file an amended federal tax return Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. How to file an amended federal tax return Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. How to file an amended federal tax return   In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. How to file an amended federal tax return The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. How to file an amended federal tax return   The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. How to file an amended federal tax return The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. How to file an amended federal tax return Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. How to file an amended federal tax return Yearbook advertising. How to file an amended federal tax return   An exempt organization receives income from the sale of advertising in its annual yearbook. How to file an amended federal tax return The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. How to file an amended federal tax return This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. How to file an amended federal tax return This advertising activity is an unrelated trade or business. How to file an amended federal tax return Pet boarding and grooming services. How to file an amended federal tax return   An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. How to file an amended federal tax return These activities do not contribute importantly to its purpose of preventing cruelty to animals. How to file an amended federal tax return Museum eating facilities. How to file an amended federal tax return   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. How to file an amended federal tax return Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. How to file an amended federal tax return The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. How to file an amended federal tax return Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. How to file an amended federal tax return Halfway house workshop. How to file an amended federal tax return   A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. How to file an amended federal tax return The profits are applied to the operating costs of the halfway house. How to file an amended federal tax return The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. How to file an amended federal tax return Travel tour programs. How to file an amended federal tax return   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. How to file an amended federal tax return Example 1. How to file an amended federal tax return A tax-exempt university alumni association provides a travel tour program for its members and their families. How to file an amended federal tax return The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. How to file an amended federal tax return It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. How to file an amended federal tax return The organization provides an employee for each tour as a tour leader. How to file an amended federal tax return There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. How to file an amended federal tax return By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. How to file an amended federal tax return Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. How to file an amended federal tax return Therefore, the sale of the travel tours is an unrelated trade or business. How to file an amended federal tax return Example 2. How to file an amended federal tax return A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. How to file an amended federal tax return These tours are conducted by teachers and others certified by the state board of education. How to file an amended federal tax return The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. How to file an amended federal tax return A tour's study program consists of instruction on subjects related to the location being visited on the tour. How to file an amended federal tax return Each tour group brings along a library of material related to the subjects being studied on the tour. How to file an amended federal tax return During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. How to file an amended federal tax return Examinations are given at the end of each tour. How to file an amended federal tax return The state board of education awards academic credit for tour participation. How to file an amended federal tax return Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. How to file an amended federal tax return Insurance programs. How to file an amended federal tax return   An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. How to file an amended federal tax return Exceptions. How to file an amended federal tax return   Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. How to file an amended federal tax return Magazine publishing. How to file an amended federal tax return   An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. How to file an amended federal tax return   By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. How to file an amended federal tax return This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. How to file an amended federal tax return   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. How to file an amended federal tax return Directory of members. How to file an amended federal tax return   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. How to file an amended federal tax return Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. How to file an amended federal tax return The directory contains no commercial advertisement and is sold only to the organization's members. How to file an amended federal tax return   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. How to file an amended federal tax return Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. How to file an amended federal tax return The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. How to file an amended federal tax return This directory differs from the publication discussed next because of its noncommercial characteristics. How to file an amended federal tax return Sales of advertising space. How to file an amended federal tax return   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. How to file an amended federal tax return The journal is distributed without charge, mainly to the organization's members. How to file an amended federal tax return   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. How to file an amended federal tax return Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. How to file an amended federal tax return A business firm identified in a separate space is further identified in an Index of Advertisers. How to file an amended federal tax return   The organization solicits advertising by personal contacts. How to file an amended federal tax return Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. How to file an amended federal tax return The organization also solicits advertising in form letters appealing for corporate and personal contributions. How to file an amended federal tax return   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. How to file an amended federal tax return Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. How to file an amended federal tax return Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. How to file an amended federal tax return However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. How to file an amended federal tax return In that case, other factors should also be considered in determining whether a commercial benefit can be expected. How to file an amended federal tax return Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. How to file an amended federal tax return   In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. How to file an amended federal tax return However, the purchaser of a listing cannot expect more than an inconsequential benefit. How to file an amended federal tax return Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. How to file an amended federal tax return Publishing legal notices. How to file an amended federal tax return   A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. How to file an amended federal tax return The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. How to file an amended federal tax return The state designated the bar association's journal as the place to publish the required notices. How to file an amended federal tax return   The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. How to file an amended federal tax return Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. How to file an amended federal tax return Therefore, the advertising income is unrelated trade or business income. How to file an amended federal tax return   On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. How to file an amended federal tax return This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. How to file an amended federal tax return Therefore, the publishing of legal notices does not constitute an unrelated trade or business. How to file an amended federal tax return Museum greeting card sales. How to file an amended federal tax return    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. How to file an amended federal tax return Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. How to file an amended federal tax return The cards contain appropriate greetings and are personalized on request. How to file an amended federal tax return   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. How to file an amended federal tax return It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. How to file an amended federal tax return As a result, a large number of cards are sold at a significant profit. How to file an amended federal tax return   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. How to file an amended federal tax return The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. How to file an amended federal tax return The cards may encourage more people to visit the museum itself to share in its educational programs. How to file an amended federal tax return The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. How to file an amended federal tax return Therefore, these sales activities are not an unrelated trade or business. How to file an amended federal tax return Museum shop. How to file an amended federal tax return   An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. How to file an amended federal tax return   The shop also rents originals or reproductions of paintings contained in its collection. How to file an amended federal tax return All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. How to file an amended federal tax return   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. How to file an amended federal tax return   The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. How to file an amended federal tax return The same is true for the sale of literature relating to art. How to file an amended federal tax return Therefore, these sales activities are not an unrelated trade or business. How to file an amended federal tax return   On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. How to file an amended federal tax return The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. How to file an amended federal tax return Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. How to file an amended federal tax return Therefore, these sales are an unrelated trade or business. How to file an amended federal tax return Business league's parking and bus services. How to file an amended federal tax return   A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. How to file an amended federal tax return It also operates, as an insubstantial part of its activities, a park and shop plan. How to file an amended federal tax return   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. How to file an amended federal tax return The merchants cannot offer free or discount parking or bus fares to their customers. How to file an amended federal tax return   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. How to file an amended federal tax return Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. How to file an amended federal tax return   Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. How to file an amended federal tax return That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. How to file an amended federal tax return   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. How to file an amended federal tax return This provides a particular service to individual members of the organization and does not further its exempt purpose. How to file an amended federal tax return Therefore, operating the park and shop plan is an unrelated trade or business. How to file an amended federal tax return Youth residence. How to file an amended federal tax return   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. How to file an amended federal tax return The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. How to file an amended federal tax return The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. How to file an amended federal tax return The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. How to file an amended federal tax return Health club program. How to file an amended federal tax return   An exempt charitable organization's purpose is to provide for the welfare of young people. How to file an amended federal tax return The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. How to file an amended federal tax return Nominal annual dues are charged for membership in the organization and use of the facilities. How to file an amended federal tax return   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. How to file an amended federal tax return The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. How to file an amended federal tax return   The health club program is in addition to the general physical fitness program of the organization. How to file an amended federal tax return Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. How to file an amended federal tax return Miniature golf course. How to file an amended federal tax return   An exempt youth welfare organization operates a miniature golf course that is open to the general public. How to file an amended federal tax return The course, which is managed by salaried employees, is substantially similar to commercial courses. How to file an amended federal tax return The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. How to file an amended federal tax return   The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. How to file an amended federal tax return Sales of hearing aids. How to file an amended federal tax return   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. How to file an amended federal tax return This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. How to file an amended federal tax return It is not an unrelated trade or business. How to file an amended federal tax return Nonpatient laboratory testing. How to file an amended federal tax return   Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. How to file an amended federal tax return However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. How to file an amended federal tax return Selling endorsements. How to file an amended federal tax return   An exempt scientific organization enjoys an excellent reputation in the field of biological research. How to file an amended federal tax return It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. How to file an amended federal tax return Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. How to file an amended federal tax return Accordingly, the sale of endorsements is an unrelated trade or business. How to file an amended federal tax return Sponsoring entertainment events. How to file an amended federal tax return   An exempt university has a regular faculty and a regularly enrolled student body. How to file an amended federal tax return During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. How to file an amended federal tax return Members of the general public also are admitted. How to file an amended federal tax return The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. How to file an amended federal tax return Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. How to file an amended federal tax return Therefore, the activity is not an unrelated trade or business. How to file an amended federal tax return Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. How to file an amended federal tax return Volunteer workforce. How to file an amended federal tax return   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. How to file an amended federal tax return Example 1. How to file an amended federal tax return A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. How to file an amended federal tax return Example 2. How to file an amended federal tax return A volunteer fire company conducts weekly public dances. How to file an amended federal tax return Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. How to file an amended federal tax return However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. How to file an amended federal tax return Convenience of members. How to file an amended federal tax return   A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. How to file an amended federal tax return For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. How to file an amended federal tax return Qualified sponsorship activities. How to file an amended federal tax return   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. How to file an amended federal tax return Qualified sponsorship payment. How to file an amended federal tax return   This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. How to file an amended federal tax return “Use or acknowledgment” does not include advertising the sponsor's products or services. How to file an amended federal tax return The organization's activities include all its activities, whether or not related to its exempt purposes. How to file an amended federal tax return   For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. How to file an amended federal tax return   Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. How to file an amended federal tax return Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. How to file an amended federal tax return Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. How to file an amended federal tax return   Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. How to file an amended federal tax return   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. How to file an amended federal tax return For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. How to file an amended federal tax return Advertising. How to file an amended federal tax return   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. How to file an amended federal tax return For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. How to file an amended federal tax return   Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. How to file an amended federal tax return   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. How to file an amended federal tax return In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. How to file an amended federal tax return Exception for contingent payments. How to file an amended federal tax return   A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. How to file an amended federal tax return However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. How to file an amended federal tax return Exception for periodicals. How to file an amended federal tax return   A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. How to file an amended federal tax return For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. How to file an amended federal tax return It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). How to file an amended federal tax return   The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. How to file an amended federal tax return See Sales of advertising space under Examples, earlier in this chapter. How to file an amended federal tax return Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. How to file an amended federal tax return Exception for conventions and trade shows. How to file an amended federal tax return   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. How to file an amended federal tax return The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. How to file an amended federal tax return Selling donated merchandise. How to file an amended federal tax return   A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. How to file an amended federal tax return For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. How to file an amended federal tax return Employee association sales. How to file an amended federal tax return   The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. How to file an amended federal tax return This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. How to file an amended federal tax return Bingo games. How to file an amended federal tax return   Certain bingo games are not included in the term “unrelated trade or business. How to file an amended federal tax return ” To qualify for this exclusion, the bingo game must meet the following requirements. How to file an amended federal tax return It meets the legal definition of bingo. How to file an amended federal tax return It is legal where it is played. How to file an amended federal tax return It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. How to file an amended federal tax return Legal definition. How to file an amended federal tax return   For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. How to file an amended federal tax return   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. How to file an amended federal tax return For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. How to file an amended federal tax return Legal where played. How to file an amended federal tax return   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. How to file an amended federal tax return The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. How to file an amended federal tax return No for-profit games where played. How to file an amended federal tax return   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. How to file an amended federal tax return Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. How to file an amended federal tax return Example. How to file an amended federal tax return Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. How to file an amended federal tax return In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. How to file an amended federal tax return Several for-profit organizations conduct nightly games. How to file an amended federal tax return Y conducts weekly bingo games in city S, while X conducts weekly games in county R. How to file an amended federal tax return Since state law confines the for-profit organizations to city S, local jurisdiction controls. How to file an amended federal tax return Y's bingo games conducted in city S are an unrelated trade or business. How to file an amended federal tax return However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. How to file an amended federal tax return Gambling activities other than bingo. How to file an amended federal tax return   Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. How to file an amended federal tax return Pole rentals. How to file an amended federal tax return   The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). How to file an amended federal tax return A qualified pole rental is the rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. How to file an amended federal tax return For this purpose, the term rental includes any sale of the right to use the pole (or other structure). How to file an amended federal tax return Distribution of low cost articles. How to file an amended federal tax return   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. How to file an amended federal tax return This applies to organizations described in section 501 that are eligible to receive charitable contributions. How to file an amended federal tax return   A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. How to file an amended federal tax return   An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. How to file an amended federal tax return The maximum cost of a low cost article is $9. How to file an amended federal tax return 70 for 2011. How to file an amended federal tax return The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. How to file an amended federal tax return Exchange or rental of member lists. How to file an amended federal tax return   The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. How to file an amended federal tax return Hospital services. How to file an amended federal tax return   The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. How to file an amended federal tax return This exclusion applies only to services described in section 501(e)(1)(A). How to file an amended federal tax return Public entertainment activity. How to file an amended federal tax return   An unrelated trade or business does not include a qualified public entertainment activity. How to file an amended federal tax return A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. How to file an amended federal tax return   A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. How to file an amended federal tax return   For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. How to file an amended federal tax return Its conducting qualified public entertainment activities will not affect determination of its exempt status. How to file an amended federal tax return Convention or trade show activity. How to file an amended federal tax return   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. How to file an amended federal tax return   A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. How to file an amended federal tax return   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). How to file an amended federal tax return The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. How to file an amended federal tax return   The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. How to file an amended federal tax return For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. How to file an amended federal tax return    Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. How to file an amended federal tax return The trade show itself must be a qualified convention and trade show activity. How to file an amended federal tax return The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. How to file an amended federal tax return Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. How to file an amended federal tax return Prev  Up  Next   Home   More Online Publications