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How To File Tax Extention

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How To File Tax Extention

How to file tax extention Publication 551 - Main Content Table of Contents Cost BasisStocks and Bonds Real Property Business Assets Allocating the Basis Adjusted BasisIncreases to Basis Decreases to Basis Adjustments to Basis Example Basis Other Than CostProperty Received for Services Taxable Exchanges Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed to Business or Rental Use How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). How to file tax extention Cost Basis The basis of property you buy is usually its cost. How to file tax extention The cost is the amount you pay in cash, debt obligations, other property, or services. How to file tax extention Your cost also includes amounts you pay for the following items. How to file tax extention Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if assumed for the seller). How to file tax extention  You may also have to capitalize (add to basis) certain other costs related to buying or producing property. How to file tax extention Loans with low or no interest. How to file tax extention   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. How to file tax extention You generally have unstated interest if your interest rate is less than the applicable federal rate. How to file tax extention For more information, see Unstated Interest and Original Issue Discount in Publication 537. How to file tax extention Purchase of a business. How to file tax extention   When you purchase a trade or business, you generally purchase all assets used in the business operations, such as land, buildings, and machinery. How to file tax extention Allocate the price among the various assets, including any section 197 intangibles. How to file tax extention See Allocating the Basis, later. How to file tax extention Stocks and Bonds The basis of stocks or bonds you buy is generally the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. How to file tax extention If you get stocks or bonds other than by purchase, your basis is usually determined by the fair market value (FMV) or the previous owner's adjusted basis of the stock. How to file tax extention You must adjust the basis of stocks for certain events that occur after purchase. How to file tax extention See Stocks and Bonds in chapter 4 of Publication 550 for more information on the basis of stock. How to file tax extention Identifying stock or bonds sold. How to file tax extention   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. How to file tax extention If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. How to file tax extention For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How to file tax extention Mutual fund shares. How to file tax extention   If you sell mutual fund shares acquired at different times and prices, you can choose to use an average basis. How to file tax extention For more information, see Publication 550. How to file tax extention Real Property Real property, also called real estate, is land and generally anything built on or attached to it. How to file tax extention If you buy real property, certain fees and other expenses become part of your cost basis in the property. How to file tax extention Real estate taxes. How to file tax extention   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. How to file tax extention You cannot deduct them as taxes. How to file tax extention   If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. How to file tax extention Do not include that amount in the basis of the property. How to file tax extention If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How to file tax extention Settlement costs. How to file tax extention   Your basis includes the settlement fees and closing costs for buying property. How to file tax extention You cannot include in your basis the fees and costs for getting a loan on property. How to file tax extention A fee for buying property is a cost that must be paid even if you bought the property for cash. How to file tax extention   The following items are some of the settlement fees or closing costs you can include in the basis of your property. How to file tax extention Abstract fees (abstract of title fees); Charges for installing utility services; Legal fees (including title search and preparation of the sales contract and deed); Recording fees; Surveys; Transfer taxes; Owner's title insurance; and Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. How to file tax extention   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. How to file tax extention   The following items are some settlement fees and closing costs you cannot include in the basis of the property. How to file tax extention Casualty insurance premiums. How to file tax extention Rent for occupancy of the property before closing. How to file tax extention Charges for utilities or other services related to occupancy of the property before closing. How to file tax extention Charges connected with getting a loan. How to file tax extention The following are examples of these charges. How to file tax extention Points (discount points, loan origination fees). How to file tax extention Mortgage insurance premiums. How to file tax extention Loan assumption fees. How to file tax extention Cost of a credit report. How to file tax extention Fees for an appraisal required by a lender. How to file tax extention Fees for refinancing a mortgage. How to file tax extention If these costs relate to business property, items (1) through (3) are deductible as business expenses. How to file tax extention Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. How to file tax extention Points. How to file tax extention   If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. How to file tax extention Generally, you deduct the points over the term of the loan. How to file tax extention For more information on how to deduct points, see Points in chapter 4 of Publication 535. How to file tax extention Points on home mortgage. How to file tax extention   Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. How to file tax extention If certain requirements are met, you can deduct the points in full for the year in which they are paid. How to file tax extention Reduce the basis of your home by any seller-paid points. How to file tax extention For more information, see Points in Publication 936, Home Mortgage Interest Deduction. How to file tax extention Assumption of mortgage. How to file tax extention   If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. How to file tax extention Example. How to file tax extention If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000. How to file tax extention Constructing assets. How to file tax extention   If you build property or have assets built for you, your expenses for this construction are part of your basis. How to file tax extention Some of these expenses include the following costs. How to file tax extention Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. How to file tax extention In addition, if you own a business and use your employees, material, and equipment to build an asset, do not deduct the following expenses. How to file tax extention You must include them in the asset's basis. How to file tax extention Employee wages paid for the construction work, reduced by any employment credits allowed; Depreciation on equipment you own while it is used in the construction; Operating and maintenance costs for equipment used in the construction; and The cost of business supplies and materials used in the construction. How to file tax extention    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. How to file tax extention Business Assets If you purchase property to use in your business, your basis is usually its actual cost to you. How to file tax extention If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. How to file tax extention In certain circumstances, you may be subject to the uniform capitalization rules, next. How to file tax extention Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances. How to file tax extention Activities subject to the rules. How to file tax extention   You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. How to file tax extention Produce real or tangible personal property for use in the business or activity, Produce real or tangible personal property for sale to customers, or Acquire property for resale. How to file tax extention However, this rule does not apply to personal property if your average annual gross receipts for the 3 previous tax years are $10 million or less. How to file tax extention   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. How to file tax extention Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. How to file tax extention Tangible personal property includes films, sound recordings, video tapes, books, or similar property. How to file tax extention    Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. How to file tax extention To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. How to file tax extention You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. How to file tax extention   Any cost you cannot use to figure your taxable income for any tax year is not subject to the uniform capitalization rules. How to file tax extention Example. How to file tax extention If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. How to file tax extention The nondeductible part of the cost is not subject to the uniform capitalization rules. How to file tax extention More information. How to file tax extention   For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Publication 538, Accounting Periods and Methods. How to file tax extention Exceptions. How to file tax extention   The following are not subject to the uniform capitalization rules. How to file tax extention Property you produce that you do not use in your trade, business, or activity conducted for profit; Qualified creative expenses you pay or incur as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return; Property you produce under a long-term contract, except for certain home construction contracts; Research and experimental expenses deductible under section 174 of the Internal Revenue Code; and Costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years do not exceed $10 million. How to file tax extention For other exceptions to the uniform capitalization rules, see section 1. How to file tax extention 263A-1(b) of the regulations. How to file tax extention   For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 of Publication 225, Farmer's Tax Guide. How to file tax extention Intangible Assets Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. How to file tax extention The basis of an intangible asset is usually the cost to buy or create it. How to file tax extention If you acquire multiple assets, for example a going business for a lump sum, see Allocating the Basis below to figure the basis of the individual assets. How to file tax extention The basis of certain intangibles can be amortized. How to file tax extention See chapter 8 of Publication 535 for information on the amortization of these costs. How to file tax extention Patents. How to file tax extention   The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. How to file tax extention If you deduct the research and experimental expenditures as current business expenses, you cannot include them in the basis of the patent. How to file tax extention The value of the inventor's time spent on an invention is not part of the basis. How to file tax extention Copyrights. How to file tax extention   If you are an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. How to file tax extention Do not include the value of your time as the author, or any other person's time you did not pay for. How to file tax extention Franchises, trademarks, and trade names. How to file tax extention   If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense. How to file tax extention Allocating the Basis If you buy multiple assets for a lump sum, allocate the amount you pay among the assets you receive. How to file tax extention You must make this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. How to file tax extention See Trade or Business Acquired below. How to file tax extention Group of Assets Acquired If you buy multiple assets for a lump sum, you and the seller may agree to a specific allocation of the purchase price among the assets in the sales contract. How to file tax extention If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. How to file tax extention However, see Trade or Business Acquired, next. How to file tax extention Trade or Business Acquired If you acquire a trade or business, allocate the consideration paid to the various assets acquired. How to file tax extention Generally, reduce the consideration paid by any cash and general deposit accounts (including checking and savings accounts) received. How to file tax extention Allocate the remaining consideration to the other business assets received in proportion to (but not more than) their fair market value in the following order. How to file tax extention Certificates of deposit, U. How to file tax extention S. How to file tax extention Government securities, foreign currency, and actively traded personal property, including stock and securities. How to file tax extention Accounts receivable, other debt instruments, and assets you mark to market at least annually for federal income tax purposes. How to file tax extention Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held primarily for sale to customers in the ordinary course of business. How to file tax extention All other assets except section 197 intangibles, goodwill, and going concern value. How to file tax extention Section 197 intangibles except goodwill and going concern value. How to file tax extention Goodwill and going concern value (whether or not they qualify as section 197 intangibles). How to file tax extention Agreement. How to file tax extention   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value (FMV) of any of the assets. How to file tax extention This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. How to file tax extention Reporting requirement. How to file tax extention   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. How to file tax extention Use Form 8594 to provide this information. How to file tax extention The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. How to file tax extention More information. How to file tax extention   See Sale of a Business in chapter 2 of Publication 544 for more information. How to file tax extention Land and Buildings If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings. How to file tax extention Figure the basis of each asset by multiplying the lump sum by a fraction. How to file tax extention The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. How to file tax extention If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. How to file tax extention Demolition of building. How to file tax extention   Add demolition costs and other losses incurred for the demolition of any building to the basis of the land on which the demolished building was located. How to file tax extention Do not claim the costs as a current deduction. How to file tax extention Modification of building. How to file tax extention   A modification of a building will not be treated as a demolition if the following conditions are satisfied. How to file tax extention 75 percent or more of the existing external walls of the building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of the building is retained in place. How to file tax extention   If the building is a certified historic structure, the modification must also be part of a certified rehabilitation. How to file tax extention   If these conditions are met, add the costs of the modifications to the basis of the building. How to file tax extention Subdivided lots. How to file tax extention   If you buy a tract of land and subdivide it, you must determine the basis of each lot. How to file tax extention This is necessary because you must figure the gain or loss on the sale of each individual lot. How to file tax extention As a result, you do not recover your entire cost in the tract until you have sold all of the lots. How to file tax extention   To determine the basis of an individual lot, multiply the total cost of the tract by a fraction. How to file tax extention The numerator is the FMV of the lot and the denominator is the FMV of the entire tract. How to file tax extention Future improvement costs. How to file tax extention   If you are a developer and sell subdivided lots before the development work is completed, you can (with IRS consent) include in the basis of the properties sold an allocation of the estimated future cost for common improvements. How to file tax extention See Revenue Procedure 92–29 for more information, including an explanation of the procedures for getting consent from the IRS. How to file tax extention Use of erroneous cost basis. How to file tax extention   If you made a mistake in figuring the cost basis of subdivided lots sold in previous years, you cannot correct the mistake for years for which the statute of limitations (generally 3 tax years) has expired. How to file tax extention Figure the basis of any remaining lots by allocating the correct original cost basis of the entire tract among the original lots. How to file tax extention Example. How to file tax extention You bought a tract of land to which you assigned a cost of $15,000. How to file tax extention You subdivided the land into 15 building lots of equal size and equitably divided your basis so that each lot had a basis of $1,000. How to file tax extention You treated the sale of each lot as a separate transaction and figured gain or loss separately on each sale. How to file tax extention Several years later you determine that your original basis in the tract was $22,500 and not $15,000. How to file tax extention You sold eight lots using $8,000 of basis in years for which the statute of limitations has expired. How to file tax extention You now can take $1,500 of basis into account for figuring gain or loss only on the sale of each of the remaining seven lots ($22,500 basis divided among all 15 lots). How to file tax extention You cannot refigure the basis of the eight lots sold in tax years barred by the statute of limitations. How to file tax extention Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the basis of the property. How to file tax extention The result of these adjustments to the basis is the adjusted basis. How to file tax extention Increases to Basis Increase the basis of any property by all items properly added to a capital account. How to file tax extention These include the cost of any improvements having a useful life of more than 1 year. How to file tax extention Rehabilitation expenses also increase basis. How to file tax extention However, you must subtract any rehabilitation credit allowed for these expenses before you add them to your basis. How to file tax extention If you have to recapture any of the credit, increase your basis by the recaptured amount. How to file tax extention If you make additions or improvements to business property, keep separate accounts for them. How to file tax extention Also, you must depreciate the basis of each according to the depreciation rules that would apply to the underlying property if you had placed it in service at the same time you placed the addition or improvement in service. How to file tax extention For more information, see Publication 946. How to file tax extention The following items increase the basis of property. How to file tax extention The cost of extending utility service lines to the property; Impact fees; Legal fees, such as the cost of defending and perfecting title; Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements; Zoning costs; and The capitalized value of a redeemable ground rent. How to file tax extention Assessments for Local Improvements Increase the basis of property by assessments for items such as paving roads and building ditches that increase the value of the property assessed. How to file tax extention Do not deduct them as taxes. How to file tax extention However, you can deduct as taxes charges for maintenance, repairs, or interest charges related to the improvements. How to file tax extention Example. How to file tax extention Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected landowners for the cost of the conversion. How to file tax extention Add the assessment to your property's basis. How to file tax extention In this example, the assessment is a depreciable asset. How to file tax extention Deducting vs. How to file tax extention Capitalizing Costs Do not add to your basis costs you can deduct as current expenses. How to file tax extention For example, amounts paid for incidental repairs or maintenance that are deductible as business expenses cannot be added to basis. How to file tax extention However, you can choose either to deduct or to capitalize certain other costs. How to file tax extention If you capitalize these costs, include them in your basis. How to file tax extention If you deduct them, do not include them in your basis. How to file tax extention See Uniform Capitalization Rules earlier. How to file tax extention The costs you can choose to deduct or to capitalize include the following. How to file tax extention Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules; Research and experimentation costs; Intangible drilling and development costs for oil, gas, and geothermal wells; Exploration costs for new mineral deposits; Mining development costs for a new mineral deposit; Costs of establishing, maintaining, or increasing the circulation of a newspaper or other periodical; and Costs of removing architectural and transportation barriers to people with disabilities and the elderly. How to file tax extention If you claim the disabled access credit, you must reduce the amount you deduct or capitalize by the amount of the credit. How to file tax extention For more information about deducting or capitalizing costs, see chapter 7 in Publication 535. How to file tax extention Table 1. How to file tax extention Examples of Increases and Decreases to Basis Increases to Basis Decreases to Basis Capital improvements:   Putting an addition on your home   Replacing an entire roof  Paving your driveway  Installing central air conditioning Rewiring your home Exclusion from income of subsidies for energy conservation measures  Casualty or theft loss deductions and insurance reimbursements  Vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction  Casualty losses: Restoring damaged property Depreciation  Nontaxable corporate distributions Legal fees:  Cost of defending and perfecting a title   Zoning costs   Decreases to Basis The following are some items that reduce the basis of property. How to file tax extention Section 179 deduction; Nontaxable corporate distributions; Deductions previously allowed (or allowable) for amortization, depreciation, and depletion; Exclusion of subsidies for energy conservation measures; Vehicle credits; Residential energy credits; Postponed gain from sale of home; Investment credit (part or all) taken; Casualty and theft losses and insurance reimbursement; Certain canceled debt excluded from income; Rebates from a manufacturer or seller; Easements; Gas-guzzler tax; Adoption tax benefits; and Credit for employer-provided child care. How to file tax extention Some of these items are discussed next. How to file tax extention Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. How to file tax extention You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. How to file tax extention To make this determination, compare the repaired property to the property before the casualty. How to file tax extention For more information on casualty and theft losses, see Publication 547, Casualties, Disasters, and Thefts. How to file tax extention Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. How to file tax extention It reduces the basis of the affected part of the property. How to file tax extention If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. How to file tax extention Vehicle Credits Unless you elect not to claim the qualified plug-in electric vehicle credit, the alternative motor vehicle credit, or the qualified plug-in electric drive motor vehicle credit, you may have to reduce the basis of each qualified vehicle by certain amounts reported. How to file tax extention For more information, see Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit;and the related instructions. How to file tax extention Gas-Guzzler Tax Decrease the basis in your car by the gas-guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. How to file tax extention This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. How to file tax extention If the car is imported, the one-year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use. How to file tax extention Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. How to file tax extention For more information about the section 179 deduction, see Publication 946. How to file tax extention Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. How to file tax extention Reduce the basis of the property for which you received the subsidy by the excluded amount. How to file tax extention For more information on this subsidy, see Publication 525. How to file tax extention Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. How to file tax extention If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. How to file tax extention If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. How to file tax extention Unless a timely election is made not to deduct the special depreciation allowance for property placed in service after September 10, 2001, decrease the property's basis by the special depreciation allowance you deducted or could have deducted. How to file tax extention If you deducted more depreciation than you should have, decrease your basis by the amount equal to the depreciation you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for the year. How to file tax extention In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation capitalized under the uniform capitalization rules. How to file tax extention For information on figuring depreciation, see Publication 946. How to file tax extention If you are claiming depreciation on a business vehicle, see Publication 463. How to file tax extention If the car is not used more than 50% for business during the tax year, you may have to recapture excess depreciation. How to file tax extention Include the excess depreciation in your gross income and add it to your basis in the property. How to file tax extention For information on the computation of excess depreciation, see chapter 4 in Publication 463. How to file tax extention Canceled Debt Excluded From Income If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. How to file tax extention A debt includes any indebtedness for which you are liable or which attaches to property you hold. How to file tax extention You can exclude canceled debt from income in the following situations. How to file tax extention Debt canceled in a bankruptcy case or when you are insolvent, Qualified farm debt, and Qualified real property business debt (provided you are not a C corporation). How to file tax extention If you exclude from income canceled debt under situation (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. How to file tax extention However, in situation (3), you must reduce the basis of your depreciable property by the excluded amount. How to file tax extention For more information about canceled debt in a bankruptcy case or during insolvency, see Publication 908, Bankruptcy Tax Guide. How to file tax extention For more information about canceled debt that is qualified farm debt, see chapter 3 in Publication 225. How to file tax extention For more information about qualified real property business debt, see chapter 5 in Publication 334, Tax Guide for Small Business. How to file tax extention Postponed Gain From Sale of Home If you postponed gain from the sale of your main home before May 7, 1997, you must reduce the basis of your new home by the postponed gain. How to file tax extention For more information on the rules for the sale of a home, see Publication 523. How to file tax extention Adoption Tax Benefits If you claim an adoption credit for the cost of improvements you added to the basis of your home, decrease the basis of your home by the credit allowed. How to file tax extention This also applies to amounts you received under an employer's adoption assistance program and excluded from income. How to file tax extention For more information Form 8839, Qualified Adoption Expenses. How to file tax extention Employer-Provided Child Care If you are an employer, you can claim the employer-provided child care credit on amounts you paid or incurred to acquire, construct, rehabilitate, or expand property used as part of your qualified child care facility. How to file tax extention You must reduce your basis in that property by the credit claimed. How to file tax extention For more information, see Form 8882, Credit for Employer-Provided Child Care Facilities and Services. How to file tax extention Adjustments to Basis Example In January 2005, you paid $80,000 for real property to be used as a factory. How to file tax extention You also paid commissions of $2,000 and title search and legal fees of $600. How to file tax extention You allocated the total cost of $82,600 between the land and the building—$10,325 for the land and $72,275 for the building. How to file tax extention Immediately you spent $20,000 in remodeling the building before you placed it in service. How to file tax extention You were allowed depreciation of $14,526 for the years 2005 through 2009. How to file tax extention In 2008 you had a $5,000 casualty loss from a that was not covered by insurance on the building. How to file tax extention You claimed a deduction for this loss. How to file tax extention You spent $5,500 to repair the damages and extend the useful life of the building. How to file tax extention The adjusted basis of the building on January 1, 2010, is figured as follows: Original cost of building including fees and commissions $72,275 Adjustments to basis:     Add:         Improvements 20,000   Repair of damages 5,500       $97,775 Subtract:       Depreciation $14,526     Deducted casualty loss 5,000 19,526 Adjusted basis on January 1, 2010 $78,249 The basis of the land, $10,325, remains unchanged. How to file tax extention It is not affected by any of the above adjustments. How to file tax extention Basis Other Than Cost There are many times when you cannot use cost as basis. How to file tax extention In these cases, the fair market value or the adjusted basis of property may be used. How to file tax extention Adjusted basis is discussed earlier. How to file tax extention Fair market value (FMV). How to file tax extention   FMV is the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. How to file tax extention Sales of similar property on or about the same date may be helpful in figuring the property's FMV. How to file tax extention Property Received for Services If you receive property for services, include the property's FMV in income. How to file tax extention The amount you include in income becomes your basis. How to file tax extention If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. How to file tax extention Bargain Purchases A bargain purchase is a purchase of an item for less than its FMV. How to file tax extention If, as compensation for services, you purchase goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. How to file tax extention Your basis in the property is its FMV (your purchase price plus the amount you include in income). How to file tax extention If the difference between your purchase price and the FMV represents a qualified employee discount, do not include the difference in income. How to file tax extention However, your basis in the property is still its FMV. How to file tax extention See Employee Discounts in Publication 15-B. How to file tax extention Restricted Property If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested unless you make the election discussed later. How to file tax extention Property becomes substantially vested when your rights in the property or the rights of any person to whom you transfer the property are not subject to a substantial risk of forfeiture. How to file tax extention There is substantial risk of forfeiture when the rights to full enjoyment of the property depend on the future performance of substantial services by any person. How to file tax extention When the property becomes substantially vested, include the FMV, less any amount you paid for the property, in income. How to file tax extention Example. How to file tax extention Your employer gives you stock for services performed under the condition that you will have to return the stock unless you complete 5 years of service. How to file tax extention The stock is under a substantial risk of forfeiture and is not substantially vested when you receive it. How to file tax extention You do not report any income until you have completed the 5 years of service that satisfy the condition. How to file tax extention Fair market value. How to file tax extention   Figure the FMV of property you received without considering any restriction except one that by its terms will never end. How to file tax extention Example. How to file tax extention You received stock from your employer for services you performed. How to file tax extention If you want to sell the stock while you are still employed, you must sell the stock to your employer at book value. How to file tax extention At your retirement or death, you or your estate must offer to sell the stock to your employer at its book value. How to file tax extention This is a restriction that by its terms will never end and you must consider it when you figure the FMV. How to file tax extention Election. How to file tax extention   You can choose to include in your gross income the FMV of the property at the time of transfer, less any amount you paid for it. How to file tax extention If you make this choice, the substantially vested rules do not apply. How to file tax extention Your basis is the amount you paid plus the amount you included in income. How to file tax extention   See the discussion of Restricted Property in Publication 525 for more information. How to file tax extention Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. How to file tax extention A taxable gain or deductible loss is also known as a recognized gain or loss. How to file tax extention If you receive property in exchange for other property in a taxable exchange, the basis of property you receive is usually its FMV at the time of the exchange. How to file tax extention A taxable exchange occurs when you receive cash or property not similar or related in use to the property exchanged. How to file tax extention Example. How to file tax extention You trade a tract of farm land with an adjusted basis of $3,000 for a tractor that has an FMV of $6,000. How to file tax extention You must report a taxable gain of $3,000 for the land. How to file tax extention The tractor has a basis of $6,000. How to file tax extention Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, you can figure the basis of the replacement property you receive using the basis of the converted property. How to file tax extention Similar or related property. How to file tax extention   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the old property's basis on the date of the conversion. How to file tax extention However, make the following adjustments. How to file tax extention Decrease the basis by the following. How to file tax extention Any loss you recognize on the conversion, and Any money you receive that you do not spend on similar property. How to file tax extention Increase the basis by the following. How to file tax extention Any gain you recognize on the conversion, and Any cost of acquiring the replacement property. How to file tax extention Money or property not similar or related. How to file tax extention   If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the new property is its cost decreased by the gain not recognized on the conversion. How to file tax extention Example. How to file tax extention The state condemned your property. How to file tax extention The property had an adjusted basis of $26,000 and the state paid you $31,000 for it. How to file tax extention You realized a gain of $5,000 ($31,000 − $26,000). How to file tax extention You bought replacement property similar in use to the converted property for $29,000. How to file tax extention You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. How to file tax extention Your gain not recognized is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. How to file tax extention The basis of the new property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of the replacement property $26,000 Allocating the basis. How to file tax extention   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. How to file tax extention Example. How to file tax extention The state in the previous example condemned your unimproved real property and the replacement property you bought was improved real property with both land and buildings. How to file tax extention Allocate the replacement property's $26,000 basis between land and buildings based on their respective costs. How to file tax extention More information. How to file tax extention   For more information about condemnations, see Involuntary Conversions in Publication 544. How to file tax extention For more information about casualty and theft losses, see Publication 547. How to file tax extention Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. How to file tax extention If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. How to file tax extention A nontaxable gain or loss is also known as an unrecognized gain or loss. How to file tax extention Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. How to file tax extention To qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. How to file tax extention There must also be an exchange of like-kind property. How to file tax extention For more information, see Like-Kind Exchanges in Publication 544. How to file tax extention The basis of the property you receive is the same as the basis of the property you gave up. How to file tax extention Example. How to file tax extention You exchange real estate (adjusted basis $50,000, FMV $80,000) held for investment for other real estate (FMV $80,000) held for investment. How to file tax extention Your basis in the new property is the same as the basis of the old ($50,000). How to file tax extention Exchange expenses. How to file tax extention   Exchange expenses are generally the closing costs you pay. How to file tax extention They include such items as brokerage commissions, attorney fees, deed preparation fees, etc. How to file tax extention Add them to the basis of the like-kind property received. How to file tax extention Property plus cash. How to file tax extention   If you trade property in a like-kind exchange and also pay money, the basis of the property received is the basis of the property you gave up increased by the money you paid. How to file tax extention Example. How to file tax extention You trade in a truck (adjusted basis $3,000) for another truck (FMV $7,500) and pay $4,000. How to file tax extention Your basis in the new truck is $7,000 (the $3,000 basis of the old truck plus the $4,000 paid). How to file tax extention Special rules for related persons. How to file tax extention   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. How to file tax extention Each person must report any gain or loss not recognized on the original exchange. How to file tax extention Each person reports it on the tax return filed for the year in which the later disposition occurs. How to file tax extention If this rule applies, the basis of the property received in the original exchange will be its fair market value. How to file tax extention   These rules generally do not apply to the following kinds of property dispositions. How to file tax extention Dispositions due to the death of either related person, Involuntary conversions, and Dispositions in which neither the original exchange nor the subsequent disposition had as a main purpose the avoidance of federal income tax. How to file tax extention Related persons. How to file tax extention   Generally, related persons are ancestors, lineal descendants, brothers and sisters (whole or half), and a spouse. How to file tax extention   For other related persons (for example, two corporations, an individual and a corporation, a grantor and fiduciary, etc. How to file tax extention ), see Nondeductible Loss in chapter 2 of Publication 544. How to file tax extention Exchange of business property. How to file tax extention   Exchanging the assets of one business for the assets of another business is a multiple property exchange. How to file tax extention For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. How to file tax extention Partially Nontaxable Exchange A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like property. How to file tax extention The basis of the property you receive is the same as the basis of the property you gave up, with the following adjustments. How to file tax extention Decrease the basis by the following amounts. How to file tax extention Any money you receive, and Any loss you recognize on the exchange. How to file tax extention Increase the basis by the following amounts. How to file tax extention Any additional costs you incur, and Any gain you recognize on the exchange. How to file tax extention If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. How to file tax extention Example. How to file tax extention You traded a truck (adjusted basis $6,000) for a new truck (FMV $5,200) and $1,000 cash. How to file tax extention You realized a gain of $200 ($6,200 − $6,000). How to file tax extention This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($5,200 + $1,000 – $6,000). How to file tax extention You include all the gain in income (recognized gain) because the gain is less than the cash received. How to file tax extention Your basis in the new truck is: Adjusted basis of old truck $6,000 Minus: Cash received (adjustment 1(a)) 1,000   $5,000 Plus: Gain recognized (adjustment 2(b)) 200 Basis of new truck $5,200 Allocation of basis. How to file tax extention   Allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. How to file tax extention The rest is the basis of the like property. How to file tax extention Example. How to file tax extention You had an adjusted basis of $15,000 in real estate you held for investment. How to file tax extention You exchanged it for other real estate to be held for investment with an FMV of $12,500, a truck with an FMV of $3,000, and $1,000 cash. How to file tax extention The truck is unlike property. How to file tax extention You realized a gain of $1,500 ($16,500 − $15,000). How to file tax extention This is the FMV of the real estate received plus the FMV of the truck received plus the cash minus the adjusted basis of the real estate you traded ($12,500 + $3,000 + $1,000 – $15,000). How to file tax extention You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. How to file tax extention Your basis in the properties you received is figured as follows. How to file tax extention Adjusted basis of real estate transferred $15,000 Minus: Cash received (adjustment 1(a)) 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property — the truck ($3,000). How to file tax extention This is the truck's FMV. How to file tax extention The rest ($12,500) is the basis of the real estate. How to file tax extention Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. How to file tax extention Example. How to file tax extention You are a salesperson and you use one of your cars 100% for business. How to file tax extention You have used this car in your sales activities for 2 years and have depreciated it. How to file tax extention Your adjusted basis in the car is $22,600 and its FMV is $23,100. How to file tax extention You are interested in a new car, which sells for $28,000. How to file tax extention If you trade your old car and pay $4,900 for the new one, your basis for depreciation for the new car would be $27,500 ($4,900 plus the $22,600 basis of your old car). How to file tax extention However, you want a higher basis for depreciating the new car, so you agree to pay the dealer $28,000 for the new car if he will pay you $23,100 for your old car. How to file tax extention Because the two transactions are dependent on each other, you are treated as having exchanged your old car for the new one and paid $4,900 ($28,000 − $23,100). How to file tax extention Your basis for depreciating the new car is $27,500, the same as if you traded the old car. How to file tax extention Partial Business Use of Property If you have property used partly for business and partly for personal use, and you exchange it in a nontaxable exchange for property to be used wholly or partly in your business, the basis of the property you receive is figured as if you had exchanged two properties. How to file tax extention The first is an exchange of like-kind property. How to file tax extention The second is personal-use property on which gain is recognized and loss is not recognized. How to file tax extention First, figure your adjusted basis in the property as if you transferred two separate properties. How to file tax extention Figure the adjusted basis of each part of the property by taking into account any adjustments to basis. How to file tax extention Deduct the depreciation you took or could have taken from the adjusted basis of the business part. How to file tax extention Then figure the amount realized for your property and allocate it to the business and nonbusiness parts of the property. How to file tax extention The business part of the property is permitted to be exchanged tax free. How to file tax extention However, you must recognize any gain from the exchange of the nonbusiness part. How to file tax extention You are deemed to have received, in exchange for the nonbusiness part, an amount equal to its FMV on the date of the exchange. How to file tax extention The basis of the property you acquired is the total basis of the property transferred (adjusted to the date of the exchange), increased by any gain recognized on the nonbusiness part. How to file tax extention If the nonbusiness part of the property transferred is your main home, you may qualify to exclude from income all or part of the gain on that part. How to file tax extention For more information, see Publication 523. How to file tax extention Trade of car used partly in business. How to file tax extention   If you trade in a car you used partly in your business for another car you will use in your business, your basis for depreciation of the new car is not the same as your basis for figuring a gain or loss on its sale. How to file tax extention   For information on figuring your basis for depreciation, see Publication 463. How to file tax extention Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce), is the same as your spouse's adjusted basis. How to file tax extention However, adjust your basis for any gain recognized by your spouse or former spouse on property transferred in trust. How to file tax extention This rule applies only to a transfer of property in trust in which the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. How to file tax extention If the property transferred to you is a series E, series EE, or series I United States savings bond, the transferor must include in income the interest accrued to the date of transfer. How to file tax extention Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. How to file tax extention For more information on these bonds, see Publication 550. How to file tax extention At the time of the transfer, the transferor must give you the records necessary to determine the adjusted basis and holding period of the property as of the date of transfer. How to file tax extention For more information, see Publication 504, Divorced or Separated Individuals. How to file tax extention Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. How to file tax extention FMV Less Than Donor's Adjusted Basis If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. How to file tax extention Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustment to basis while you held the property. How to file tax extention Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property (see Adjusted Basis earlier). How to file tax extention If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and have a gain, you have neither gain nor loss on the sale or disposition of the property. How to file tax extention Example. How to file tax extention You received an acre of land as a gift. How to file tax extention At the time of the gift, the land had an FMV of $8,000. How to file tax extention The donor's adjusted basis was $10,000. How to file tax extention After you received the land, no events occurred to increase or decrease your basis. How to file tax extention If you sell the land for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis ($10,000) at the time of the gift as your basis to figure gain. How to file tax extention If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV ($8,000) at the time of the gift as your basis to figure a loss. How to file tax extention If the sales price is between $8,000 and $10,000, you have neither gain nor loss. How to file tax extention For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis ($10,000), you would get a $1,000 loss. How to file tax extention If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain. How to file tax extention Business property. How to file tax extention   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. How to file tax extention FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. How to file tax extention Increase your basis by all or part of any gift tax paid, depending on the date of the gift. How to file tax extention Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis by any required adjustments to basis while you held the property. How to file tax extention See Adjusted Basis earlier. How to file tax extention Gift received before 1977. How to file tax extention   If you received a gift before 1977, increase your basis in the gift (the donor's adjusted basis) by any gift tax paid on it. How to file tax extention However, do not increase your basis above the FMV of the gift at the time it was given to you. How to file tax extention Example 1. How to file tax extention You were given a house in 1976 with an FMV of $21,000. How to file tax extention The donor's adjusted basis was $20,000. How to file tax extention The donor paid a gift tax of $500. How to file tax extention Your basis is $20,500, the donor's adjusted basis plus the gift tax paid. How to file tax extention Example 2. How to file tax extention If, in Example 1, the gift tax paid had been $1,500, your basis would be $21,000. How to file tax extention This is the donor's adjusted basis plus the gift tax paid, limited to the FMV of the house at the time you received the gift. How to file tax extention Gift received after 1976. How to file tax extention   If you received a gift after 1976, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it that is due to the net increase in value of the gift. How to file tax extention Figure the increase by multiplying the gift tax paid by a fraction. How to file tax extention The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. How to file tax extention   The net increase in value of the gift is the FMV of the gift less the donor's adjusted basis. How to file tax extention The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. How to file tax extention For information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes. How to file tax extention Example. How to file tax extention In 2010, you received a gift of property from your mother that had an FMV of $50,000. How to file tax extention Her adjusted basis was $20,000. How to file tax extention The amount of the gift for gift tax purposes was $37,000 ($50,000 minus the $13,000 annual exclusion). How to file tax extention She paid a gift tax of $9,000. How to file tax extention Your basis, $27,290, is figured as follows: Fair market value $50,000 Minus: Adjusted basis 20,000 Net increase in value $30,000 Gift tax paid $9,000 Multiplied by ($30,000 ÷ $37,000) . How to file tax extention 81 Gift tax due to net increase in value $7,290 Adjusted basis of property to your mother 20,000 Your basis in the property $27,290 Inherited Property Special rules apply to property acquired from a decedent who died in 2010. How to file tax extention See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. How to file tax extention If you inherited property from a decedent who died before 2010, your basis in property you inherit from a decedent is generally one of the following. How to file tax extention The FMV of the property at the date of the individual's death. How to file tax extention The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. How to file tax extention For information on the alternate valuation date, see the Instructions for Form 706. How to file tax extention The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. How to file tax extention This method is discussed later. How to file tax extention The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. How to file tax extention For information on a qualified conservation easement, see the Instructions for Form 706. How to file tax extention If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. How to file tax extention For more information, see the Instructions for Form 706. How to file tax extention Appreciated property. How to file tax extention   The above rule does not apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. How to file tax extention Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. How to file tax extention Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis. How to file tax extention Community Property In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. How to file tax extention When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. How to file tax extention For this rule to apply, at least half the value of the community property interest must be includable in the decedent's gross estate, whether or not the estate must file a return. How to file tax extention For example, you and your spouse owned community property that had a basis of $80,000. How to file tax extention When your spouse died, half the FMV of the community interest was includible in your spouse's estate. How to file tax extention The FMV of the community interest was $100,000. How to file tax extention The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). How to file tax extention The basis of the other half to your spouse's heirs is also $50,000. How to file tax extention For more information on community property, see Publication 555, Community Property. How to file tax extention Property Held by Surviving Tenant The following example explains the rule for the basis of property held by a surviving tenant in joint tenancy or tenancy by the entirety. How to file tax extention Example. How to file tax extention John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $30,000. How to file tax extention John furnished two-thirds of the purchase price and Jim furnished one-third. How to file tax extention Depreciation deductions allowed before John's death were $12,000. How to file tax extention Under local law, each had a half interest in the income from the property. How to file tax extention At the date of John's death, the property had an FMV of $60,000, two-thirds of which is includable in John's estate. How to file tax extention Jim figures his basis in the property at the date of John's death as follows: Interest Jim bought with his own funds—1/3 of $30,000 cost $10,000   Interest Jim received on John's death—2/3 of $60,000 FMV 40,000 $50,000 Minus: ½ of $12,000 depreciation before John's death 6,000 Jim's basis at the date of John's death $44,000 If Jim had not contributed any part of the purchase price, his basis at the date of John's death would be $54,000. How to file tax extention This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. How to file tax extention If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property. How to file tax extention Qualified Joint Interest Include one-half of the value of a qualified joint interest in the decedent's gross estate. How to file tax extention It does not matter how much each spouse contributed to the purchase price. How to file tax extention Also, it does not matter which spouse dies first. How to file tax extention A qualified joint interest is any interest in property held by husband and wife as either of the following. How to file tax extention Tenants by the entirety, or Joint tenants with right of survivorship if husband and wife are the only joint tenants. How to file tax extention Basis. How to file tax extention   As the surviving spouse, your basis in property you owned with your spouse as a qualified joint interest is the cost of your half of the property with certain adjustments. How to file tax extention Decrease the cost by any deductions allowed to you for depreciation and depletion. How to file tax extention Increase the reduced cost by your basis in the half you inherited. How to file tax extention Farm or Closely Held Business Under certain conditions, when a person dies the executor or personal representative of that person's estate can choose to value the qualified real property on other than its FMV. How to file tax extention If so, the executor or personal representative values the qualified real property based on its use as a farm or its use in a closely held business. How to file tax extention If the executor or personal representative chooses this method of valuation for estate tax purposes, that value is the basis of the property for the heirs. How to file tax extention Qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. How to file tax extention Special-use valuation. How to file tax extention   If you are a qualified heir who received special-use valuation property, your basis in the property is the estate's or trust's basis in that property immediately before the distribution. How to file tax extention Increase your basis by any gain recognized by the estate or trust because of post-death appreciation. How to file tax extention Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or the alternate valuation date. How to file tax extention Figure all FMVs without regard to the special-use valuation. How to file tax extention   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. How to file tax extention This tax is assessed if, within 10 years after the death of the decedent, you transfer the property to a person who is not a member of your family or the property stops being used as a farm or in a closely held business. How to file tax extention   To increase your basis in the property, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of the payment of the additional estate tax. How to file tax extention If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. How to file tax extention The increase in your basis is considered to have occurred immediately before the event that results in the additional estate tax. How to file tax extention   You make the election by filing with Form 706-A a statement that does all of the following. How to file tax extention Contains your name, address, and taxpayer identification number and those of the estate; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which the election is made; and Provides any additional information required by the Instructions for Form 706-A. How to file tax extention   For more information, see the Instructions for Form 706 and the Instructions for Form 706-A. How to file tax extention Property Changed to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. How to file tax extention An example of changing property held for personal use to business use would be renting out your former main home. How to file tax extention Basis for depreciation. How to file tax extention   The basis for depreciation is the lesser of the following amounts. How to file tax extention The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. How to file tax extention Example. How to file tax extention Several years ago you paid $160,000 to have your home built on a lot that cost $25,000. How to file tax extention You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. How to file tax extention Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. How to file tax extention Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). How to file tax extention On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. How to file tax extention The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it is less than your adjusted basis ($178,000). How to file tax extention Sale of property. How to file tax extention   If you later sell or dispose of property changed to business or rental use, the basis of the property you use will depend on whether you are figuring gain or loss. How to file tax extention Gain. How to file tax extention   The basis for figuring a gain is your adjusted basis when you sell the property. How to file tax extention Example. How to file tax extention Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. How to file tax extention Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). How to file tax extention Loss. How to file tax extention   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. How to file tax extention Then adjust this amount for the period after the change in the property's use, as discussed earlier under Adjusted Basis, to arrive at a basis for loss. How to file tax extention Example. How to file tax extention Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. How to file tax extention In this case, you would start with the FMV on the date of the change to rental use ($180,000) because it is less than the adjusted basis of $203,000 ($178,000 + $25,000) on that date. How to file tax extention Reduce that amount ($180,000) by the depreciation deductions to arrive at a basis for loss of $142,500 ($180,000 − $37,500). How to file tax extention How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. How to file tax extention By selecting the method that is best for you, you will have quick and easy access to tax help. How to file tax extention Contacting your Taxpayer Advocate. How to file tax extention   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. How to file tax extention We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. How to file tax extention Here are seven things every taxpayer should know about TAS. How to file tax extention TAS is your voice at the IRS. How to file tax extention Our service is free, confidential, and tailored to meet your needs. How to file tax extention You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. How to file tax extention We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. How to file tax extention This includes businesses as well as individuals. How to file tax extention Our employees know the IRS and how to navigate it. How to file tax extention If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. How to file tax extention We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. How to file tax extention You can call your local advocate, whose number is in your phone book, in Publication 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. How to file tax extention irs. How to file tax extention gov/advocate. How to file tax extention You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. How to file tax extention You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. How to file tax extention taxtoolkit. How to file tax extention irs. How to file tax extention gov. How to file tax extention You can get updates on hot tax topics by visiting our YouTube channel at www. How to file tax extention youtube. How to file tax extention com/tasnta and our Facebook page at www. How to file tax extention facebook. How to file tax extention com/YourVoiceAtIRS, or by following our tweets at www. How to file tax extention twitter. How to file tax extention com/YourVoiceAtIRS. How to file tax extention Low Income Taxpayer Clinics (LITCs). How to file tax extention   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. How to file tax extention LITCs are independent from the IRS. How to file tax extention Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. How to file tax extention If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. How to file tax extention For more information, see Publication 4134, Low Income Taxpayer Clinic List. How to file tax extention This publication is available at IRS. How to file tax extention gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. How to file tax extention Free tax services. How to file tax extention   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. How to file tax extention Learn about free tax information from the IRS, including publications, services, and education and assistance programs. How to file tax extention The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. How to file tax extention The majority of the information and services listed in this publication are available to you free of charge. How to file tax extention If there is a fee associated with a resource or service, it is listed in the publication. How to file tax extention   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with d
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Federal Payment Levy Program

In July 2000, the IRS, in conjunction with the Department of the Treasury, Financial Management Service (FMS), started the Federal Payment Levy Program (FPLP) which is authorized by Internal Revenue Code Section 6331 (h), as prescribed by the Taxpayer Relief Act of 1997 Section 1024. Through this program, we can collect your overdue taxes through a continuous levy on certain federal payments disbursed by FMS. The following is a list of federal payments that can be levied through the FPLP:

  • federal employee retirement annuities,
  • federal payments made to you as a contractor/vendor doing business with the government (including Defense contracts),
  • federal employee travel advances or reimbursements,
  • certain Social Security benefits paid to you,
  • some federal salaries, 
  • Medicare provider and supplier payments.
  • Railroad Retirement Board benefits paid to you.

In the future, the program will expand to include additional federal employee salaries and other types of federal payments.

Federal payments to a delinquent taxpayer will not be included in the program in certain circumstances. These circumstances include, when you are in bankruptcy, have applied for relief as an innocent or injured spouse, made alternative arrangements to pay, or the IRS has determined you are in a hardship situation.

As part of this program, a file of delinquent accounts is transmitted to FMS to be matched against pending federal payments you are due. When a match is found, we send you a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing, CP 90 or CP 297, if another Final Notice has not already been issued. See Tax Information for Appeals for additional information about your right to a hearing.

If we don't hear from you within 30 days from the date of the Final Notice, we will transmit the levy electronically to FMS. This applies to all federal payments that can be levied except for certain Social Security benefits. See Publication 594, The IRS Collection Process, and Publication 1, Your Rights as a Taxpayer , for additional information.

A levy may be transmitted to FMS without issuing a Final Notice if you previously requested a Collection Due Process (CDP) hearing on employment taxes. The Small Business and Work Opportunity Tax Act of 2007 amended I.R.C. Section 6330(f) and permits such a levy. If you requested a CDP hearing on previous employment taxes NO MORE THAN 2 years prior to the employment taxes being levied, we will send you a Notice of Levy and Notice of Your Right to a Hearing, CP 297A.

A levy may be transmitted to FMS without issuing a Final Notice if you or your predecessor is a Federal contractor.The Small Business Jobs Act of 2010 amended IRC Section 6330(f) and permits the IRS to issue such a levy.  We will send you a post levy notice, Notice of Levy and Notice of Your Right to a Hearing, CP 90C or CP 297C.

From that point on, FMS may reduce any federal payments subject to the levy by 15 percent, or the exact amount of tax owed if it is less than 15 percent of the payment.  Some contract/vendor payments, however, will be reduced by 100 percent, or the exact amount of tax owed. The levy is continuous until your overdue taxes are paid in full, or other arrangements are made to satisfy the debt. Each time your federal payment is levied, FMS will send you a letter of explanation, including information on which federal payment was levied, and advise you to contact us for resolution.

Contact us toll-free at 1-800-829-7650 or 1-800-829-3903 to resolve the issue by paying the tax bill, entering into an installment agreement, or proposing an Offer in Compromise. Please do not contact the FMS, OPM, SSA, or any other federal agency. See Topic 202, What to Do if You Can't Pay Your Tax, and Topic 204, Offers In Compromise, for additional information.

 

Page Last Reviewed or Updated: 07-Jan-2014

The How To File Tax Extention

How to file tax extention 13. How to file tax extention   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. How to file tax extention It is divided into the following sections. How to file tax extention Cost basis. How to file tax extention Adjusted basis. How to file tax extention Basis other than cost. How to file tax extention Your basis is the amount of your investment in property for tax purposes. How to file tax extention Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. How to file tax extention Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. How to file tax extention If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. How to file tax extention Only the basis allocated to the business or investment use of the property can be depreciated. How to file tax extention Your original basis in property is adjusted (increased or decreased) by certain events. How to file tax extention For example, if you make improvements to the property, increase your basis. How to file tax extention If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. How to file tax extention Keep accurate records of all items that affect the basis of your property. How to file tax extention For more information on keeping records, see chapter 1. How to file tax extention Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. How to file tax extention The cost is the amount you pay in cash, debt obligations, other property, or services. How to file tax extention Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). How to file tax extention In addition, the basis of real estate and business assets may include other items. How to file tax extention Loans with low or no interest. How to file tax extention    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. How to file tax extention You generally have unstated interest if your interest rate is less than the applicable federal rate. How to file tax extention   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. How to file tax extention Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. How to file tax extention If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. How to file tax extention Lump sum purchase. How to file tax extention   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. How to file tax extention Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. How to file tax extention Figure the basis of each asset by multiplying the lump sum by a fraction. How to file tax extention The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. How to file tax extention    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. How to file tax extention Fair market value (FMV). How to file tax extention   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. How to file tax extention Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. How to file tax extention Assumption of mortgage. How to file tax extention   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. How to file tax extention Settlement costs. How to file tax extention   Your basis includes the settlement fees and closing costs you paid for buying the property. How to file tax extention (A fee for buying property is a cost that must be paid even if you buy the property for cash. How to file tax extention ) Do not include fees and costs for getting a loan on the property in your basis. How to file tax extention   The following are some of the settlement fees or closing costs you can include in the basis of your property. How to file tax extention Abstract fees (abstract of title fees). How to file tax extention Charges for installing utility services. How to file tax extention Legal fees (including fees for the title search and preparation of the sales contract and deed). How to file tax extention Recording fees. How to file tax extention Survey fees. How to file tax extention Transfer taxes. How to file tax extention Owner's title insurance. How to file tax extention Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. How to file tax extention   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. How to file tax extention   The following are some of the settlement fees and closing costs you cannot include in the basis of property. How to file tax extention Casualty insurance premiums. How to file tax extention Rent for occupancy of the property before closing. How to file tax extention Charges for utilities or other services related to occupancy of the property before closing. How to file tax extention Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. How to file tax extention Fees for refinancing a mortgage. How to file tax extention Real estate taxes. How to file tax extention   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. How to file tax extention You cannot deduct them as an expense. How to file tax extention    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. How to file tax extention Do not include that amount in the basis of your property. How to file tax extention If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How to file tax extention Points. How to file tax extention   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. How to file tax extention Generally, you deduct the points over the term of the loan. How to file tax extention For more information on how to deduct points, see chapter 23. How to file tax extention Points on home mortgage. How to file tax extention   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. How to file tax extention If certain requirements are met, you can deduct the points in full for the year in which they are paid. How to file tax extention Reduce the basis of your home by any seller-paid points. How to file tax extention Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. How to file tax extention The result is the adjusted basis. How to file tax extention Increases to Basis Increase the basis of any property by all items properly added to a capital account. How to file tax extention Examples of items that increase basis are shown in Table 13-1. How to file tax extention These include the items discussed below. How to file tax extention Improvements. How to file tax extention   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. How to file tax extention For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. How to file tax extention Assessments for local improvements. How to file tax extention   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. How to file tax extention Do not deduct them as taxes. How to file tax extention However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. How to file tax extention Example. How to file tax extention Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. How to file tax extention Add the assessment to your property's basis. How to file tax extention In this example, the assessment is a depreciable asset. How to file tax extention Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. How to file tax extention Examples of items that decrease basis are shown in Table 13-1. How to file tax extention These include the items discussed below. How to file tax extention Table 13-1. How to file tax extention Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. How to file tax extention   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. How to file tax extention    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. How to file tax extention   For more information on casualty and theft losses, see chapter 25. How to file tax extention Depreciation and section 179 deduction. How to file tax extention   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. How to file tax extention   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. How to file tax extention Example. How to file tax extention You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. How to file tax extention You added an improvement to the duplex that cost $10,000. How to file tax extention In February last year, the duplex was damaged by fire. How to file tax extention Up to that time, you had been allowed depreciation of $23,000. How to file tax extention You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. How to file tax extention You deducted a casualty loss of $1,000 on your income tax return for last year. How to file tax extention You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. How to file tax extention You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. How to file tax extention Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. How to file tax extention Your basis in the land is its original cost of $5,000. How to file tax extention Easements. How to file tax extention   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. How to file tax extention It reduces the basis of the affected part of the property. How to file tax extention If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. How to file tax extention   If the gain is on a capital asset, see chapter 16 for information about how to report it. How to file tax extention If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. How to file tax extention Exclusion of subsidies for energy conservation measures. How to file tax extention   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. How to file tax extention Reduce the basis of the property for which you received the subsidy by the excluded amount. How to file tax extention For more information about this subsidy, see chapter 12. How to file tax extention Postponed gain from sale of home. How to file tax extention    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. How to file tax extention For more information on the rules for the sale of a home, see chapter 15. How to file tax extention Basis Other Than Cost There are many times when you cannot use cost as basis. How to file tax extention In these cases, the fair market value or the adjusted basis of the property can be used. How to file tax extention Fair market value (FMV) and adjusted basis were discussed earlier. How to file tax extention Property Received for Services If you receive property for your services, include the FMV of the property in income. How to file tax extention The amount you include in income becomes your basis. How to file tax extention If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. How to file tax extention Restricted property. How to file tax extention   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. How to file tax extention However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. How to file tax extention Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). How to file tax extention For more information, see Restricted Property in Publication 525. How to file tax extention Bargain purchases. How to file tax extention   A bargain purchase is a purchase of an item for less than its FMV. How to file tax extention If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. How to file tax extention Your basis in the property is its FMV (your purchase price plus the amount you include in income). How to file tax extention   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. How to file tax extention However, your basis in the property is still its FMV. How to file tax extention See Employee Discounts in Publication 15-B. How to file tax extention Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. How to file tax extention A taxable gain or deductible loss also is known as a recognized gain or loss. How to file tax extention If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. How to file tax extention Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. How to file tax extention Similar or related property. How to file tax extention   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. How to file tax extention Decrease the basis by the following. How to file tax extention Any loss you recognize on the involuntary conversion. How to file tax extention Any money you receive that you do not spend on similar property. How to file tax extention Increase the basis by the following. How to file tax extention Any gain you recognize on the involuntary conversion. How to file tax extention Any cost of acquiring the replacement property. How to file tax extention Money or property not similar or related. How to file tax extention    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. How to file tax extention Example. How to file tax extention The state condemned your property. How to file tax extention The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. How to file tax extention You realized a gain of $5,000 ($31,000 − $26,000). How to file tax extention You bought replacement property similar in use to the converted property for $29,000. How to file tax extention You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. How to file tax extention Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. How to file tax extention The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. How to file tax extention   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. How to file tax extention Basis for depreciation. How to file tax extention   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. How to file tax extention For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. How to file tax extention Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. How to file tax extention If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. How to file tax extention See Nontaxable Trades in chapter 14. How to file tax extention Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. How to file tax extention To qualify as a like-kind exchange, the property traded and the property received must be both of the following. How to file tax extention Qualifying property. How to file tax extention Like-kind property. How to file tax extention The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. How to file tax extention If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. How to file tax extention Qualifying property. How to file tax extention   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. How to file tax extention Like-kind property. How to file tax extention   There must be an exchange of like-kind property. How to file tax extention Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. How to file tax extention The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. How to file tax extention Example. How to file tax extention You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. How to file tax extention The dealer allows you $2,000 on the old truck, and you pay $4,800. How to file tax extention This is a like-kind exchange. How to file tax extention The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). How to file tax extention If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). How to file tax extention The basis of the new truck is the price you pay the dealer. How to file tax extention Partially nontaxable exchanges. How to file tax extention   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. How to file tax extention The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. How to file tax extention Decrease the basis by the following amounts. How to file tax extention Any money you receive. How to file tax extention Any loss you recognize on the exchange. How to file tax extention Increase the basis by the following amounts. How to file tax extention Any additional costs you incur. How to file tax extention Any gain you recognize on the exchange. How to file tax extention If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. How to file tax extention Allocation of basis. How to file tax extention   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. How to file tax extention The rest is the basis of the like-kind property. How to file tax extention More information. How to file tax extention   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. How to file tax extention Basis for depreciation. How to file tax extention   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. How to file tax extention For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. How to file tax extention Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. How to file tax extention The same rule applies to a transfer by your former spouse that is incident to divorce. How to file tax extention However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. How to file tax extention If the property transferred to you is a series E, series EE, or series I U. How to file tax extention S. How to file tax extention savings bond, the transferor must include in income the interest accrued to the date of transfer. How to file tax extention Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. How to file tax extention For more information on these bonds, see chapter 7. How to file tax extention At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. How to file tax extention For more information about the transfer of property from a spouse, see chapter 14. How to file tax extention Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. How to file tax extention FMV less than donor's adjusted basis. How to file tax extention   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. How to file tax extention Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. How to file tax extention Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. How to file tax extention See Adjusted Basis , earlier. How to file tax extention Example. How to file tax extention You received an acre of land as a gift. How to file tax extention At the time of the gift, the land had an FMV of $8,000. How to file tax extention The donor's adjusted basis was $10,000. How to file tax extention After you received the property, no events occurred to increase or decrease your basis. How to file tax extention If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. How to file tax extention If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. How to file tax extention If the sales price is between $8,000 and $10,000, you have neither gain nor loss. How to file tax extention Business property. How to file tax extention   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. How to file tax extention FMV equal to or greater than donor's adjusted basis. How to file tax extention   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. How to file tax extention Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. How to file tax extention   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. How to file tax extention See Adjusted Basis , earlier. How to file tax extention   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. How to file tax extention Figure the increase by multiplying the gift tax paid by a fraction. How to file tax extention The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. How to file tax extention   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. How to file tax extention The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. How to file tax extention Example. How to file tax extention In 2013, you received a gift of property from your mother that had an FMV of $50,000. How to file tax extention Her adjusted basis was $20,000. How to file tax extention The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). How to file tax extention She paid a gift tax of $7,320 on the property. How to file tax extention Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . How to file tax extention 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. How to file tax extention If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. How to file tax extention However, your basis cannot exceed the FMV of the gift at the time it was given to you. How to file tax extention Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. How to file tax extention The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. How to file tax extention The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. How to file tax extention The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. How to file tax extention If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. How to file tax extention For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. How to file tax extention Property inherited from a decedent who died in 2010. How to file tax extention   If you inherited property from a decedent who died in 2010, special rules may apply. How to file tax extention For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. How to file tax extention Community property. How to file tax extention   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. How to file tax extention When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. How to file tax extention For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. How to file tax extention Example. How to file tax extention You and your spouse owned community property that had a basis of $80,000. How to file tax extention When your spouse died, half the FMV of the community interest was includible in your spouse's estate. How to file tax extention The FMV of the community interest was $100,000. How to file tax extention The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). How to file tax extention The basis of the other half to your spouse's heirs is also $50,000. How to file tax extention For more information about community property, see Publication 555, Community Property. How to file tax extention Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. How to file tax extention To do so, you must figure its basis for depreciation at the time of the change. How to file tax extention An example of changing property held for personal use to business or rental use would be renting out your former personal residence. How to file tax extention Basis for depreciation. How to file tax extention   The basis for depreciation is the lesser of the following amounts. How to file tax extention The FMV of the property on the date of the change. How to file tax extention Your adjusted basis on the date of the change. How to file tax extention Example. How to file tax extention Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. How to file tax extention You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. How to file tax extention Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. How to file tax extention Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). How to file tax extention On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. How to file tax extention The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). How to file tax extention Sale of property. How to file tax extention   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. How to file tax extention Gain. How to file tax extention   The basis for figuring a gain is your adjusted basis in the property when you sell the property. How to file tax extention Example. How to file tax extention Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. How to file tax extention Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). How to file tax extention Loss. How to file tax extention   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. How to file tax extention Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . How to file tax extention Example. How to file tax extention Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. How to file tax extention In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. How to file tax extention Reduce that amount ($180,000) by the depreciation deductions ($37,500). How to file tax extention The basis for loss is $142,500 ($180,000 − $37,500). How to file tax extention Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. How to file tax extention If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. How to file tax extention You must adjust the basis of stocks for certain events that occur after purchase. How to file tax extention For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. How to file tax extention This rule applies only when the additional stock received is identical to the stock held. How to file tax extention Also reduce your basis when you receive nontaxable distributions. How to file tax extention They are a return of capital. How to file tax extention Example. How to file tax extention In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. How to file tax extention In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. How to file tax extention In 2013 XYZ declared a 2-for-1 stock split. How to file tax extention You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. How to file tax extention Other basis. How to file tax extention   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. How to file tax extention For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How to file tax extention Identifying stocks or bonds sold. How to file tax extention   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. How to file tax extention If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. How to file tax extention For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. How to file tax extention Mutual fund shares. How to file tax extention   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. How to file tax extention For more information, see Publication 550. How to file tax extention Bond premium. How to file tax extention   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. How to file tax extention See Bond Premium Amortization in chapter 3 of Publication 550 for more information. How to file tax extention Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. How to file tax extention Original issue discount (OID) on debt instruments. How to file tax extention   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. How to file tax extention See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. How to file tax extention Tax-exempt obligations. How to file tax extention    OID on tax-exempt obligations is generally not taxable. How to file tax extention However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. How to file tax extention The accrued OID is added to the basis of the obligation to determine your gain or loss. How to file tax extention See chapter 4 of Publication 550. How to file tax extention Prev  Up  Next   Home   More Online Publications