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I Need To File My 2012 Taxes

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I Need To File My 2012 Taxes

I need to file my 2012 taxes 1. I need to file my 2012 taxes   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. I need to file my 2012 taxes Amount realized on a recourse debt. I need to file my 2012 taxes Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. I need to file my 2012 taxes S. I need to file my 2012 taxes Individual Income Tax Return 1040X Amended U. I need to file my 2012 taxes S. I need to file my 2012 taxes Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. I need to file my 2012 taxes However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. I need to file my 2012 taxes See chapter 5 for information about getting publications and forms. I need to file my 2012 taxes Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. I need to file my 2012 taxes An exchange is a transfer of property for other property or services. I need to file my 2012 taxes The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. I need to file my 2012 taxes Sale or lease. I need to file my 2012 taxes    Some agreements that seem to be leases may really be conditional sales contracts. I need to file my 2012 taxes The intention of the parties to the agreement can help you distinguish between a sale and a lease. I need to file my 2012 taxes   There is no test or group of tests to prove what the parties intended when they made the agreement. I need to file my 2012 taxes You should consider each agreement based on its own facts and circumstances. I need to file my 2012 taxes For more information, see chapter 3 in Publication 535, Business Expenses. I need to file my 2012 taxes Cancellation of a lease. I need to file my 2012 taxes    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. I need to file my 2012 taxes Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. I need to file my 2012 taxes Copyright. I need to file my 2012 taxes    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. I need to file my 2012 taxes It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. I need to file my 2012 taxes Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. I need to file my 2012 taxes   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. I need to file my 2012 taxes For more information, see Section 1231 Gains and Losses in chapter 3. I need to file my 2012 taxes Easement. I need to file my 2012 taxes   The amount received for granting an easement is subtracted from the basis of the property. I need to file my 2012 taxes If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. I need to file my 2012 taxes If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. I need to file my 2012 taxes   Any amount received that is more than the basis to be reduced is a taxable gain. I need to file my 2012 taxes The transaction is reported as a sale of property. I need to file my 2012 taxes   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. I need to file my 2012 taxes However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. I need to file my 2012 taxes   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. I need to file my 2012 taxes Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. I need to file my 2012 taxes See Gain or Loss From Condemnations, later. I need to file my 2012 taxes Property transferred to satisfy debt. I need to file my 2012 taxes   A transfer of property to satisfy a debt is an exchange. I need to file my 2012 taxes Note's maturity date extended. I need to file my 2012 taxes   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. I need to file my 2012 taxes Also, it is not considered a closed and completed transaction that would result in a gain or loss. I need to file my 2012 taxes However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. I need to file my 2012 taxes Each case must be determined by its own facts. I need to file my 2012 taxes For more information, see Regulations section 1. I need to file my 2012 taxes 1001-3. I need to file my 2012 taxes Transfer on death. I need to file my 2012 taxes   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. I need to file my 2012 taxes No taxable gain or deductible loss results from the transfer. I need to file my 2012 taxes Bankruptcy. I need to file my 2012 taxes   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. I need to file my 2012 taxes Consequently, the transfer generally does not result in gain or loss. I need to file my 2012 taxes For more information, see Publication 908, Bankruptcy Tax Guide. I need to file my 2012 taxes Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. I need to file my 2012 taxes A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. I need to file my 2012 taxes A loss is the adjusted basis of the property that is more than the amount you realize. I need to file my 2012 taxes   Table 1-1. I need to file my 2012 taxes How To Figure Whether You Have a Gain or Loss IF your. I need to file my 2012 taxes . I need to file my 2012 taxes . I need to file my 2012 taxes THEN you have a. I need to file my 2012 taxes . I need to file my 2012 taxes . I need to file my 2012 taxes Adjusted basis is more than the amount realized, Loss. I need to file my 2012 taxes Amount realized is more than the adjusted basis, Gain. I need to file my 2012 taxes Basis. I need to file my 2012 taxes   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. I need to file my 2012 taxes The basis of property you buy is usually its cost. I need to file my 2012 taxes However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. I need to file my 2012 taxes See Basis Other Than Cost in Publication 551, Basis of Assets. I need to file my 2012 taxes Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. I need to file my 2012 taxes See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. I need to file my 2012 taxes Adjusted basis. I need to file my 2012 taxes   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. I need to file my 2012 taxes Increases include costs of any improvements having a useful life of more than 1 year. I need to file my 2012 taxes Decreases include depreciation and casualty losses. I need to file my 2012 taxes For more details and additional examples, see Adjusted Basis in Publication 551. I need to file my 2012 taxes Amount realized. I need to file my 2012 taxes   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. I need to file my 2012 taxes The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. I need to file my 2012 taxes Fair market value. I need to file my 2012 taxes   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. I need to file my 2012 taxes If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. I need to file my 2012 taxes If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. I need to file my 2012 taxes Example. I need to file my 2012 taxes You used a building in your business that cost you $70,000. I need to file my 2012 taxes You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. I need to file my 2012 taxes You sold the building for $100,000 plus property having an FMV of $20,000. I need to file my 2012 taxes The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. I need to file my 2012 taxes The selling expenses were $4,000. I need to file my 2012 taxes Your gain on the sale is figured as follows. I need to file my 2012 taxes Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. I need to file my 2012 taxes   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. I need to file my 2012 taxes Recognized gains must be included in gross income. I need to file my 2012 taxes Recognized losses are deductible from gross income. I need to file my 2012 taxes However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. I need to file my 2012 taxes See Nontaxable Exchanges, later. I need to file my 2012 taxes Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. I need to file my 2012 taxes Interest in property. I need to file my 2012 taxes   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. I need to file my 2012 taxes If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. I need to file my 2012 taxes Your basis in the property is disregarded. I need to file my 2012 taxes This rule does not apply if all interests in the property are disposed of at the same time. I need to file my 2012 taxes Example 1. I need to file my 2012 taxes Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. I need to file my 2012 taxes You decide to sell your life interest in the farm. I need to file my 2012 taxes The entire amount you receive is a recognized gain. I need to file my 2012 taxes Your basis in the farm is disregarded. I need to file my 2012 taxes Example 2. I need to file my 2012 taxes The facts are the same as in Example 1, except that your brother joins you in selling the farm. I need to file my 2012 taxes The entire interest in the property is sold, so your basis in the farm is not disregarded. I need to file my 2012 taxes Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. I need to file my 2012 taxes Canceling a sale of real property. I need to file my 2012 taxes   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. I need to file my 2012 taxes If the buyer returns the property in the year of sale, no gain or loss is recognized. I need to file my 2012 taxes This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. I need to file my 2012 taxes If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. I need to file my 2012 taxes When the property is returned in a later year, you acquire a new basis in the property. I need to file my 2012 taxes That basis is equal to the amount you pay to the buyer. I need to file my 2012 taxes Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. I need to file my 2012 taxes You have a gain if the amount realized is more than your adjusted basis in the property. I need to file my 2012 taxes However, you do not have a loss if the amount realized is less than the adjusted basis of the property. I need to file my 2012 taxes Bargain sales to charity. I need to file my 2012 taxes   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. I need to file my 2012 taxes If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. I need to file my 2012 taxes The adjusted basis of the part sold is figured as follows. I need to file my 2012 taxes Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. I need to file my 2012 taxes This allocation rule does not apply if a charitable contribution deduction is not allowable. I need to file my 2012 taxes   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. I need to file my 2012 taxes Example. I need to file my 2012 taxes You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. I need to file my 2012 taxes Your adjusted basis in the property is $4,000. I need to file my 2012 taxes Your gain on the sale is $1,200, figured as follows. I need to file my 2012 taxes Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. I need to file my 2012 taxes You must subtract depreciation you took or could have taken from the basis of the business or rental part. I need to file my 2012 taxes However, see the special rule below for a home used partly for business or rental. I need to file my 2012 taxes You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. I need to file my 2012 taxes Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. I need to file my 2012 taxes Any gain on the personal part of the property is a capital gain. I need to file my 2012 taxes You cannot deduct a loss on the personal part. I need to file my 2012 taxes Home used partly for business or rental. I need to file my 2012 taxes    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. I need to file my 2012 taxes See Property Used Partly for Business or Rental, in Publication 523. I need to file my 2012 taxes Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. I need to file my 2012 taxes You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. I need to file my 2012 taxes However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. I need to file my 2012 taxes Figure the loss you can deduct as follows. I need to file my 2012 taxes Use the lesser of the property's adjusted basis or fair market value at the time of the change. I need to file my 2012 taxes Add to (1) the cost of any improvements and other increases to basis since the change. I need to file my 2012 taxes Subtract from (2) depreciation and any other decreases to basis since the change. I need to file my 2012 taxes Subtract the amount you realized on the sale from the result in (3). I need to file my 2012 taxes If the amount you realized is more than the result in (3), treat this result as zero. I need to file my 2012 taxes The result in (4) is the loss you can deduct. I need to file my 2012 taxes Example. I need to file my 2012 taxes You changed your main home to rental property 5 years ago. I need to file my 2012 taxes At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. I need to file my 2012 taxes This year, you sold the property for $55,000. I need to file my 2012 taxes You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. I need to file my 2012 taxes Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. I need to file my 2012 taxes Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. I need to file my 2012 taxes   If you have a gain on the sale, you generally must recognize the full amount of the gain. I need to file my 2012 taxes You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. I need to file my 2012 taxes   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. I need to file my 2012 taxes However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. I need to file my 2012 taxes   For more information, see Business Use or Rental of Home in Publication 523. I need to file my 2012 taxes In addition, special rules apply if the home sold was acquired in a like-kind exchange. I need to file my 2012 taxes See Special Situations in Publication 523. I need to file my 2012 taxes Also see Like-Kind Exchanges, later. I need to file my 2012 taxes Abandonments The abandonment of property is a disposition of property. I need to file my 2012 taxes You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. I need to file my 2012 taxes Generally, abandonment is not treated as a sale or exchange of the property. I need to file my 2012 taxes If the amount you realize (if any) is more than your adjusted basis, then you have a gain. I need to file my 2012 taxes If your adjusted basis is more than the amount you realize (if any), then you have a loss. I need to file my 2012 taxes Loss from abandonment of business or investment property is deductible as a loss. I need to file my 2012 taxes A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. I need to file my 2012 taxes This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. I need to file my 2012 taxes If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. I need to file my 2012 taxes The abandonment loss is deducted in the tax year in which the loss is sustained. I need to file my 2012 taxes If the abandoned property is secured by debt, special rules apply. I need to file my 2012 taxes The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). I need to file my 2012 taxes For more information, including examples, see chapter 3 of Publication 4681. I need to file my 2012 taxes You cannot deduct any loss from abandonment of your home or other property held for personal use only. I need to file my 2012 taxes Cancellation of debt. I need to file my 2012 taxes   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. I need to file my 2012 taxes This income is separate from any loss realized from abandonment of the property. I need to file my 2012 taxes   You must report this income on your tax return unless one of the following applies. I need to file my 2012 taxes The cancellation is intended as a gift. I need to file my 2012 taxes The debt is qualified farm debt. I need to file my 2012 taxes The debt is qualified real property business debt. I need to file my 2012 taxes You are insolvent or bankrupt. I need to file my 2012 taxes The debt is qualified principal residence indebtedness. I need to file my 2012 taxes File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. I need to file my 2012 taxes For more information, including other exceptions and exclusion, see Publication 4681. I need to file my 2012 taxes Forms 1099-A and 1099-C. I need to file my 2012 taxes   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. I need to file my 2012 taxes However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. I need to file my 2012 taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. I need to file my 2012 taxes For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. I need to file my 2012 taxes Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. I need to file my 2012 taxes The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. I need to file my 2012 taxes This is true even if you voluntarily return the property to the lender. I need to file my 2012 taxes You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. I need to file my 2012 taxes Buyer's (borrower's) gain or loss. I need to file my 2012 taxes   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. I need to file my 2012 taxes The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. I need to file my 2012 taxes See Gain or Loss From Sales and Exchanges, earlier. I need to file my 2012 taxes You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. I need to file my 2012 taxes Amount realized on a nonrecourse debt. I need to file my 2012 taxes   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. I need to file my 2012 taxes The full canceled debt is included even if the fair market value of the property is less than the canceled debt. I need to file my 2012 taxes Example 1. I need to file my 2012 taxes Chris bought a new car for $15,000. I need to file my 2012 taxes He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. I need to file my 2012 taxes Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. I need to file my 2012 taxes The credit company repossessed the car because he stopped making loan payments. I need to file my 2012 taxes The balance due after taking into account the payments Chris made was $10,000. I need to file my 2012 taxes The fair market value of the car when repossessed was $9,000. I need to file my 2012 taxes The amount Chris realized on the repossession is $10,000. I need to file my 2012 taxes That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. I need to file my 2012 taxes Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). I need to file my 2012 taxes He has a $5,000 nondeductible loss. I need to file my 2012 taxes Example 2. I need to file my 2012 taxes Abena paid $200,000 for her home. I need to file my 2012 taxes She paid $15,000 down and borrowed the remaining $185,000 from a bank. I need to file my 2012 taxes Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. I need to file my 2012 taxes The bank foreclosed on the loan because Abena stopped making payments. I need to file my 2012 taxes When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. I need to file my 2012 taxes The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. I need to file my 2012 taxes She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). I need to file my 2012 taxes She has a $5,000 realized gain. I need to file my 2012 taxes Amount realized on a recourse debt. I need to file my 2012 taxes   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. I need to file my 2012 taxes You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. I need to file my 2012 taxes The amount realized does not include the canceled debt that is your income from cancellation of debt. I need to file my 2012 taxes See Cancellation of debt, below. I need to file my 2012 taxes Seller's (lender's) gain or loss on repossession. I need to file my 2012 taxes   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. I need to file my 2012 taxes For more information, see Repossession in Publication 537. I need to file my 2012 taxes    Table 1-2. I need to file my 2012 taxes Worksheet for Foreclosures and Repossessions Part 1. I need to file my 2012 taxes Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. I need to file my 2012 taxes Complete this part only  if you were personally liable for the debt. I need to file my 2012 taxes Otherwise,  go to Part 2. I need to file my 2012 taxes   1. I need to file my 2012 taxes Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. I need to file my 2012 taxes Enter the fair market value of the transferred property   3. I need to file my 2012 taxes Ordinary income from cancellation of debt upon foreclosure or    repossession. I need to file my 2012 taxes * Subtract line 2 from line 1. I need to file my 2012 taxes   If less than zero, enter zero   Part 2. I need to file my 2012 taxes Figure your gain or loss from foreclosure or repossession. I need to file my 2012 taxes   4. I need to file my 2012 taxes If you completed Part 1, enter the smaller of line 1 or line 2. I need to file my 2012 taxes   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. I need to file my 2012 taxes Enter any proceeds you received from the foreclosure sale   6. I need to file my 2012 taxes Add lines 4 and 5   7. I need to file my 2012 taxes Enter the adjusted basis of the transferred property   8. I need to file my 2012 taxes Gain or loss from foreclosure or repossession. I need to file my 2012 taxes Subtract line 7  from line 6   * The income may not be taxable. I need to file my 2012 taxes See Cancellation of debt. I need to file my 2012 taxes Cancellation of debt. I need to file my 2012 taxes   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. I need to file my 2012 taxes This income is separate from any gain or loss realized from the foreclosure or repossession. I need to file my 2012 taxes Report the income from cancellation of a debt related to a business or rental activity as business or rental income. I need to file my 2012 taxes    You can use Table 1-2 to figure your income from cancellation of debt. I need to file my 2012 taxes   You must report this income on your tax return unless one of the following applies. I need to file my 2012 taxes The cancellation is intended as a gift. I need to file my 2012 taxes The debt is qualified farm debt. I need to file my 2012 taxes The debt is qualified real property business debt. I need to file my 2012 taxes You are insolvent or bankrupt. I need to file my 2012 taxes The debt is qualified principal residence indebtedness. I need to file my 2012 taxes File Form 982 to report the income exclusion. I need to file my 2012 taxes Example 1. I need to file my 2012 taxes Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). I need to file my 2012 taxes In this case, the amount he realizes is $9,000. I need to file my 2012 taxes This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). I need to file my 2012 taxes Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). I need to file my 2012 taxes He has a $6,000 nondeductible loss. I need to file my 2012 taxes He also is treated as receiving ordinary income from cancellation of debt. I need to file my 2012 taxes That income is $1,000 ($10,000 − $9,000). I need to file my 2012 taxes This is the part of the canceled debt not included in the amount realized. I need to file my 2012 taxes Example 2. I need to file my 2012 taxes Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). I need to file my 2012 taxes In this case, the amount she realizes is $170,000. I need to file my 2012 taxes This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). I need to file my 2012 taxes Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). I need to file my 2012 taxes She has a $5,000 nondeductible loss. I need to file my 2012 taxes She also is treated as receiving ordinary income from cancellation of debt. I need to file my 2012 taxes (The debt is not exempt from tax as discussed under Cancellation of debt, above. I need to file my 2012 taxes ) That income is $10,000 ($180,000 − $170,000). I need to file my 2012 taxes This is the part of the canceled debt not included in the amount realized. I need to file my 2012 taxes Forms 1099-A and 1099-C. I need to file my 2012 taxes   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. I need to file my 2012 taxes However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. I need to file my 2012 taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. I need to file my 2012 taxes For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. I need to file my 2012 taxes Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. I need to file my 2012 taxes Involuntary conversions are also called involuntary exchanges. I need to file my 2012 taxes Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. I need to file my 2012 taxes You report the gain or deduct the loss on your tax return for the year you realize it. I need to file my 2012 taxes You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. I need to file my 2012 taxes However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. I need to file my 2012 taxes Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. I need to file my 2012 taxes Your basis for the new property is the same as your basis for the converted property. I need to file my 2012 taxes This means that the gain is deferred until a taxable sale or exchange occurs. I need to file my 2012 taxes If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. I need to file my 2012 taxes This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. I need to file my 2012 taxes If you have a gain or loss from the destruction or theft of property, see Publication 547. I need to file my 2012 taxes Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. I need to file my 2012 taxes The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. I need to file my 2012 taxes The owner receives a condemnation award (money or property) in exchange for the property taken. I need to file my 2012 taxes A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. I need to file my 2012 taxes Example. I need to file my 2012 taxes A local government authorized to acquire land for public parks informed you that it wished to acquire your property. I need to file my 2012 taxes After the local government took action to condemn your property, you went to court to keep it. I need to file my 2012 taxes But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. I need to file my 2012 taxes This is a condemnation of private property for public use. I need to file my 2012 taxes Threat of condemnation. I need to file my 2012 taxes   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. I need to file my 2012 taxes You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. I need to file my 2012 taxes   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. I need to file my 2012 taxes If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. I need to file my 2012 taxes Reports of condemnation. I need to file my 2012 taxes   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. I need to file my 2012 taxes You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. I need to file my 2012 taxes If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. I need to file my 2012 taxes Example. I need to file my 2012 taxes Your property lies along public utility lines. I need to file my 2012 taxes The utility company has the authority to condemn your property. I need to file my 2012 taxes The company informs you that it intends to acquire your property by negotiation or condemnation. I need to file my 2012 taxes A threat of condemnation exists when you receive the notice. I need to file my 2012 taxes Related property voluntarily sold. I need to file my 2012 taxes   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. I need to file my 2012 taxes A substantial economic relationship exists if together the properties were one economic unit. I need to file my 2012 taxes You also must show that the condemned property could not reasonably or adequately be replaced. I need to file my 2012 taxes You can elect to postpone reporting the gain by buying replacement property. I need to file my 2012 taxes See Postponement of Gain, later. I need to file my 2012 taxes Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. I need to file my 2012 taxes If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. I need to file my 2012 taxes You can postpone reporting gain from a condemnation if you buy replacement property. I need to file my 2012 taxes If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. I need to file my 2012 taxes See Postponement of Gain, later. I need to file my 2012 taxes If your net condemnation award is less than your adjusted basis, you have a loss. I need to file my 2012 taxes If your loss is from property you held for personal use, you cannot deduct it. I need to file my 2012 taxes You must report any deductible loss in the tax year it happened. I need to file my 2012 taxes You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. I need to file my 2012 taxes Main home condemned. I need to file my 2012 taxes   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. I need to file my 2012 taxes You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). I need to file my 2012 taxes For information on this exclusion, see Publication 523. I need to file my 2012 taxes If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. I need to file my 2012 taxes See Postponement of Gain, later. I need to file my 2012 taxes Table 1-3. I need to file my 2012 taxes Worksheet for Condemnations Part 1. I need to file my 2012 taxes Gain from severance damages. I need to file my 2012 taxes  If you did not receive severance damages, skip Part 1 and go to Part 2. I need to file my 2012 taxes   1. I need to file my 2012 taxes Enter gross severance damages received   2. I need to file my 2012 taxes Enter your expenses in getting severance damages   3. I need to file my 2012 taxes Subtract line 2 from line 1. I need to file my 2012 taxes If less than zero, enter -0-   4. I need to file my 2012 taxes Enter any special assessment on remaining property taken out of your award   5. I need to file my 2012 taxes Net severance damages. I need to file my 2012 taxes Subtract line 4 from line 3. I need to file my 2012 taxes If less than zero, enter -0-   6. I need to file my 2012 taxes Enter the adjusted basis of the remaining property   7. I need to file my 2012 taxes Gain from severance damages. I need to file my 2012 taxes Subtract line 6 from line 5. I need to file my 2012 taxes If less than zero, enter -0-   8. I need to file my 2012 taxes Refigured adjusted basis of the remaining property. I need to file my 2012 taxes Subtract line 5 from line 6. I need to file my 2012 taxes If less than zero, enter -0-   Part 2. I need to file my 2012 taxes Gain or loss from condemnation award. I need to file my 2012 taxes   9. I need to file my 2012 taxes Enter the gross condemnation award received   10. I need to file my 2012 taxes Enter your expenses in getting the condemnation award   11. I need to file my 2012 taxes If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. I need to file my 2012 taxes If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. I need to file my 2012 taxes Otherwise, enter -0-   12. I need to file my 2012 taxes Add lines 10 and 11   13. I need to file my 2012 taxes Net condemnation award. I need to file my 2012 taxes Subtract line 12 from line 9   14. I need to file my 2012 taxes Enter the adjusted basis of the condemned property   15. I need to file my 2012 taxes Gain from condemnation award. I need to file my 2012 taxes If line 14 is more than line 13, enter -0-. I need to file my 2012 taxes Otherwise, subtract line 14 from  line 13 and skip line 16   16. I need to file my 2012 taxes Loss from condemnation award. I need to file my 2012 taxes Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. I need to file my 2012 taxes )   Part 3. I need to file my 2012 taxes Postponed gain from condemnation. I need to file my 2012 taxes  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. I need to file my 2012 taxes )   17. I need to file my 2012 taxes If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. I need to file my 2012 taxes Otherwise, enter -0-   18. I need to file my 2012 taxes If line 15 is more than zero, enter the amount from line 13. I need to file my 2012 taxes Otherwise, enter -0-   19. I need to file my 2012 taxes Add lines 17 and 18. I need to file my 2012 taxes If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. I need to file my 2012 taxes Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. I need to file my 2012 taxes Subtract line 20 from line 19. I need to file my 2012 taxes If less than zero, enter -0-   22. I need to file my 2012 taxes If you completed Part 1, add lines 7 and 15. I need to file my 2012 taxes Otherwise, enter the amount from line 15. I need to file my 2012 taxes If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. I need to file my 2012 taxes Recognized gain. I need to file my 2012 taxes Enter the smaller of line 21 or line 22. I need to file my 2012 taxes   24. I need to file my 2012 taxes Postponed gain. I need to file my 2012 taxes Subtract line 23 from line 22. I need to file my 2012 taxes If less than zero, enter -0-   Condemnation award. I need to file my 2012 taxes   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. I need to file my 2012 taxes The award is also the amount you are paid for the sale of your property under threat of condemnation. I need to file my 2012 taxes Payment of your debts. I need to file my 2012 taxes   Amounts taken out of the award to pay your debts are considered paid to you. I need to file my 2012 taxes Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. I need to file my 2012 taxes Example. I need to file my 2012 taxes The state condemned your property for public use. I need to file my 2012 taxes The award was set at $200,000. I need to file my 2012 taxes The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. I need to file my 2012 taxes You are considered to have received the entire $200,000 as a condemnation award. I need to file my 2012 taxes Interest on award. I need to file my 2012 taxes   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. I need to file my 2012 taxes You must report the interest separately as ordinary income. I need to file my 2012 taxes Payments to relocate. I need to file my 2012 taxes   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. I need to file my 2012 taxes Do not include them in your income. I need to file my 2012 taxes Replacement housing payments used to buy new property are included in the property's basis as part of your cost. I need to file my 2012 taxes Net condemnation award. I need to file my 2012 taxes   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. I need to file my 2012 taxes If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. I need to file my 2012 taxes This is discussed later under Special assessment taken out of award. I need to file my 2012 taxes Severance damages. I need to file my 2012 taxes    Severance damages are not part of the award paid for the property condemned. I need to file my 2012 taxes They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. I need to file my 2012 taxes   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. I need to file my 2012 taxes Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. I need to file my 2012 taxes   The contracting parties should agree on the specific amount of severance damages in writing. I need to file my 2012 taxes If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. I need to file my 2012 taxes   You cannot make a completely new allocation of the total award after the transaction is completed. I need to file my 2012 taxes However, you can show how much of the award both parties intended for severance damages. I need to file my 2012 taxes The severance damages part of the award is determined from all the facts and circumstances. I need to file my 2012 taxes Example. I need to file my 2012 taxes You sold part of your property to the state under threat of condemnation. I need to file my 2012 taxes The contract you and the condemning authority signed showed only the total purchase price. I need to file my 2012 taxes It did not specify a fixed sum for severance damages. I need to file my 2012 taxes However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. I need to file my 2012 taxes You may treat this part as severance damages. I need to file my 2012 taxes Treatment of severance damages. I need to file my 2012 taxes   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. I need to file my 2012 taxes Use them to reduce the basis of the remaining property. I need to file my 2012 taxes If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. I need to file my 2012 taxes   If your net severance damages are more than the basis of your retained property, you have a gain. I need to file my 2012 taxes You may be able to postpone reporting the gain. I need to file my 2012 taxes See Postponement of Gain, later. I need to file my 2012 taxes    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. I need to file my 2012 taxes Net severance damages. I need to file my 2012 taxes   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. I need to file my 2012 taxes You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. I need to file my 2012 taxes The balance is your net severance damages. I need to file my 2012 taxes Expenses of obtaining a condemnation award and severance damages. I need to file my 2012 taxes   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. I need to file my 2012 taxes Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. I need to file my 2012 taxes If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. I need to file my 2012 taxes Example. I need to file my 2012 taxes You receive a condemnation award and severance damages. I need to file my 2012 taxes One-fourth of the total was designated as severance damages in your agreement with the condemning authority. I need to file my 2012 taxes You had legal expenses for the entire condemnation proceeding. I need to file my 2012 taxes You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. I need to file my 2012 taxes You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. I need to file my 2012 taxes Special assessment retained out of award. I need to file my 2012 taxes   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. I need to file my 2012 taxes An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. I need to file my 2012 taxes Examples of improvements that may cause a special assessment are widening a street and installing a sewer. I need to file my 2012 taxes   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. I need to file my 2012 taxes Example. I need to file my 2012 taxes To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. I need to file my 2012 taxes You were awarded $5,000 for this and spent $300 to get the award. I need to file my 2012 taxes Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. I need to file my 2012 taxes The city then paid you only $4,300. I need to file my 2012 taxes Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). I need to file my 2012 taxes If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). I need to file my 2012 taxes The net award would not change, even if you later paid the assessment from the amount you received. I need to file my 2012 taxes Severance damages received. I need to file my 2012 taxes   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. I need to file my 2012 taxes Any balance of the special assessment is used to reduce the condemnation award. I need to file my 2012 taxes Example. I need to file my 2012 taxes You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. I need to file my 2012 taxes You spent $300 to obtain the severance damages. I need to file my 2012 taxes A special assessment of $800 was retained out of the award. I need to file my 2012 taxes The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. I need to file my 2012 taxes Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. I need to file my 2012 taxes Part business or rental. I need to file my 2012 taxes   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. I need to file my 2012 taxes Figure your gain or loss separately because gain or loss on each part may be treated differently. I need to file my 2012 taxes   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. I need to file my 2012 taxes Example. I need to file my 2012 taxes You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. I need to file my 2012 taxes You rented half the building and lived in the other half. I need to file my 2012 taxes You paid $25,000 for the building and spent an additional $1,000 for a new roof. I need to file my 2012 taxes You claimed allowable depreciation of $4,600 on the rental half. I need to file my 2012 taxes You spent $200 in legal expenses to obtain the condemnation award. I need to file my 2012 taxes Figure your gain or loss as follows. I need to file my 2012 taxes     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. I need to file my 2012 taxes Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. I need to file my 2012 taxes Your basis for the new property is the same as your basis for the old. I need to file my 2012 taxes Money or unlike property received. I need to file my 2012 taxes   You ordinarily must report the gain if you receive money or unlike property. I need to file my 2012 taxes You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. I need to file my 2012 taxes You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. I need to file my 2012 taxes See Controlling interest in a corporation, later. I need to file my 2012 taxes   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. I need to file my 2012 taxes If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. I need to file my 2012 taxes   The basis of the replacement property is its cost, reduced by the postponed gain. I need to file my 2012 taxes Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. I need to file my 2012 taxes See Controlling interest in a corporation, later. I need to file my 2012 taxes You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. I need to file my 2012 taxes Postponing gain on severance damages. I need to file my 2012 taxes   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. I need to file my 2012 taxes See Treatment of severance damages, earlier. I need to file my 2012 taxes You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). I need to file my 2012 taxes   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. I need to file my 2012 taxes If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. I need to file my 2012 taxes   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. I need to file my 2012 taxes Postponing gain on the sale of related property. I need to file my 2012 taxes   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. I need to file my 2012 taxes You must meet the requirements explained earlier under Related property voluntarily sold. I need to file my 2012 taxes You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). I need to file my 2012 taxes Buying replacement property from a related person. I need to file my 2012 taxes   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. I need to file my 2012 taxes For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. I need to file my 2012 taxes   This rule applies to the following taxpayers. I need to file my 2012 taxes C corporations. I need to file my 2012 taxes Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. I need to file my 2012 taxes All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. I need to file my 2012 taxes   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. I need to file my 2012 taxes If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. I need to file my 2012 taxes If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. I need to file my 2012 taxes Exception. I need to file my 2012 taxes   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. I need to file my 2012 taxes Advance payment. I need to file my 2012 taxes   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). I need to file my 2012 taxes Replacement property. I need to file my 2012 taxes   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. I need to file my 2012 taxes You do not have to use the actual funds from the condemnation award to acquire the replacement property. I need to file my 2012 taxes Property you acquire by gift or inheritance does not qualify as replacement property. I need to file my 2012 taxes Similar or related in service or use. I need to file my 2012 taxes   Your replacement property must be similar or related in service or use to the property it replaces. I need to file my 2012 taxes   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. I need to file my 2012 taxes For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. I need to file my 2012 taxes Owner-user. I need to file my 2012 taxes   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. I need to file my 2012 taxes Example. I need to file my 2012 taxes Your home was condemned and you invested the proceeds from the condemnation in a grocery store. I need to file my 2012 taxes Your replacement property is not similar or related in service or use to the condemned property. I need to file my 2012 taxes To be similar or related in service or use, your replacement property must also be used by you as your home. I need to file my 2012 taxes Owner-investor. I need to file my 2012 taxes   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. I need to file my 2012 taxes You decide this by determining all the following information. I need to file my 2012 taxes Whether the properties are of similar service to you. I need to file my 2012 taxes The nature of the business risks connected with the properties. I need to file my 2012 taxes What the properties demand of you in the way of management, service, and relations to your tenants. I need to file my 2012 taxes Example. I need to file my 2012 taxes You owned land and a building you rented to a manufacturing company. I need to file my 2012 taxes The building was condemned. I need to file my 2012 taxes During the replacement period, you had a new building built on other land you already owned. I need to file my 2012 taxes You rented out the new building for use as a wholesale grocery warehouse. I need to file my 2012 taxes The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. I need to file my 2012 taxes Your management activities. I need to file my 2012 taxes The amount and kind of services you provide to your tenants. I need to file my 2012 taxes The nature of your business risks connected with the properties. I need to file my 2012 taxes Leasehold replaced with fee simple property. I need to file my 2012 taxes   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. I need to file my 2012 taxes   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. I need to file my 2012 taxes A leasehold is property held under a lease, usually for a term of years. I need to file my 2012 taxes Outdoor advertising display replaced with real property. I need to file my 2012 taxes   You can elect to treat an outdoor advertising display as real property. I need to file my 2012 taxes If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. I need to file my 2012 taxes For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. I need to file my 2012 taxes   You can make this election only if you did not claim a section 179 deduction for the display. I need to file my 2012 taxes You cannot cancel this election unless you get the consent of the IRS. I need to file my 2012 taxes   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. I need to file my 2012 taxes Substituting replacement property. I need to file my 2012 taxes   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. I need to file my 2012 taxes But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. I need to file my 2012 taxes Controlling interest in a corporation. I need to file my 2012 taxes   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. I need to file my 2012 taxes You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. I need to file my 2012 taxes Basis adjustment to corporation's property. I need to file my 2012 taxes   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. I need to file my 2012 taxes You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). I need to file my 2012 taxes   Allocate this reduction to the following classes of property in the order shown below. I need to file my 2012 taxes Property that is similar or related in service or use to the condemned property. I need to file my 2012 taxes Depreciable property not reduced in (1). I need to file my 2012 taxes All other property. I need to file my 2012 taxes If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. I need to file my 2012 taxes The reduced basis of any single property cannot be less than zero. I need to file my 2012 taxes Main home replaced. I need to file my 2012 taxes   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. I need to file my 2012 taxes The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. I need to file my 2012 taxes   You must reduce the basis of your replacement property by the postponed gain. I need to file my 2012 taxes Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. I need to file my 2012 taxes Example. I need to file my 2012 taxes City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. I need to file my 2012 taxes The city paid you a condemnation award of $400,000. I need to file my 2012 taxes Your adjusted basis in the property was $80,000. I need to file my 2012 taxes You realize a gain of $320,000 ($400,000 − $80,000). I need to file my 2012 taxes You purchased a new home for $100,000. I need to file my 2012 taxes You can exclude $250,000 of the realized gain from your gross income. I need to file my 2012 taxes The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). I need to file my 2012 taxes You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). I need to file my 2012 taxes The remaining $20,000 of realized gain is postponed. I need to file my 2012 taxes Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). I need to file my 2012 taxes Replacement period. I need to file my 2012 taxes   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. I need to file my 2012 taxes This is the replacement period. I need to file my 2012 taxes   The replacement period for a condemnation begins on the earlier of the following dates. I need to file my 2012 taxes The date on which you disposed of the condemned property. I need to file my 2012 taxes The date on which the threat of condemnation began. I need to file my 2012 taxes   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. I need to file my 2012 taxes However, see the exceptions below. I need to file my 2012 taxes Three-year replacement period for certain property. I need to file my 2012 taxes   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. I need to file my 2012 taxes However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. I need to file my 2012 taxes Five-year replacement period for certain property. I need to file my 2012 taxes   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. I need to file my 2012 taxes Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. I need to file my 2012 taxes Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. I need to file my 2012 taxes Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. I need to file my 2012 taxes Extended replacement period for taxpayers affected by other federally declared disasters. I need to file my 2012 taxes    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. I need to file my 2012 taxes For more information visit www. I need to file my 2012 taxes irs. I need to file my 2012 taxes gov/uac/Tax-Relief-in-Disaster-Situations. I need to file my 2012 taxes Weather-related sales of livestock in an area eligible for federal assistance. I need to file my 2012 taxes   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. I need to file my 2012 taxes    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. I need to file my 2012 taxes See Notice 2006-82. I need to file my 2012 taxes You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. I need to file my 2012 taxes irs. I need to file my 2012 taxes gov/irb/2006-39_IRB/ar13. I need to file my 2012 taxes html. I need to file my 2012 taxes    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. I need to file my 2012 taxes If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. I need to file my 2012 taxes You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. I need to file my 2012 taxes irs. I need to file my 2012 taxes gov/irb/2013-45_IRB/ar04. I need to file my 2012 taxes html. I need to file my 2012 taxes The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. I need to file my 2012 taxes Determining when gain is realized. I need to file my 2012 taxes   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. I need to file my 2012 taxes If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. I need to file my 2012 taxes   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. I need to file my 2012 taxes A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. I need to file my 2012 taxes   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. I need to file my 2012 taxes All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. I need to file my 2012 taxes All or part of the award is actually or constructively received. I need to file my 2012 taxes For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. I need to file my 2012 taxes Replacement property bought before the condemnation. I need to file my 2012 taxes   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. I need to file my 2012 taxes Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. I need to file my 2012 taxes Example. I need to file my 2012 taxes On April 3, 2012, city authorities notified you that your property would be condemned. I need to file my 2012 taxes On June 5, 2012, you acquired property to replace the property to be condemned. I need to file my 2012 taxes You still had the new property when the city took possession of your old property on September 4, 2013. I need to file my 2012 taxes You have made a replacement within the replacement period. I need to file my 2012 taxes Extension. I need to file my 2012 taxes   You can request an extension of the replacement period from the IRS director for your area. I need to file my 2012 taxes You should apply before the end of the replacement period. I need to file my 2012 taxes Your request should explain in detail why you need an extension. I need to file my 2012 taxes The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. I need to file my 2012 taxes An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. I need to file my 2012 taxes   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. I need to file my 2012 taxes Extensions are usually limited to a period of 1 year or less. I need to file my 2012 taxes The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. I need to file my 2012 taxes If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri
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I need to file my 2012 taxes Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. I need to file my 2012 taxes Property not disposed of or abandoned. I need to file my 2012 taxes Special rule for normal retirements from item accounts. I need to file my 2012 taxes Abandoned property. I need to file my 2012 taxes Single item accounts. I need to file my 2012 taxes Multiple property account. I need to file my 2012 taxes Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. I need to file my 2012 taxes If your property qualified for MACRS, you must depreciate it under MACRS. I need to file my 2012 taxes See Publication 946. I need to file my 2012 taxes However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. I need to file my 2012 taxes Also, you can elect to exclude certain property from being depreciated under MACRS. I need to file my 2012 taxes Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. I need to file my 2012 taxes Intangible property. I need to file my 2012 taxes   You cannot depreciate intangible property under ACRS or MACRS. I need to file my 2012 taxes You depreciate intangible property using any other reasonable method, usually, the straight line method. I need to file my 2012 taxes Note. I need to file my 2012 taxes The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. I need to file my 2012 taxes For more information, see chapter 12 of Publication 535. I need to file my 2012 taxes Public utility property. I need to file my 2012 taxes   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. I need to file my 2012 taxes This type of property is subject to depreciation under a special rule. I need to file my 2012 taxes Videocassettes. I need to file my 2012 taxes   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. I need to file my 2012 taxes You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. I need to file my 2012 taxes The straight line method, salvage value, and useful life are discussed later under Methods To Use. I need to file my 2012 taxes You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. I need to file my 2012 taxes How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. I need to file my 2012 taxes These methods are straight line and declining balance. I need to file my 2012 taxes To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. I need to file my 2012 taxes They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. I need to file my 2012 taxes The amount of the deduction in any year also depends on which method of depreciation you choose. I need to file my 2012 taxes Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. I need to file my 2012 taxes The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. I need to file my 2012 taxes Your original basis is usually the purchase price. I need to file my 2012 taxes However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. I need to file my 2012 taxes Adjusted basis. I need to file my 2012 taxes   Events will often change the basis of property. I need to file my 2012 taxes When this occurs, the changed basis is called the adjusted basis. I need to file my 2012 taxes Some events, such as improvements you make, increase basis. I need to file my 2012 taxes Events such as deducting casualty losses and depreciation decrease basis. I need to file my 2012 taxes If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. I need to file my 2012 taxes   Publication 551 explains how to figure basis for property acquired in different ways. I need to file my 2012 taxes It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. I need to file my 2012 taxes Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. I need to file my 2012 taxes It is the length of time over which you will make yearly depreciation deductions of your basis in the property. I need to file my 2012 taxes It is how long it will continue to be useful to you, not how long the property will last. I need to file my 2012 taxes Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. I need to file my 2012 taxes The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. I need to file my 2012 taxes Consider all these factors before you arrive at a useful life for your property. I need to file my 2012 taxes The useful life of the same type of property varies from user to user. I need to file my 2012 taxes When you determine the useful life of your property, keep in mind your own experience with similar property. I need to file my 2012 taxes You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. I need to file my 2012 taxes Change in useful life. I need to file my 2012 taxes   You base your estimate of useful life on certain facts. I need to file my 2012 taxes If these facts change significantly, you can adjust your estimate of the remaining useful life. I need to file my 2012 taxes However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. I need to file my 2012 taxes Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. I need to file my 2012 taxes You generally cannot depreciate property below a reasonable salvage value. I need to file my 2012 taxes Determining salvage value. I need to file my 2012 taxes   Salvage value is the estimated value of property at the end of its useful life. I need to file my 2012 taxes It is what you expect to get for the property if you sell it after you can no longer use it productively. I need to file my 2012 taxes You must estimate the salvage value of a piece of property when you first acquire it. I need to file my 2012 taxes   Salvage value is affected both by how you use the property and how long you use it. I need to file my 2012 taxes If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. I need to file my 2012 taxes However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. I need to file my 2012 taxes Changing salvage value. I need to file my 2012 taxes   Once you determine the salvage value for property, you should not change it merely because prices have changed. I need to file my 2012 taxes However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. I need to file my 2012 taxes When you redetermine the salvage value, take into account the facts that exist at the time. I need to file my 2012 taxes Net salvage. I need to file my 2012 taxes   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. I need to file my 2012 taxes You can choose either salvage value or net salvage when you figure depreciation. I need to file my 2012 taxes You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. I need to file my 2012 taxes However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. I need to file my 2012 taxes Your salvage value can never be less than zero. I need to file my 2012 taxes Ten percent rule. I need to file my 2012 taxes   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. I need to file my 2012 taxes You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. I need to file my 2012 taxes If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. I need to file my 2012 taxes Methods To Use Two methods of depreciation are the straight line and declining balance methods. I need to file my 2012 taxes If ACRS or MACRS does not apply, you can use one of these methods. I need to file my 2012 taxes The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. I need to file my 2012 taxes Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. I need to file my 2012 taxes One of these methods was the straight line method. I need to file my 2012 taxes This method was also used for intangible property. I need to file my 2012 taxes It lets you deduct the same amount of depreciation each year. I need to file my 2012 taxes To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. I need to file my 2012 taxes Subtract the salvage value, if any, from the adjusted basis. I need to file my 2012 taxes The balance is the total amount of depreciation you can take over the useful life of the property. I need to file my 2012 taxes Divide the balance by the number of years remaining in the useful life. I need to file my 2012 taxes This gives you the amount of your yearly depreciation deduction. I need to file my 2012 taxes Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. I need to file my 2012 taxes If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. I need to file my 2012 taxes Example. I need to file my 2012 taxes In April 1994, Frank bought a franchise for $5,600. I need to file my 2012 taxes It expires in 10 years. I need to file my 2012 taxes This property is intangible property that cannot be depreciated under MACRS. I need to file my 2012 taxes Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. I need to file my 2012 taxes He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). I need to file my 2012 taxes He must prorate the $560 for his 9 months of use in 1994. I need to file my 2012 taxes This gives him a deduction of $420 ($560 ÷ 9/12). I need to file my 2012 taxes In 1995, Frank can deduct $560 for the full year. I need to file my 2012 taxes Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. I need to file my 2012 taxes The rate cannot be more than twice the straight line rate. I need to file my 2012 taxes Rate of depreciation. I need to file my 2012 taxes   Under this method, you must determine your declining balance rate of depreciation. I need to file my 2012 taxes The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. I need to file my 2012 taxes (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. I need to file my 2012 taxes ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. I need to file my 2012 taxes Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. I need to file my 2012 taxes Depreciation deductions. I need to file my 2012 taxes   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. I need to file my 2012 taxes This gives you the amount of your deduction. I need to file my 2012 taxes For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). I need to file my 2012 taxes To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. I need to file my 2012 taxes Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). I need to file my 2012 taxes Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). I need to file my 2012 taxes Your depreciation deduction for the second year is $1,600. I need to file my 2012 taxes   As you can see from this example, your adjusted basis in the property gets smaller each year. I need to file my 2012 taxes Also, under this method, deductions are larger in the earlier years and smaller in the later years. I need to file my 2012 taxes You can make a change to the straight line method without consent. I need to file my 2012 taxes Salvage value. I need to file my 2012 taxes   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. I need to file my 2012 taxes However, you cannot depreciate the property below its reasonable salvage value. I need to file my 2012 taxes Determine salvage value using the rules discussed earlier, including the special 10% rule. I need to file my 2012 taxes Example. I need to file my 2012 taxes If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. I need to file my 2012 taxes But if your estimate of salvage value was $900, you can only deduct $100. I need to file my 2012 taxes This is because $100 is the amount that would lower your adjusted basis to equal salvage value. I need to file my 2012 taxes Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. I need to file my 2012 taxes You can group the videocassettes by title for making this projection. I need to file my 2012 taxes You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. I need to file my 2012 taxes The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. I need to file my 2012 taxes For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. I need to file my 2012 taxes How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. I need to file my 2012 taxes If you change your method of depreciation, it is generally a change in your method of accounting. I need to file my 2012 taxes You must get IRS consent before making the change. I need to file my 2012 taxes However, you do not need permission for certain changes in your method of depreciation. I need to file my 2012 taxes The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. I need to file my 2012 taxes For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. I need to file my 2012 taxes Change to the straight line method. I need to file my 2012 taxes   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. I need to file my 2012 taxes However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. I need to file my 2012 taxes When the change is made, figure depreciation based on your adjusted basis in the property at that time. I need to file my 2012 taxes Your adjusted basis takes into account all previous depreciation deductions. I need to file my 2012 taxes Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. I need to file my 2012 taxes   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. I need to file my 2012 taxes You cannot make the change on an amended return filed after the due date of the original return (including extensions). I need to file my 2012 taxes   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. I need to file my 2012 taxes   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. I need to file my 2012 taxes Changes that require permission. I need to file my 2012 taxes   For most other changes in method of depreciation, you must get permission from the IRS. I need to file my 2012 taxes To request a change in method of depreciation, file Form 3115. I need to file my 2012 taxes File the application within the first 180 days of the tax year the change is to become effective. I need to file my 2012 taxes In most cases, there is a user fee that must accompany Form 3115. I need to file my 2012 taxes See the instructions for Form 3115 to determine if a fee is required. I need to file my 2012 taxes Changes granted automatically. I need to file my 2012 taxes   The IRS automatically approves certain changes of a method of depreciation. I need to file my 2012 taxes But, you must file Form 3115 for these automatic changes. I need to file my 2012 taxes   However, IRS can deny permission if Form 3115 is not filed on time. I need to file my 2012 taxes For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. I need to file my 2012 taxes B. I need to file my 2012 taxes 420. I need to file my 2012 taxes Changes for which approval is not automatic. I need to file my 2012 taxes   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. I need to file my 2012 taxes   You must request and receive permission for these changes. I need to file my 2012 taxes To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. I need to file my 2012 taxes Change from an improper method. I need to file my 2012 taxes   If the IRS disallows the method you are using, you do not need permission to change to a proper method. I need to file my 2012 taxes You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. I need to file my 2012 taxes If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. I need to file my 2012 taxes However, you must file the amended return before the filing date for the next tax year. I need to file my 2012 taxes Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. I need to file my 2012 taxes You can do this by selling, exchanging, or abandoning the item of property. I need to file my 2012 taxes You can also withdraw it from use without disposing of it. I need to file my 2012 taxes For example, you could place it in a supplies or scrap account. I need to file my 2012 taxes Retirements can be either normal or abnormal depending on all facts and circumstances. I need to file my 2012 taxes The rules discussed next do not apply to MACRS and ACRS property. I need to file my 2012 taxes Normal retirement. I need to file my 2012 taxes   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. I need to file my 2012 taxes A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. I need to file my 2012 taxes Abnormal retirement. I need to file my 2012 taxes   A retirement can be abnormal if you withdraw the property early or under other circumstances. I need to file my 2012 taxes For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. I need to file my 2012 taxes Gain or loss on retirement. I need to file my 2012 taxes   There are special rules for figuring the gain or loss on retirement of property. I need to file my 2012 taxes The gain or loss will depend on several factors. I need to file my 2012 taxes These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. I need to file my 2012 taxes A single property account contains only one item of property. I need to file my 2012 taxes A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. I need to file my 2012 taxes Sale or exchange. I need to file my 2012 taxes   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. I need to file my 2012 taxes See Publication 544. I need to file my 2012 taxes Property not disposed of or abandoned. I need to file my 2012 taxes   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. I need to file my 2012 taxes You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. I need to file my 2012 taxes However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. I need to file my 2012 taxes   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. I need to file my 2012 taxes Special rule for normal retirements from item accounts. I need to file my 2012 taxes   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. I need to file my 2012 taxes However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. I need to file my 2012 taxes   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. I need to file my 2012 taxes Abandoned property. I need to file my 2012 taxes   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. I need to file my 2012 taxes However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. I need to file my 2012 taxes Basis of property retired. I need to file my 2012 taxes   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. I need to file my 2012 taxes Single item accounts. I need to file my 2012 taxes   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. I need to file my 2012 taxes This is generally the cost or other basis of the item of property less depreciation. I need to file my 2012 taxes See Publication 551. I need to file my 2012 taxes Multiple property account. I need to file my 2012 taxes   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. I need to file my 2012 taxes If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. I need to file my 2012 taxes   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. I need to file my 2012 taxes The method of depreciation used for the multiple property account is used. I need to file my 2012 taxes You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. I need to file my 2012 taxes Prev  Up  Next   Home   More Online Publications