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Income Tax Deductions 2012

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Income Tax Deductions 2012

Income tax deductions 2012 Publication 529 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Income tax deductions 2012 Tax questions. Income tax deductions 2012 Useful Items - You may want to see: What's New Standard mileage rate. Income tax deductions 2012  The 2013 rate for business use of a vehicle is 56½ cents per mile. Income tax deductions 2012 Reminders Future developments. Income tax deductions 2012  For the latest information about developments related to Publication 529, such as legislation enacted after it was published, go to www. Income tax deductions 2012 irs. Income tax deductions 2012 gov/pub529. Income tax deductions 2012 Photographs of missing children. Income tax deductions 2012  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Income tax deductions 2012 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Income tax deductions 2012 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Income tax deductions 2012 Introduction This publication explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). Income tax deductions 2012 You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Income tax deductions 2012 This publication covers the following topics. Income tax deductions 2012 Deductions subject to the 2% limit. Income tax deductions 2012 Deductions not subject to the 2% limit. Income tax deductions 2012 Expenses you cannot deduct. Income tax deductions 2012 How to report your deductions. Income tax deductions 2012 Some of the deductions previously discussed in this publication are adjustments to income rather than miscellaneous deductions. Income tax deductions 2012 These include certain employee business expenses that must be listed on Form 2106 or Form 2106-EZ and some that are entered directly on Form 1040. Income tax deductions 2012 Those deductions, which are discussed in Publication 463, Travel, Entertainment, Gift, and Car Expenses, include employee business expenses of officials paid on a fee basis and performing artists. Income tax deductions 2012 Note. Income tax deductions 2012 Generally, nonresident aliens are allowed miscellaneous itemized deductions to the extent they are directly related to income which is effectively connected with the conduct of a trade or business within the United States. Income tax deductions 2012 You must keep records to verify your deductions. Income tax deductions 2012 You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. Income tax deductions 2012 For more information on recordkeeping, see Publication 552, Recordkeeping for Individuals. Income tax deductions 2012 Comments and suggestions. Income tax deductions 2012   We welcome your comments about this publication and your suggestions for future editions. Income tax deductions 2012   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Income tax deductions 2012 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Income tax deductions 2012 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Income tax deductions 2012   You can send your comments from www. Income tax deductions 2012 irs. Income tax deductions 2012 gov/formspubs. Income tax deductions 2012 Click on “More Information” and then on “Comment on Tax Forms and Publications. Income tax deductions 2012 ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Income tax deductions 2012 Ordering forms and publications. Income tax deductions 2012   Visit www. Income tax deductions 2012 irs. Income tax deductions 2012 gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Income tax deductions 2012 Internal Revenue Service 1201 N. Income tax deductions 2012 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Income tax deductions 2012   If you have a tax question, check the information available on IRS. Income tax deductions 2012 gov or call 1-800-829-1040. Income tax deductions 2012 We cannot answer tax questions sent to either of the above addresses. Income tax deductions 2012 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses See How To Get Tax Help near the end of this publication for information about getting these publications and forms. Income tax deductions 2012 Prev  Up  Next   Home   More Online Publications
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Unsolicited commercial e-mail, usually called spam, is not just unwanted, it can be offensive. Pornographic spam causes many consumer complaints. Decrease the number of spam e-mails you receive by making it difficult for spammers to get and use your e-mail address.

  • Never reply to a spam e-mail. 
  • Don't use an obvious e-mail address, such as JaneDoe@isp.com. Instead use numbers or other digits, such as Jane4oe6@isp.com.
  • Use one e-mail address for close friends and family and another for everyone else. Free addresses are available from Yahoo! and Hotmail. You can also get a disposable forwarding address from the Spam Motel. If an address attracts too much spam, get rid of it and establish a new one.
  • Don't post your e-mail address on a public web page. Spammers use software that harvests text addresses. Substitute "janedoe at isp.com" for "janedoe@isp.com." Or display your address as a graphic image, not text.
  • Don't enter your address on a website before you check its privacy policy.
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  • Don't click on an e-mail's "unsubscribe" link unless you trust the sender. This action tells the sender you're there.
  • Never forward chain letters, petitions or virus warnings. All could be a spammer's trick to collect addresses.
  • Disable your e-mail "preview pane." This stops spam from reporting to its sender that you've received it.
  • Choose an Internet Service Provider (ISP) that filters e-mail. If you get lots of spam, your ISP may not be filtering effectively.
  • Use spam-blocking software. Web browser software often includes free filtering options. You can also purchase special software that will accomplish this task.
  • Report spam. Alert your ISP that spam is slipping through its filters. The Federal Trade Commission (FTC) also wants to know about "unsolicited commercial e-mail." Forward spam to spam@uce.gov.

Be Suspicious of Mass E-mails

Many mass e-mails contain false alarms, misleading requests for donations or fictitious offers of money and free goods. You can check the validity of almost any mass e-mail at the Snopes website. Don't forward an e-mail unless you're sure that it contains accurate information. Not only do such e-mails confuse recipients, they are often used to collect e-mail addresses for spammers.

E-mail Data Breach

Do you ever share your e-mail address with your favorite retailer to be notified of sales, coupons, and new arrivals? What happens if the company’s e-mail database is hacked? You should receive a notice from the company to let you know about the data breach. After that, you may see an increase in phishing e-mail you receive. Your best advice is to “do nothing”: don’t respond or verify personal information.

The Income Tax Deductions 2012

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