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Online tax calculator 13. Online tax calculator   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. Online tax calculator It is divided into the following sections. Online tax calculator Cost basis. Online tax calculator Adjusted basis. Online tax calculator Basis other than cost. Online tax calculator Your basis is the amount of your investment in property for tax purposes. Online tax calculator Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Online tax calculator Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Online tax calculator If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Online tax calculator Only the basis allocated to the business or investment use of the property can be depreciated. Online tax calculator Your original basis in property is adjusted (increased or decreased) by certain events. Online tax calculator For example, if you make improvements to the property, increase your basis. Online tax calculator If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Online tax calculator Keep accurate records of all items that affect the basis of your property. Online tax calculator For more information on keeping records, see chapter 1. Online tax calculator 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. Online tax calculator The cost is the amount you pay in cash, debt obligations, other property, or services. Online tax calculator 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). Online tax calculator In addition, the basis of real estate and business assets may include other items. Online tax calculator Loans with low or no interest. Online tax calculator    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. Online tax calculator You generally have unstated interest if your interest rate is less than the applicable federal rate. Online tax calculator   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Online tax calculator Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Online tax calculator If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Online tax calculator Lump sum purchase. Online tax calculator   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. Online tax calculator Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Online tax calculator Figure the basis of each asset by multiplying the lump sum by a fraction. Online tax calculator The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Online tax calculator    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. Online tax calculator Fair market value (FMV). Online tax calculator   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. Online tax calculator Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Online tax calculator Assumption of mortgage. Online tax calculator   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. Online tax calculator Settlement costs. Online tax calculator   Your basis includes the settlement fees and closing costs you paid for buying the property. Online tax calculator (A fee for buying property is a cost that must be paid even if you buy the property for cash. Online tax calculator ) Do not include fees and costs for getting a loan on the property in your basis. Online tax calculator   The following are some of the settlement fees or closing costs you can include in the basis of your property. Online tax calculator Abstract fees (abstract of title fees). Online tax calculator Charges for installing utility services. Online tax calculator Legal fees (including fees for the title search and preparation of the sales contract and deed). Online tax calculator Recording fees. Online tax calculator Survey fees. Online tax calculator Transfer taxes. Online tax calculator Owner's title insurance. Online tax calculator 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. Online tax calculator   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Online tax calculator   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Online tax calculator Casualty insurance premiums. Online tax calculator Rent for occupancy of the property before closing. Online tax calculator Charges for utilities or other services related to occupancy of the property before closing. Online tax calculator 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. Online tax calculator Fees for refinancing a mortgage. Online tax calculator Real estate taxes. Online tax calculator   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. Online tax calculator You cannot deduct them as an expense. Online tax calculator    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. Online tax calculator Do not include that amount in the basis of your property. Online tax calculator If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Online tax calculator Points. Online tax calculator   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. Online tax calculator Generally, you deduct the points over the term of the loan. Online tax calculator For more information on how to deduct points, see chapter 23. Online tax calculator Points on home mortgage. Online tax calculator   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Online tax calculator If certain requirements are met, you can deduct the points in full for the year in which they are paid. Online tax calculator Reduce the basis of your home by any seller-paid points. Online tax calculator 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. Online tax calculator The result is the adjusted basis. Online tax calculator Increases to Basis Increase the basis of any property by all items properly added to a capital account. Online tax calculator Examples of items that increase basis are shown in Table 13-1. Online tax calculator These include the items discussed below. Online tax calculator Improvements. Online tax calculator   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. Online tax calculator 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. Online tax calculator Assessments for local improvements. Online tax calculator   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Online tax calculator Do not deduct them as taxes. Online tax calculator However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Online tax calculator Example. Online tax calculator 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. Online tax calculator Add the assessment to your property's basis. Online tax calculator In this example, the assessment is a depreciable asset. Online tax calculator 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. Online tax calculator Examples of items that decrease basis are shown in Table 13-1. Online tax calculator These include the items discussed below. Online tax calculator Table 13-1. Online tax calculator 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. Online tax calculator   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. Online tax calculator    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Online tax calculator   For more information on casualty and theft losses, see chapter 25. Online tax calculator Depreciation and section 179 deduction. Online tax calculator   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. Online tax calculator   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Online tax calculator Example. Online tax calculator 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. Online tax calculator You added an improvement to the duplex that cost $10,000. Online tax calculator In February last year, the duplex was damaged by fire. Online tax calculator Up to that time, you had been allowed depreciation of $23,000. Online tax calculator You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Online tax calculator You deducted a casualty loss of $1,000 on your income tax return for last year. Online tax calculator You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Online tax calculator You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Online tax calculator 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. Online tax calculator Your basis in the land is its original cost of $5,000. Online tax calculator Easements. Online tax calculator   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Online tax calculator It reduces the basis of the affected part of the property. Online tax calculator 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. Online tax calculator   If the gain is on a capital asset, see chapter 16 for information about how to report it. Online tax calculator If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Online tax calculator Exclusion of subsidies for energy conservation measures. Online tax calculator   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. Online tax calculator Reduce the basis of the property for which you received the subsidy by the excluded amount. Online tax calculator For more information about this subsidy, see chapter 12. Online tax calculator Postponed gain from sale of home. Online tax calculator    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. Online tax calculator For more information on the rules for the sale of a home, see chapter 15. Online tax calculator Basis Other Than Cost There are many times when you cannot use cost as basis. Online tax calculator In these cases, the fair market value or the adjusted basis of the property can be used. Online tax calculator Fair market value (FMV) and adjusted basis were discussed earlier. Online tax calculator Property Received for Services If you receive property for your services, include the FMV of the property in income. Online tax calculator The amount you include in income becomes your basis. Online tax calculator 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. Online tax calculator Restricted property. Online tax calculator   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. Online tax calculator 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. Online tax calculator 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). Online tax calculator For more information, see Restricted Property in Publication 525. Online tax calculator Bargain purchases. Online tax calculator   A bargain purchase is a purchase of an item for less than its FMV. Online tax calculator 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. Online tax calculator Your basis in the property is its FMV (your purchase price plus the amount you include in income). Online tax calculator   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Online tax calculator However, your basis in the property is still its FMV. Online tax calculator See Employee Discounts in Publication 15-B. Online tax calculator Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Online tax calculator A taxable gain or deductible loss also is known as a recognized gain or loss. Online tax calculator 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. Online tax calculator 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. Online tax calculator Similar or related property. Online tax calculator   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. Online tax calculator Decrease the basis by the following. Online tax calculator Any loss you recognize on the involuntary conversion. Online tax calculator Any money you receive that you do not spend on similar property. Online tax calculator Increase the basis by the following. Online tax calculator Any gain you recognize on the involuntary conversion. Online tax calculator Any cost of acquiring the replacement property. Online tax calculator Money or property not similar or related. Online tax calculator    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. Online tax calculator Example. Online tax calculator The state condemned your property. Online tax calculator The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Online tax calculator You realized a gain of $5,000 ($31,000 − $26,000). Online tax calculator You bought replacement property similar in use to the converted property for $29,000. Online tax calculator You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Online tax calculator Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Online tax calculator 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. Online tax calculator   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Online tax calculator Basis for depreciation. Online tax calculator   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Online tax calculator For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Online tax calculator Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Online tax calculator If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Online tax calculator See Nontaxable Trades in chapter 14. Online tax calculator Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Online tax calculator To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Online tax calculator Qualifying property. Online tax calculator Like-kind property. Online tax calculator The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Online tax calculator 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. Online tax calculator Qualifying property. Online tax calculator   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. Online tax calculator Like-kind property. Online tax calculator   There must be an exchange of like-kind property. Online tax calculator Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Online tax calculator The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Online tax calculator Example. Online tax calculator You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Online tax calculator The dealer allows you $2,000 on the old truck, and you pay $4,800. Online tax calculator This is a like-kind exchange. Online tax calculator 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). Online tax calculator 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). Online tax calculator The basis of the new truck is the price you pay the dealer. Online tax calculator Partially nontaxable exchanges. Online tax calculator   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Online tax calculator The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Online tax calculator Decrease the basis by the following amounts. Online tax calculator Any money you receive. Online tax calculator Any loss you recognize on the exchange. Online tax calculator Increase the basis by the following amounts. Online tax calculator Any additional costs you incur. Online tax calculator Any gain you recognize on the exchange. Online tax calculator If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Online tax calculator Allocation of basis. Online tax calculator   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. Online tax calculator The rest is the basis of the like-kind property. Online tax calculator More information. Online tax calculator   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Online tax calculator Basis for depreciation. Online tax calculator   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Online tax calculator For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Online tax calculator 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. Online tax calculator The same rule applies to a transfer by your former spouse that is incident to divorce. Online tax calculator 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. Online tax calculator If the property transferred to you is a series E, series EE, or series I U. Online tax calculator S. Online tax calculator savings bond, the transferor must include in income the interest accrued to the date of transfer. Online tax calculator 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. Online tax calculator For more information on these bonds, see chapter 7. Online tax calculator 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. Online tax calculator For more information about the transfer of property from a spouse, see chapter 14. Online tax calculator 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. Online tax calculator FMV less than donor's adjusted basis. Online tax calculator   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. Online tax calculator 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. Online tax calculator 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. Online tax calculator See Adjusted Basis , earlier. Online tax calculator Example. Online tax calculator You received an acre of land as a gift. Online tax calculator At the time of the gift, the land had an FMV of $8,000. Online tax calculator The donor's adjusted basis was $10,000. Online tax calculator After you received the property, no events occurred to increase or decrease your basis. Online tax calculator 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. Online tax calculator 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. Online tax calculator If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Online tax calculator Business property. Online tax calculator   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. Online tax calculator FMV equal to or greater than donor's adjusted basis. Online tax calculator   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. Online tax calculator Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Online tax calculator   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. Online tax calculator See Adjusted Basis , earlier. Online tax calculator   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. Online tax calculator Figure the increase by multiplying the gift tax paid by a fraction. Online tax calculator The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Online tax calculator   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Online tax calculator 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. Online tax calculator Example. Online tax calculator In 2013, you received a gift of property from your mother that had an FMV of $50,000. Online tax calculator Her adjusted basis was $20,000. Online tax calculator The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Online tax calculator She paid a gift tax of $7,320 on the property. Online tax calculator 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) × . Online tax calculator 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. Online tax calculator If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Online tax calculator However, your basis cannot exceed the FMV of the gift at the time it was given to you. Online tax calculator 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. Online tax calculator The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Online tax calculator 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. Online tax calculator 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. Online tax calculator 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. Online tax calculator For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Online tax calculator Property inherited from a decedent who died in 2010. Online tax calculator   If you inherited property from a decedent who died in 2010, special rules may apply. Online tax calculator For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Online tax calculator Community property. Online tax calculator   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. Online tax calculator 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. Online tax calculator 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. Online tax calculator Example. Online tax calculator You and your spouse owned community property that had a basis of $80,000. Online tax calculator When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Online tax calculator The FMV of the community interest was $100,000. Online tax calculator The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Online tax calculator The basis of the other half to your spouse's heirs is also $50,000. Online tax calculator For more information about community property, see Publication 555, Community Property. Online tax calculator 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. Online tax calculator To do so, you must figure its basis for depreciation at the time of the change. Online tax calculator An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Online tax calculator Basis for depreciation. Online tax calculator   The basis for depreciation is the lesser of the following amounts. Online tax calculator The FMV of the property on the date of the change. Online tax calculator Your adjusted basis on the date of the change. Online tax calculator Example. Online tax calculator Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Online tax calculator 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. Online tax calculator Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Online tax calculator Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Online tax calculator 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. Online tax calculator 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). Online tax calculator Sale of property. Online tax calculator   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. Online tax calculator Gain. Online tax calculator   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Online tax calculator Example. Online tax calculator 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. Online tax calculator Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Online tax calculator Loss. Online tax calculator   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. Online tax calculator Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Online tax calculator Example. Online tax calculator 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. Online tax calculator 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. Online tax calculator Reduce that amount ($180,000) by the depreciation deductions ($37,500). Online tax calculator The basis for loss is $142,500 ($180,000 − $37,500). Online tax calculator 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. Online tax calculator 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. Online tax calculator You must adjust the basis of stocks for certain events that occur after purchase. Online tax calculator 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. Online tax calculator This rule applies only when the additional stock received is identical to the stock held. Online tax calculator Also reduce your basis when you receive nontaxable distributions. Online tax calculator They are a return of capital. Online tax calculator Example. Online tax calculator In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Online tax calculator In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Online tax calculator In 2013 XYZ declared a 2-for-1 stock split. Online tax calculator You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Online tax calculator Other basis. Online tax calculator   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Online tax calculator For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Online tax calculator Identifying stocks or bonds sold. Online tax calculator   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. Online tax calculator 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. Online tax calculator For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Online tax calculator Mutual fund shares. Online tax calculator   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. Online tax calculator For more information, see Publication 550. Online tax calculator Bond premium. Online tax calculator   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. Online tax calculator See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Online tax calculator 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. Online tax calculator Original issue discount (OID) on debt instruments. Online tax calculator   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Online tax calculator See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Online tax calculator Tax-exempt obligations. Online tax calculator    OID on tax-exempt obligations is generally not taxable. Online tax calculator 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. Online tax calculator The accrued OID is added to the basis of the obligation to determine your gain or loss. Online tax calculator See chapter 4 of Publication 550. Online tax calculator Prev  Up  Next   Home   More Online Publications
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Retirement

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The Online Tax Calculator

Online tax calculator Part Two -   Income The eight chapters in this part discuss many kinds of income. Online tax calculator They explain which income is and is not taxed. Online tax calculator See Part Three for information on gains and losses you report on Form 8949 and Schedule D (Form 1040) and for information on selling your home. Online tax calculator Table of Contents 5. Online tax calculator   Wages, Salaries, and Other EarningsReminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Online tax calculator Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits 6. Online tax calculator   Tip IncomeIntroduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. Online tax calculator Reporting Tips to Your EmployerElectronic tip statement. Online tax calculator Final report. Online tax calculator Reporting Tips on Your Tax Return Allocated Tips 7. Online tax calculator   Interest IncomeReminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Online tax calculator Custodian account for your child. Online tax calculator Penalty for failure to supply SSN. Online tax calculator Reporting backup withholding. Online tax calculator Savings account with parent as trustee. Online tax calculator Interest not reported on Form 1099-INT. Online tax calculator Nominees. Online tax calculator Incorrect amount. Online tax calculator Information reporting requirement. Online tax calculator Taxable InterestInterest subject to penalty for early withdrawal. Online tax calculator Money borrowed to invest in certificate of deposit. Online tax calculator U. Online tax calculator S. Online tax calculator Savings Bonds Education Savings Bond Program U. Online tax calculator S. Online tax calculator Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Online tax calculator How To Report Interest IncomeSchedule B (Form 1040A or 1040). Online tax calculator Reporting tax-exempt interest. Online tax calculator U. Online tax calculator S. Online tax calculator savings bond interest previously reported. Online tax calculator 8. Online tax calculator   Dividends and Other DistributionsReminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. Online tax calculator Reporting tax withheld. Online tax calculator Nominees. Online tax calculator Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. Online tax calculator Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. Online tax calculator Alternative minimum tax treatment. Online tax calculator How To Report Dividend IncomeInvestment interest deducted. Online tax calculator 9. Online tax calculator   Rental Income and ExpensesIntroduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. Online tax calculator Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. Online tax calculator Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. Online tax calculator Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) 10. Online tax calculator   Retirement Plans, Pensions, and AnnuitiesWhat's New Reminder IntroductionThe General Rule. Online tax calculator Individual retirement arrangements (IRAs). Online tax calculator Civil service retirement benefits. Online tax calculator Useful Items - You may want to see: General InformationIn-plan rollovers to designated Roth accounts. Online tax calculator How To Report Cost (Investment in the Contract) Taxation of Periodic PaymentsExclusion limited to cost. Online tax calculator Exclusion not limited to cost. Online tax calculator Simplified Method Taxation of Nonperiodic PaymentsLump-Sum Distributions RolloversIn-plan rollovers to designated Roth accounts. Online tax calculator Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and Beneficiaries 11. Online tax calculator   Social Security and Equivalent Railroad Retirement BenefitsIntroduction Useful Items - You may want to see: Are Any of Your Benefits Taxable? How To Report Your BenefitsHow Much Is Taxable? Examples Deductions Related to Your BenefitsRepayments More Than Gross Benefits 12. Online tax calculator   Other IncomeIntroduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Online tax calculator Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Online tax calculator Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Online tax calculator Method 2. Online tax calculator RoyaltiesDepletion. Online tax calculator Coal and iron ore. Online tax calculator Sale of property interest. Online tax calculator Part of future production sold. Online tax calculator Unemployment BenefitsTypes of unemployment compensation. Online tax calculator Governmental program. Online tax calculator Repayment of unemployment compensation. Online tax calculator Tax withholding. Online tax calculator Repayment of benefits. Online tax calculator Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Online tax calculator Deduction for costs involved in unlawful discrimination suits. Online tax calculator Energy conservation measure. Online tax calculator Dwelling unit. Online tax calculator Current income required to be distributed. Online tax calculator Current income not required to be distributed. Online tax calculator How to report. Online tax calculator Losses. Online tax calculator Grantor trust. Online tax calculator Nonemployee compensation. Online tax calculator Corporate director. Online tax calculator Personal representatives. Online tax calculator Manager of trade or business for bankruptcy estate. Online tax calculator Notary public. Online tax calculator Election precinct official. Online tax calculator Difficulty-of-care payments. Online tax calculator Maintaining space in home. Online tax calculator Reporting taxable payments. Online tax calculator Lotteries and raffles. Online tax calculator Form W-2G. Online tax calculator Reporting winnings and recordkeeping. Online tax calculator Inherited pension or IRA. Online tax calculator Employee awards or bonuses. Online tax calculator Pulitzer, Nobel, and similar prizes. Online tax calculator Payment for services. Online tax calculator VA payments. Online tax calculator Prizes. Online tax calculator Strike and lockout benefits. Online tax calculator Prev  Up  Next   Home   More Online Publications