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State Income Taxes

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State Income Taxes

State income taxes 2. State income taxes   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. State income taxes Amount realized on a nonrecourse debt. State income taxes If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. State income taxes The foreclosure or repossession is treated as a sale from which you may realize gain or loss. State income taxes This is true even if you voluntarily return the property to the lender. State income taxes If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. State income taxes You must report this income on your return unless certain exceptions or exclusions apply. State income taxes See chapter 1 for more details. State income taxes Borrower's gain or loss. State income taxes    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. State income taxes The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). State income taxes The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). State income taxes For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. State income taxes You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. State income taxes Amount realized and ordinary income on a recourse debt. State income taxes    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. State income taxes The amount realized also includes any proceeds you received from the foreclosure sale. State income taxes If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. State income taxes You must report this income on your return unless certain exceptions or exclusions apply. State income taxes See chapter 1 for more details. State income taxes       Example 1. State income taxes Tara bought a new car for $15,000. State income taxes She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. State income taxes Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. State income taxes On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. State income taxes The balance due after taking into account the payments Tara made was $10,000. State income taxes The FMV of the car when it was repossessed was $9,000. State income taxes On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. State income taxes In this case, the amount Tara realizes is $9,000. State income taxes This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. State income taxes Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. State income taxes She has a $6,000 nondeductible loss. State income taxes After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). State income taxes Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. State income taxes Example 2. State income taxes Lili paid $200,000 for her home. State income taxes She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. State income taxes Lili is personally liable for the mortgage loan and the house secures the loan. State income taxes In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. State income taxes When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. State income taxes At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). State income taxes She remained personally liable for the $8,000 balance. State income taxes In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. State income taxes The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). State income taxes She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. State income taxes Lili must also determine her gain or loss from the foreclosure. State income taxes In this case, the amount that she realizes is $170,000. State income taxes This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. State income taxes Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. State income taxes She has a $5,000 nondeductible loss. State income taxes Table 1-1. State income taxes Worksheet for Foreclosures and Repossessions Part 1. State income taxes Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). State income taxes Otherwise, go to Part 2. State income taxes 1. State income taxes Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. State income taxes Enter the fair market value of the transferred property   3. State income taxes Ordinary income from the cancellation of debt upon foreclosure or repossession. State income taxes * Subtract line 2 from line 1. State income taxes If less than zero, enter zero. State income taxes Next, go to Part 2   Part 2. State income taxes Gain or loss from foreclosure or repossession. State income taxes   4. State income taxes Enter the smaller of line 1 or line 2. State income taxes If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. State income taxes Enter any proceeds you received from the foreclosure sale   6. State income taxes Add line 4 and line 5   7. State income taxes Enter the adjusted basis of the transferred property   8. State income taxes Gain or loss from foreclosure or repossession. State income taxes Subtract line 7 from line 6   * The income may not be taxable. State income taxes See chapter 1 for more details. State income taxes Amount realized on a nonrecourse debt. State income taxes    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. State income taxes This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. State income taxes Example 1. State income taxes Tara bought a new car for $15,000. State income taxes She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. State income taxes Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. State income taxes On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. State income taxes The balance due after taking into account the payments Tara made was $10,000. State income taxes The FMV of the car when it was repossessed was $9,000. State income taxes The amount Tara realized on the repossession is $10,000. State income taxes That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. State income taxes Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. State income taxes Tara has a $5,000 nondeductible loss. State income taxes Example 2. State income taxes Lili paid $200,000 for her home. State income taxes She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. State income taxes She is not personally liable for the loan, but grants the bank a mortgage. State income taxes The bank foreclosed on the mortgage because Lili stopped making payments. State income taxes When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. State income taxes The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. State income taxes She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. State income taxes Lili has a $5,000 realized gain. State income taxes See Publication 523 to figure and report any taxable amount. State income taxes Forms 1099-A and 1099-C. State income taxes    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. State income taxes However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. State income taxes The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. State income taxes For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. State income taxes Prev  Up  Next   Home   More Online Publications
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The State Income Taxes

State income taxes Tax Changes for Businesses Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Electronic Form 1099 Tax Incentives for New York Liberty Zone Other 2001 Changes 2002 ChangesNonaccrual-Experience Method Issuance of Qualified Zone Academy Bonds Depletion Work Opportunity Credit Expanded in New York Liberty Zone Credit For Pension Plan Startup Costs Welfare-to-Work Credit Extended Work Opportunity Credit Extended Electric and Clean-Fuel Vehicles Renewable Electricity Production Credit Later ChangesSpecial Depreciation Allowance Extension of Placed in Service Date Special Liberty Zone Depreciation Allowance for New and Used Property Depreciation of Property Used on Indian Reservations Indian Employment Credit Extended 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). State income taxes However, you can still choose to use the previous carryback period. State income taxes You also can choose not to carry back an NOL and only carry it forward. State income taxes Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. State income taxes Corporations can file Form 1139, Corporation Application for Tentative Refund. State income taxes The instructions for these forms will be revised to reflect the new law. State income taxes Electronic Form 1099 For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations, to receive it that way. State income taxes Tax Incentives for New York Liberty Zone New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. State income taxes These benefits apply to the newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan. State income taxes Tax benefits for the New York Liberty Zone include the following. State income taxes A special depreciation allowance equal to 30% of the adjusted basis of qualified Liberty Zone property. State income taxes It is allowed for the year the property is placed in service. State income taxes No alternative minimum tax depreciation adjustment for qualified Liberty Zone property. State income taxes Classification of Liberty Zone leasehold improvement property as 5-year property. State income taxes Authorization of the issuance of tax-exempt New York Liberty bonds to finance the acquisition, construction, reconstruction, and renovation of nonresidential real property, residential rental property, and public utility property in the Liberty Zone. State income taxes An increased section 179 deduction for certain Liberty Zone property. State income taxes Extension of the replacement period from 2 years to 5 years for certain property involuntarily converted as a result of the terrorist attacks on September 11, 2001, but only if substantially all of the use of the replacement property is in New York City. State income taxes For more information about involuntary conversions, see Postponement of Gain in Publication 547, Casualties, Disasters, and Thefts. State income taxes In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. State income taxes For more information, see Work Opportunity Credit Expanded in New York Liberty Zone under 2002 Changes, later. State income taxes For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction, see New York Liberty Zone Benefits, in chapter 5. State income taxes In addition, the tax benefits for the Liberty Zone will be covered in a new edition of Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002. State income taxes Other 2001 Changes Other changes are discussed in the following chapters. State income taxes Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Nonaccrual-Experience Method Under current law, if you perform services and use an accrual method of accounting, you do not accrue income which, based on experience, you expect to be uncollectible. State income taxes Beginning in 2002, this rule only applies if you perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting, or your average annual gross receipts for the 3 prior tax years does not exceed $5,000,000. State income taxes As under current law, the nonaccrual-experience method will not apply to amounts on which you charge interest or a late payment penalty. State income taxes For more information, see Nonaccrual-Experience Method in chapter 11 of Publication 535, Business Expenses. State income taxes Issuance of Qualified Zone Academy Bonds State and local governments issue qualified zone academy bonds to raise funds for the use of qualified zone academies. State income taxes The amount of bonds that may be issued was limited to $400 million each year for 1998, 1999, 2000, and 2001. State income taxes This provision has been extended to provide for an additional $400 million of bonds to be issued each year for 2002 and 2003. State income taxes For more information about qualified zone academy bonds, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. State income taxes Depletion The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire for tax years beginning after 2001 has been extended to tax years beginning before 2004. State income taxes For more information on marginal production, see section 613A(c) of the Internal Revenue Code. State income taxes Work Opportunity Credit Expanded in New York Liberty Zone The work opportunity credit is expanded to include a new targeted group consisting generally of employees who perform substantially all their services: In the New York Liberty Zone (defined earlier under Tax Incentives for New York Liberty Zone, under 2001 Changes), or Elsewhere in New York City for a business that relocated from the Liberty Zone due to the destruction or damage of its place of business by the September 11, 2001, terrorist attack. State income taxes The credit is available to employers for wages paid to new employees and existing employees for work performed during 2002 or 2003. State income taxes Certain limits apply. State income taxes For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. State income taxes Credit For Pension Plan Startup Costs The credit for pension plan startup costs is now allowed for plans that become effective after December 31, 2001. State income taxes Previously, the credit was only allowed for plans established after December 31, 2001. State income taxes For more information on the credit, see Important Changes for 2002 in Publication 560, Retirement Plans for Small Business. State income taxes Welfare-to-Work Credit Extended The welfare-to-work credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. State income taxes For more information on the welfare-to-work credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. State income taxes Work Opportunity Credit Extended The work opportunity credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. State income taxes For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. State income taxes Electric and Clean-Fuel Vehicles The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and both were scheduled to be phased out completely by 2005. State income taxes The full deduction and credit are now allowed for qualified property placed in service in 2002 and 2003. State income taxes The phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed in service after 2006. State income taxes For more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses. State income taxes Renewable Electricity Production Credit The renewable electricity production credit is extended to include electricity produced by facilities placed in service after 2001 and before 2004. State income taxes Later Changes Special Depreciation Allowance You can claim the special depreciation allowance (an additional 30% depreciation deduction) for new property that you acquire before September 11, 2004, and place in service for your business generally before January 1, 2005, if you meet the other requirements for qualified property covered in chapter 5. State income taxes Accordingly, you will generally no longer be able to claim the special depreciation allowance for the qualified property if you acquire it after September 10, 2004, or place it in service for your business after December 31, 2004. State income taxes However, you will be able to claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for most qualified property if you place it in service in the Liberty Zone after December 31, 2004, and generally before January 1, 2007, provided you meet the other requirements for qualified Liberty Zone property covered in chapter 5. State income taxes Extension of Placed in Service Date To qualify for the special depreciation allowance, your property must meet certain tests, including the placed in service date test, as well as the other requirements covered in chapter 5 of this publication. State income taxes To meet the placed in service date test, your property must generally be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. State income taxes However, certain property placed in service before January 1, 2006, may meet this test. State income taxes Transportation property and property with a recovery period of 10 years or longer meet the test if one of the following applies. State income taxes The property has an estimated production period of more than 2 years. State income taxes The property has an estimated production period of more than 1 year and it costs more than $1 million. State income taxes Transportation property is any tangible personal property used in the trade or business of transporting persons or property. State income taxes For property that qualifies for the special depreciation allowance solely because of the one-year extension of the placed in service date, only the part of the basis attributable to manufacture, construction, or production before September 11, 2004, is eligible for the special depreciation allowance. State income taxes Special Liberty Zone Depreciation Allowance for New and Used Property You can claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for used property that you acquire after September 10, 2001, if the property meets the requirements listed under Qualified Liberty Zone Property in chapter 5 of this publication. State income taxes You will be able to claim the allowance for both new and used property that you acquire after September 10, 2004, provided the property meets the other requirements for qualified Liberty Zone property. State income taxes Depreciation of Property Used on Indian Reservations The special depreciation rules that apply to qualified property used on an Indian reservation were scheduled to expire for property placed in service after 2003. State income taxes These special rules have been extended to include property placed in service in 2004. State income taxes For more information about these rules, see Publication 946, How To Depreciate Property. State income taxes Indian Employment Credit Extended The Indian employment credit that was scheduled to expire for tax years beginning after 2003 has been extended to include a tax year beginning in 2004. State income taxes For more information about this credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. State income taxes Prev  Up  Next   Home   More Online Publications