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Telefile 13. Telefile   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. Telefile It is divided into the following sections. Telefile Cost basis. Telefile Adjusted basis. Telefile Basis other than cost. Telefile Your basis is the amount of your investment in property for tax purposes. Telefile Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Telefile Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Telefile If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Telefile Only the basis allocated to the business or investment use of the property can be depreciated. Telefile Your original basis in property is adjusted (increased or decreased) by certain events. Telefile For example, if you make improvements to the property, increase your basis. Telefile If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Telefile Keep accurate records of all items that affect the basis of your property. Telefile For more information on keeping records, see chapter 1. Telefile 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. Telefile The cost is the amount you pay in cash, debt obligations, other property, or services. Telefile 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). Telefile In addition, the basis of real estate and business assets may include other items. Telefile Loans with low or no interest. Telefile    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. Telefile You generally have unstated interest if your interest rate is less than the applicable federal rate. Telefile   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Telefile Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Telefile If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Telefile Lump sum purchase. Telefile   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. Telefile Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Telefile Figure the basis of each asset by multiplying the lump sum by a fraction. Telefile The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Telefile    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. Telefile Fair market value (FMV). Telefile   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. Telefile Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Telefile Assumption of mortgage. Telefile   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. Telefile Settlement costs. Telefile   Your basis includes the settlement fees and closing costs you paid for buying the property. Telefile (A fee for buying property is a cost that must be paid even if you buy the property for cash. Telefile ) Do not include fees and costs for getting a loan on the property in your basis. Telefile   The following are some of the settlement fees or closing costs you can include in the basis of your property. Telefile Abstract fees (abstract of title fees). Telefile Charges for installing utility services. Telefile Legal fees (including fees for the title search and preparation of the sales contract and deed). Telefile Recording fees. Telefile Survey fees. Telefile Transfer taxes. Telefile Owner's title insurance. Telefile 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. Telefile   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Telefile   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Telefile Casualty insurance premiums. Telefile Rent for occupancy of the property before closing. Telefile Charges for utilities or other services related to occupancy of the property before closing. Telefile 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. Telefile Fees for refinancing a mortgage. Telefile Real estate taxes. Telefile   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. Telefile You cannot deduct them as an expense. Telefile    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. Telefile Do not include that amount in the basis of your property. Telefile If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Telefile Points. Telefile   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. Telefile Generally, you deduct the points over the term of the loan. Telefile For more information on how to deduct points, see chapter 23. Telefile Points on home mortgage. Telefile   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Telefile If certain requirements are met, you can deduct the points in full for the year in which they are paid. Telefile Reduce the basis of your home by any seller-paid points. Telefile 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. Telefile The result is the adjusted basis. Telefile Increases to Basis Increase the basis of any property by all items properly added to a capital account. Telefile Examples of items that increase basis are shown in Table 13-1. Telefile These include the items discussed below. Telefile Improvements. Telefile   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. Telefile 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. Telefile Assessments for local improvements. Telefile   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Telefile Do not deduct them as taxes. Telefile However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Telefile Example. Telefile 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. Telefile Add the assessment to your property's basis. Telefile In this example, the assessment is a depreciable asset. Telefile 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. Telefile Examples of items that decrease basis are shown in Table 13-1. Telefile These include the items discussed below. Telefile Table 13-1. Telefile 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. Telefile   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. Telefile    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Telefile   For more information on casualty and theft losses, see chapter 25. Telefile Depreciation and section 179 deduction. Telefile   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. Telefile   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Telefile Example. Telefile 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. Telefile You added an improvement to the duplex that cost $10,000. Telefile In February last year, the duplex was damaged by fire. Telefile Up to that time, you had been allowed depreciation of $23,000. Telefile You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Telefile You deducted a casualty loss of $1,000 on your income tax return for last year. Telefile You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Telefile You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Telefile 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. Telefile Your basis in the land is its original cost of $5,000. Telefile Easements. Telefile   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Telefile It reduces the basis of the affected part of the property. Telefile 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. Telefile   If the gain is on a capital asset, see chapter 16 for information about how to report it. Telefile If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Telefile Exclusion of subsidies for energy conservation measures. Telefile   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. Telefile Reduce the basis of the property for which you received the subsidy by the excluded amount. Telefile For more information about this subsidy, see chapter 12. Telefile Postponed gain from sale of home. Telefile    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. Telefile For more information on the rules for the sale of a home, see chapter 15. Telefile Basis Other Than Cost There are many times when you cannot use cost as basis. Telefile In these cases, the fair market value or the adjusted basis of the property can be used. Telefile Fair market value (FMV) and adjusted basis were discussed earlier. Telefile Property Received for Services If you receive property for your services, include the FMV of the property in income. Telefile The amount you include in income becomes your basis. Telefile 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. Telefile Restricted property. Telefile   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. Telefile 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. Telefile 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). Telefile For more information, see Restricted Property in Publication 525. Telefile Bargain purchases. Telefile   A bargain purchase is a purchase of an item for less than its FMV. Telefile 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. Telefile Your basis in the property is its FMV (your purchase price plus the amount you include in income). Telefile   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Telefile However, your basis in the property is still its FMV. Telefile See Employee Discounts in Publication 15-B. Telefile Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Telefile A taxable gain or deductible loss also is known as a recognized gain or loss. Telefile 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. Telefile 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. Telefile Similar or related property. Telefile   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. Telefile Decrease the basis by the following. Telefile Any loss you recognize on the involuntary conversion. Telefile Any money you receive that you do not spend on similar property. Telefile Increase the basis by the following. Telefile Any gain you recognize on the involuntary conversion. Telefile Any cost of acquiring the replacement property. Telefile Money or property not similar or related. Telefile    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. Telefile Example. Telefile The state condemned your property. Telefile The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Telefile You realized a gain of $5,000 ($31,000 − $26,000). Telefile You bought replacement property similar in use to the converted property for $29,000. Telefile You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Telefile Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Telefile 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. Telefile   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Telefile Basis for depreciation. Telefile   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Telefile For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Telefile Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Telefile If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Telefile See Nontaxable Trades in chapter 14. Telefile Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Telefile To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Telefile Qualifying property. Telefile Like-kind property. Telefile The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Telefile 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. Telefile Qualifying property. Telefile   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. Telefile Like-kind property. Telefile   There must be an exchange of like-kind property. Telefile Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Telefile The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Telefile Example. Telefile You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Telefile The dealer allows you $2,000 on the old truck, and you pay $4,800. Telefile This is a like-kind exchange. Telefile 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). Telefile 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). Telefile The basis of the new truck is the price you pay the dealer. Telefile Partially nontaxable exchanges. Telefile   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Telefile The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Telefile Decrease the basis by the following amounts. Telefile Any money you receive. Telefile Any loss you recognize on the exchange. Telefile Increase the basis by the following amounts. Telefile Any additional costs you incur. Telefile Any gain you recognize on the exchange. Telefile If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Telefile Allocation of basis. Telefile   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. Telefile The rest is the basis of the like-kind property. Telefile More information. Telefile   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Telefile Basis for depreciation. Telefile   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Telefile For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Telefile 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. Telefile The same rule applies to a transfer by your former spouse that is incident to divorce. Telefile 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. Telefile If the property transferred to you is a series E, series EE, or series I U. Telefile S. Telefile savings bond, the transferor must include in income the interest accrued to the date of transfer. Telefile 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. Telefile For more information on these bonds, see chapter 7. Telefile 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. Telefile For more information about the transfer of property from a spouse, see chapter 14. Telefile 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. Telefile FMV less than donor's adjusted basis. Telefile   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. Telefile 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. Telefile 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. Telefile See Adjusted Basis , earlier. Telefile Example. Telefile You received an acre of land as a gift. Telefile At the time of the gift, the land had an FMV of $8,000. Telefile The donor's adjusted basis was $10,000. Telefile After you received the property, no events occurred to increase or decrease your basis. Telefile 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. Telefile 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. Telefile If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Telefile Business property. Telefile   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. Telefile FMV equal to or greater than donor's adjusted basis. Telefile   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. Telefile Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Telefile   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. Telefile See Adjusted Basis , earlier. Telefile   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. Telefile Figure the increase by multiplying the gift tax paid by a fraction. Telefile The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Telefile   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Telefile 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. Telefile Example. Telefile In 2013, you received a gift of property from your mother that had an FMV of $50,000. Telefile Her adjusted basis was $20,000. Telefile The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Telefile She paid a gift tax of $7,320 on the property. Telefile 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) × . Telefile 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. Telefile If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Telefile However, your basis cannot exceed the FMV of the gift at the time it was given to you. Telefile 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. Telefile The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Telefile 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. Telefile 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. Telefile 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. Telefile For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Telefile Property inherited from a decedent who died in 2010. Telefile   If you inherited property from a decedent who died in 2010, special rules may apply. Telefile For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Telefile Community property. Telefile   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. Telefile 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. Telefile 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. Telefile Example. Telefile You and your spouse owned community property that had a basis of $80,000. Telefile When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Telefile The FMV of the community interest was $100,000. Telefile The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Telefile The basis of the other half to your spouse's heirs is also $50,000. Telefile For more information about community property, see Publication 555, Community Property. Telefile 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. Telefile To do so, you must figure its basis for depreciation at the time of the change. Telefile An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Telefile Basis for depreciation. Telefile   The basis for depreciation is the lesser of the following amounts. Telefile The FMV of the property on the date of the change. Telefile Your adjusted basis on the date of the change. Telefile Example. Telefile Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Telefile 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. Telefile Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Telefile Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Telefile 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. Telefile 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). Telefile Sale of property. Telefile   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. Telefile Gain. Telefile   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Telefile Example. Telefile 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. Telefile Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Telefile Loss. Telefile   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. Telefile Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Telefile Example. Telefile 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. Telefile 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. Telefile Reduce that amount ($180,000) by the depreciation deductions ($37,500). Telefile The basis for loss is $142,500 ($180,000 − $37,500). Telefile 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. Telefile 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. Telefile You must adjust the basis of stocks for certain events that occur after purchase. Telefile 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. Telefile This rule applies only when the additional stock received is identical to the stock held. Telefile Also reduce your basis when you receive nontaxable distributions. Telefile They are a return of capital. Telefile Example. Telefile In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Telefile In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Telefile In 2013 XYZ declared a 2-for-1 stock split. Telefile You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Telefile Other basis. Telefile   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Telefile For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Telefile Identifying stocks or bonds sold. Telefile   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. Telefile 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. Telefile For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Telefile Mutual fund shares. Telefile   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. Telefile For more information, see Publication 550. Telefile Bond premium. Telefile   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. Telefile See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Telefile 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. Telefile Original issue discount (OID) on debt instruments. Telefile   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Telefile See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Telefile Tax-exempt obligations. Telefile    OID on tax-exempt obligations is generally not taxable. Telefile 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. Telefile The accrued OID is added to the basis of the obligation to determine your gain or loss. Telefile See chapter 4 of Publication 550. Telefile Prev  Up  Next   Home   More Online Publications
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Understanding your CP21C Notice

We made the change(s) you requested to your tax return for the tax year specified on the notice. You're not due a refund nor do you owe any additional amount. Your account balance for this tax form and tax year is zero.

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully ― it shows the area(s) of your tax return that changed, e.g., Schedule A.
  • If you agree with the notice, you don't need to do anything.
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  • Correct the copy of your tax return that you kept for your records.

Answers to Common Questions

The notice says "Based on the information you provided, we changed your 200X Form 1040 to correct your...". I don't remember sending any change to IRS. How can I find out what IRS received to initiate this change?
Please contact us at the number listed on your notice for specific information about your tax return.

What if I need to make another correction to my account?
You'll need to file Form 1040X, Amended U.S. Individual Income Tax Return.

What if I've tried to get answers and after contacting IRS several times have not been successful?
Call Taxpayer Advocate at 1-877-777-4778 or for TTY/TDD 1-800-829-4059.

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Please contact us at the number listed on the top right corner of your notice. Refer to the IRS Identity Theft resource page for more information.

Page Last Reviewed or Updated: 26-Feb-2014

The Telefile

Telefile Part Four -   Ajustes a los Ingresos Los tres capítulos de esta sección abordan algunos de los ajustes a los ingresos que puede deducir al calcular el ingreso bruto ajustado. Telefile Estos capítulos abarcan: Aportaciones a arreglos tradicionales de ahorros para la jubilación (IRA, por sus siglas en inglés), el capítulo 17 , Pensión para el cónyuge divorciado que paga, el capítulo 18 e Intereses sobre préstamos de estudios que usted paga, el capítulo 19 . Telefile Otros ajustes a los ingresos se explican en otras partes de esta publicación o en otras publicaciones. Telefile Vea la Tabla V que aparece a continuación. Telefile Tabla V. Telefile Otros Ajustes a los Ingresos  Utilice esta tabla para buscar información acerca de otros ajustes a los ingresos no abarcados en esta sección de la publicación. Telefile SI busca más información sobre la deducción por. Telefile . Telefile . Telefile ENTONCES vea. Telefile . Telefile . Telefile Determinados gastos de negocio de personal en reserva de las Fuerzas Armadas, artistas del espectáculo y funcionarios que prestan servicios por honorarios el capítulo 26 . Telefile Aportaciones a cuentas de ahorros para gastos médicos la Publicación 969, Health Savings Accounts and Other Tax-Favored Health Plans (Cuentas de ahorros para gastos médicos y otros planes para la salud con beneficios tributarios), en inglés. Telefile Gastos de mudanza la Publicación 521, Moving Expenses (Gastos de mudanza), en inglés. Telefile Una porción del impuesto sobre el trabajo por cuenta propia el capítulo 22 . Telefile Seguro médico para personas que trabajan por cuenta propia el capítulo 21 . Telefile Pagos a planes SEP, SIMPLE y planes calificados para personas que trabajan por cuenta propia la Publicación 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) (Planes de jubilación para pequeños negocios (SEP, SIMPLE y planes calificados)), en inglés. Telefile Multa por retiro prematuro de ahorros el capítulo 7 . Telefile Aportaciones a un plan de ahorros médicos Archer (MSA, por sus siglas en inglés) la Publicación 969, en inglés. Telefile Amortización o gasto de reforestación los capítulos 7 y 8 de la Publicación 535, Business Expenses (Gastos de negocios), en inglés. Telefile Aportaciones a planes de pensiones conforme a la sección 501(c)(18)(D) del Código Federal de Impuestos Internos la Publicación 525, Taxable and Nontaxable Income (Ingreso tributable y no tributable), en inglés. Telefile Gastos procedentes del alquiler de bienes muebles el capítulo 12 . Telefile Determinados reintegros obligatorios de prestaciones suplementarias por desempleo (sub-pago) el capítulo 12 . Telefile Gastos por concepto de vivienda en el extranjero el capítulo 4 de la Publicación 54, Tax Guide for U. Telefile S. Telefile Citizens and Resident Aliens Abroad (Guía tributaria para ciudadanos estadounidenses y extranjeros residentes que viven en el extranjero), en inglés. Telefile Pago de servicio de juraduría que se le haya entregado a su empleador el capítulo 12 . Telefile Aportaciones hechas por determinados capellanes a planes conforme a la sección 403(b) del Código Federal de Impuestos Internos la Publicación 517, Social Security and Other Information for Members of the Clergy and Religious Workers (Seguro Social y otra información para miembros del clero y empleados religiosos), en inglés. Telefile Honorarios de abogado y determinados costos por acciones legales con respecto a reclamaciones por discriminación ilegal y premios a denunciantes dentro de su propia empresa la Publicación 525, en inglés. Telefile Deducción por actividades de producción nacional el Formulario 8903, Domestic Production Activities Deduction (Deducción por actividades de producción nacional), en inglés. Telefile Table of Contents 17. Telefile   Arreglos de Ahorros para la Jubilación (Arreglos IRA)Qué Hay de Nuevo en el Año 2013 Recordatorios Introduction Useful Items - You may want to see: Arreglos IRA Tradicionales¿Quién Puede Abrir un Arreglo IRA Tradicional? ¿Cuándo y Cómo se Puede Abrir un Arreglo IRA Tradicional? ¿Cuánto se Puede Aportar? ¿Cuándo se Pueden Hacer Aportaciones? ¿Cuánto se Puede Deducir? Aportaciones no Deducibles Arreglos IRA Heredados ¿Puede Traspasar Activos de un Plan de Jubilación? ¿Cuándo Puede Retirar o Utilizar Activos de un Arreglo IRA? ¿Cuándo Tiene que Retirar Activos de un Arreglo IRA? (Distribuciones Mínimas Obligatorias) ¿Están Sujetas a Impuestos las Distribuciones? ¿Qué Acciones Dan Lugar a Multas o Impuestos Adicionales? Arreglos Roth IRA ¿Qué Es un Arreglo Roth IRA? ¿Cuándo se Puede Abrir un Arreglo Roth IRA? ¿Puede Hacer Aportaciones a un Arreglo Roth IRA? ¿Se Pueden Trasladar Activos a un Arreglo Roth IRA? ¿Están Sujetas a Impuestos las Distribuciones? 18. Telefile   Pensión para el Cónyuge DivorciadoIntroductionCónyuge o ex cónyuge. Telefile Documento (instrumento) de divorcio o separación judicial. Telefile Useful Items - You may want to see: Reglas GeneralesPagos hipotecarios. Telefile Impuestos y seguro. Telefile Otros pagos a terceros. Telefile Documentos Firmados Después de 1984Pagos a terceros. Telefile Excepción. Telefile Pagos sustitutivos. Telefile Específicamente designado como pensión para hijos menores. Telefile Contingencia relacionada con su hijo. Telefile Pago claramente asociado con una contingencia. Telefile Cómo Deducir la Pensión para el Cónyuge Divorciado que Pagó Cómo Declarar la Pensión para el Cónyuge Divorciado Recibida Regla de Recuperación 19. Telefile   Ajustes Tributarios por EstudiosIntroduction Useful Items - You may want to see: Deducción por Intereses sobre Préstamos de EstudiosDefinición de los Intereses sobre Préstamos de Estudios ¿Puede Reclamar la Deducción? ¿Cuánto Puede Deducir? ¿Cómo Calcular la Deducción? Deducción por Matrícula y Cuotas Escolares¿Puede Reclamar la Deducción? Gastos que Califican Estudiante que Reúne los Requisitos Quién Puede Reclamar los Gastos de un Dependiente Cuánto se Puede Deducir Gastos del Educador Prev  Up  Next   Home   More Online Publications