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1040ez Free Efile

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1040ez Free Efile

1040ez free efile Index A Acknowledgment, Acknowledgment. 1040ez free efile Adoption expenses, Personal Expenses Airplanes, donations of, Cars, Boats, and Airplanes Appraisal fees, Appraisal Fees Assistance (see Tax help) Athletic events, Athletic events. 1040ez free efile B Bargain sales, Bargain Sales Blood donated, Value of Time or Services Boats, donations of, Cars, Boats, and Airplanes Boats, fair market value, Cars, boats, and airplanes. 1040ez free efile C Canadian charity, Canadian charities. 1040ez free efile Capital gain property, Capital Gain Property Car expenses, Car expenses. 1040ez free efile , Car expenses. 1040ez free efile Carryovers, Carryovers Cars, donations of, Cars, Boats, and Airplanes Cash contributions, records to keep, Cash Contributions Charity benefit events, Charity benefit events. 1040ez free efile Church deacon, Church deacon. 1040ez free efile Clothing Fair market value of, Used clothing. 1040ez free efile Conservation contribution, Special 50% Limit for Qualified Conservation Contributions Contributions from which you benefit, Contributions From Which You Benefit, Contributions From Which You Benefit Contributions of property, Contributions of Property Contributions subject to special rules Car, boat, or airplane, 1098–C, Contributions Subject to Special Rules Clothing, Contributions Subject to Special Rules Fractional interest in tangible personal property, Contributions Subject to Special Rules Future interest in tangible personal property, Contributions Subject to Special Rules Household items, Contributions Subject to Special Rules Inventory from your business, Contributions Subject to Special Rules Partial interest in property, Contributions Subject to Special Rules Patent or other intellectual property, Contributions Subject to Special Rules Property subject to a debt, Contributions Subject to Special Rules Qualified conservation contribution, Contributions Subject to Special Rules Taxidermy property, Contributions Subject to Special Rules Contributions to nonqualified organizations Foreign organizations, Contributions to Nonqualified Organizations Contributions you can deduct, Contributions You Can Deduct Conventions of a qualified organization, Conventions. 1040ez free efile D Daily allowance (per diem) from a charitable organization, Daily allowance (per diem). 1040ez free efile Deduction limits, Limits on Deductions Determining fair market value, Determining Fair Market Value Disaster relief, Reminders Donor-advised funds, Contributions to Donor-Advised Funds E Easement, Building in registered historic district. 1040ez free efile F Farmer, Qualified farmer or rancher. 1040ez free efile Food inventory, Food Inventory Foreign organizations Canadian, Canadian charities. 1040ez free efile Israeli, Israeli charities. 1040ez free efile Mexican, Mexican charities. 1040ez free efile Form 8282, Form 8282. 1040ez free efile 8283, Total deduction over $500. 1040ez free efile Foster parents, Foster parents. 1040ez free efile Free tax services, Free help with your tax return. 1040ez free efile Future interests in property, Future Interest in Tangible Personal Property H Help (see Tax help) Historic building, Building in registered historic district. 1040ez free efile Household items Fair market value of, Household items. 1040ez free efile How to report, How To Report Noncash contributions, Reporting expenses for student living with you. 1040ez free efile I Introduction, Introduction Inventory, Food Inventory Israeli charity, Israeli charities. 1040ez free efile L Legislation, influencing, Contributions From Which You Benefit Limit on itemized deductions, What's New Limits on deductions, Limits on Deductions 20% limit, 20% Limit 30% limit, 30% Limit 50% limit, 50% Limit Calculation, How To Figure Your Deduction When Limits Apply Capital gain property, Special 30% Limit for Capital Gain Property Qualified conservation contributions, Special 50% Limit for Qualified Conservation Contributions M Meals, Personal Expenses Membership fees or dues, Membership fees or dues. 1040ez free efile Mexican charity, Mexican charities. 1040ez free efile Motor vehicles, donations of, Cars, Boats, and Airplanes Motor vehicles, fair market value, Cars, boats, and airplanes. 1040ez free efile N Noncash contributions, Noncash Contributions How to report, Reporting expenses for student living with you. 1040ez free efile Records to keep, Noncash Contributions Nondeductible contributions, Contributions You Cannot Deduct O Ordinary income property, Ordinary Income Property Out-of-pocket expenses, Out-of-pocket expenses. 1040ez free efile Out-of-pocket expenses in giving services, Out-of-Pocket Expenses in Giving Services P Payroll deductions, Payroll deductions. 1040ez free efile , Payroll deductions. 1040ez free efile Penalty, valuation overstatement, Penalty Personal expenses, Personal Expenses Private foundation, 50% Limit Organizations Private nonoperating foundation, Contributions to private nonoperating foundations. 1040ez free efile , 50% Limit Organizations Private operating foundation, 50% Limit Organizations Property Bargain sales, Bargain Sales Basis, Giving Property That Has Decreased in Value Capital gain, Capital Gain Property Capital gain election, Capital gain property election. 1040ez free efile Decreased in value, Giving Property That Has Decreased in Value Future interests, Future Interest in Tangible Personal Property Increased in value, Giving Property That Has Increased in Value Inventory, Food Inventory Ordinary income, Ordinary Income Property Unrelated use, Tangible personal property put to unrelated use. 1040ez free efile Publications (see Tax help) Q Qualified charitable distributions, Qualified Charitable Distributions Qualified conservation contribution, Special 50% Limit for Qualified Conservation Contributions Qualified organizations Foreign qualified organizations Canadian, Organizations That Qualify To Receive Deductible Contributions Israeli, Organizations That Qualify To Receive Deductible Contributions Mexican, Organizations That Qualify To Receive Deductible Contributions Types, Organizations That Qualify To Receive Deductible Contributions R Raffle or bingo, Contributions From Which You Benefit Recapture No exempt use, Recapture if no exempt use. 1040ez free efile Recapture of deduction of fractional interest in tangible personal property Additional tax, Recapture of deduction. 1040ez free efile Records to keep, Records To Keep Reminders Disaster relief, Reminders Reporting, How To Report Retirement home, Contributions From Which You Benefit S Services, value of, Value of Time or Services Split-dollar insurance arrangements, Contributions From Which You Benefit Student, Mutual exchange program. 1040ez free efile Exchange program, Mutual exchange program. 1040ez free efile Living with you, Student living with you. 1040ez free efile Student living with you, Expenses Paid for Student Living With You, Reporting expenses for student living with you. 1040ez free efile T Tangible personal property Future interest in, Future Interest in Tangible Personal Property Tax help, How To Get Tax Help Time, value of, Value of Time or Services Token items, Certain membership benefits can be disregarded. 1040ez free efile Travel expenses, Travel. 1040ez free efile Travel expenses for charitable services, Deductible travel expenses. 1040ez free efile Tuition, Contributions From Which You Benefit U Underprivileged youths, Underprivileged youths selected by charity. 1040ez free efile Uniforms, Uniforms. 1040ez free efile Unrelated use, Unrelated use. 1040ez free efile V Volunteers, Out-of-Pocket Expenses in Giving Services W Whaling captain, Expenses of Whaling Captains When to deduct, When To Deduct Prev  Up     Home   More Online Publications
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The 1040ez Free Efile

1040ez free efile 14. 1040ez free efile   Sale of Property Table of Contents Reminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities Reminder Foreign income. 1040ez free efile  If you are a U. 1040ez free efile S. 1040ez free efile citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. 1040ez free efile S. 1040ez free efile law. 1040ez free efile This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. 1040ez free efile Introduction This chapter discusses the tax consequences of selling or trading investment property. 1040ez free efile It explains the following. 1040ez free efile What a sale or trade is. 1040ez free efile Figuring gain or loss. 1040ez free efile Nontaxable trades. 1040ez free efile Related party transactions. 1040ez free efile Capital gains or losses. 1040ez free efile Capital assets and noncapital assets. 1040ez free efile Holding period. 1040ez free efile Rollover of gain from publicly traded securities. 1040ez free efile Other property transactions. 1040ez free efile   Certain transfers of property are not discussed here. 1040ez free efile They are discussed in other IRS publications. 1040ez free efile These include the following. 1040ez free efile Sales of a main home, covered in chapter 15. 1040ez free efile Installment sales, covered in Publication 537, Installment Sales. 1040ez free efile Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. 1040ez free efile Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. 1040ez free efile    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. 1040ez free efile Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. 1040ez free efile It also discusses investment-related expenses. 1040ez free efile Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. 1040ez free efile Generally, you should receive the statement by February 15 of the next year. 1040ez free efile It will show the gross proceeds from the sale. 1040ez free efile If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. 1040ez free efile Generally, a covered security is a security you acquired after 2010, with certain exceptions. 1040ez free efile See the Instructions for Form 8949. 1040ez free efile The IRS will also get a copy of Form 1099-B from the broker. 1040ez free efile Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. 1040ez free efile What Is a Sale or Trade? This section explains what is a sale or trade. 1040ez free efile It also explains certain transactions and events that are treated as sales or trades. 1040ez free efile A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. 1040ez free efile A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. 1040ez free efile Sale and purchase. 1040ez free efile   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. 1040ez free efile The sale and purchase are two separate transactions. 1040ez free efile But see Like-kind exchanges under Nontaxable Trades, later. 1040ez free efile Redemption of stock. 1040ez free efile   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. 1040ez free efile Dividend versus sale or trade. 1040ez free efile   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. 1040ez free efile Both direct and indirect ownership of stock will be considered. 1040ez free efile The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. 1040ez free efile Redemption or retirement of bonds. 1040ez free efile   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. 1040ez free efile   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. 1040ez free efile For details, see Regulations section 1. 1040ez free efile 1001-3. 1040ez free efile Surrender of stock. 1040ez free efile   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. 1040ez free efile The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. 1040ez free efile Worthless securities. 1040ez free efile    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. 1040ez free efile This affects whether your capital loss is long term or short term. 1040ez free efile See Holding Period , later. 1040ez free efile   Worthless securities also include securities that you abandon after March 12, 2008. 1040ez free efile To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. 1040ez free efile All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. 1040ez free efile    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. 1040ez free efile Do not deduct them in the year the stock became worthless. 1040ez free efile How to report loss. 1040ez free efile    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. 1040ez free efile In column (a), enter “Worthless. 1040ez free efile ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. 1040ez free efile See Form 8949 and the Instructions for Form 8949. 1040ez free efile For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 1040ez free efile See also Schedule D (Form 1040), Form 8949, and their separate instructions. 1040ez free efile Filing a claim for refund. 1040ez free efile   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. 1040ez free efile You must use Form 1040X, Amended U. 1040ez free efile S. 1040ez free efile Individual Income Tax Return, to amend your return for the year the security became worthless. 1040ez free efile You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. 1040ez free efile For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. 1040ez free efile How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. 1040ez free efile Gain. 1040ez free efile   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. 1040ez free efile Loss. 1040ez free efile   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. 1040ez free efile Adjusted basis. 1040ez free efile   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. 1040ez free efile See chapter 13 for more information about determining the adjusted basis of property. 1040ez free efile Amount realized. 1040ez free efile   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). 1040ez free efile Amount realized includes the money you receive plus the fair market value of any property or services you receive. 1040ez free efile If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. 1040ez free efile If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. 1040ez free efile For more information, see Publication 537. 1040ez free efile Fair market value. 1040ez free efile   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. 1040ez free efile Example. 1040ez free efile You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. 1040ez free efile Your gain is $3,000 ($10,000 − $7,000). 1040ez free efile Debt paid off. 1040ez free efile    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. 1040ez free efile This is true even if neither you nor the buyer is personally liable for the debt. 1040ez free efile For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. 1040ez free efile Example. 1040ez free efile You sell stock that you had pledged as security for a bank loan of $8,000. 1040ez free efile Your basis in the stock is $6,000. 1040ez free efile The buyer pays off your bank loan and pays you $20,000 in cash. 1040ez free efile The amount realized is $28,000 ($20,000 + $8,000). 1040ez free efile Your gain is $22,000 ($28,000 − $6,000). 1040ez free efile Payment of cash. 1040ez free efile   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. 1040ez free efile Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. 1040ez free efile If the result is a positive number, it is a gain. 1040ez free efile If the result is a negative number, it is a loss. 1040ez free efile No gain or loss. 1040ez free efile   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. 1040ez free efile In this case, you may have neither a gain nor a loss. 1040ez free efile See Basis Other Than Cost in chapter 13. 1040ez free efile Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. 1040ez free efile For more information on nontaxable trades, see chapter 1 of Publication 544. 1040ez free efile Like-kind exchanges. 1040ez free efile   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. 1040ez free efile To be nontaxable, a trade must meet all six of the following conditions. 1040ez free efile The property must be business or investment property. 1040ez free efile You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. 1040ez free efile Neither property may be property used for personal purposes, such as your home or family car. 1040ez free efile The property must not be held primarily for sale. 1040ez free efile The property you trade and the property you receive must not be property you sell to customers, such as merchandise. 1040ez free efile The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. 1040ez free efile However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. 1040ez free efile Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. 1040ez free efile There must be a trade of like property. 1040ez free efile The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. 1040ez free efile The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. 1040ez free efile The trade of a piece of machinery for a store building is not a trade of like property. 1040ez free efile Real property located in the United States and real property located outside the United States are not like property. 1040ez free efile Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. 1040ez free efile The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. 1040ez free efile The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. 1040ez free efile    If you trade property with a related party in a like-kind exchange, a special rule may apply. 1040ez free efile See Related Party Transactions , later in this chapter. 1040ez free efile Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. 1040ez free efile Partly nontaxable exchange. 1040ez free efile   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. 1040ez free efile You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. 1040ez free efile You cannot deduct a loss. 1040ez free efile Like property and unlike property transferred. 1040ez free efile   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. 1040ez free efile The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. 1040ez free efile Like property and money transferred. 1040ez free efile   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. 1040ez free efile Basis of property received. 1040ez free efile   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. 1040ez free efile How to report. 1040ez free efile   You must report the trade of like property on Form 8824. 1040ez free efile If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. 1040ez free efile See the instructions for Line 22 in the Instructions for Form 8824. 1040ez free efile   For information on using Form 4797, see chapter 4 of Publication 544. 1040ez free efile Corporate stocks. 1040ez free efile   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. 1040ez free efile Corporate reorganizations. 1040ez free efile   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. 1040ez free efile If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. 1040ez free efile Stock for stock of the same corporation. 1040ez free efile   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. 1040ez free efile This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. 1040ez free efile Convertible stocks and bonds. 1040ez free efile   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. 1040ez free efile Property for stock of a controlled corporation. 1040ez free efile   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. 1040ez free efile This rule applies both to individuals and to groups who transfer property to a corporation. 1040ez free efile It does not apply if the corporation is an investment company. 1040ez free efile   For this purpose, to be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock of the corporation. 1040ez free efile   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. 1040ez free efile For details, see Regulations section 1. 1040ez free efile 351-3. 1040ez free efile Additional information. 1040ez free efile   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. 1040ez free efile Insurance policies and annuities. 1040ez free efile   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. 1040ez free efile   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. 1040ez free efile For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. 1040ez free efile Revenue Ruling 2003-76 is available at www. 1040ez free efile irs. 1040ez free efile gov/irb/2003-33_IRB/ar11. 1040ez free efile html. 1040ez free efile Revenue Procedure 2008-24 is available at www. 1040ez free efile irs. 1040ez free efile gov/irb/2008-13_IRB/ar13. 1040ez free efile html. 1040ez free efile For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. 1040ez free efile Revenue Procedure 2011-38 is available at www. 1040ez free efile irs. 1040ez free efile gov/irb/2011-30_IRB/ar09. 1040ez free efile html. 1040ez free efile   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. 1040ez free efile A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. 1040ez free efile The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. 1040ez free efile   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. 1040ez free efile Demutualization of life insurance companies. 1040ez free efile   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. 1040ez free efile See Demutualization of Life Insurance Companies in Publication 550. 1040ez free efile U. 1040ez free efile S. 1040ez free efile Treasury notes or bonds. 1040ez free efile   You can trade certain issues of U. 1040ez free efile S. 1040ez free efile Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. 1040ez free efile See Savings bonds traded in chapter 1 of Publication 550 for more information. 1040ez free efile Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. 1040ez free efile This nonrecognition rule does not apply in the following situations. 1040ez free efile The recipient spouse or former spouse is a nonresident alien. 1040ez free efile Property is transferred in trust and liability exceeds basis. 1040ez free efile Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. 1040ez free efile For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. 1040ez free efile Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. 1040ez free efile The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. 1040ez free efile This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. 1040ez free efile This rule applies for purposes of determining loss as well as gain. 1040ez free efile Any gain recognized on a transfer in trust increases the basis. 1040ez free efile A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. 1040ez free efile Related Party Transactions Special rules apply to the sale or trade of property between related parties. 1040ez free efile Gain on sale or trade of depreciable property. 1040ez free efile   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. 1040ez free efile See chapter 3 of Publication 544 for more information. 1040ez free efile Like-kind exchanges. 1040ez free efile   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. 1040ez free efile See Like-kind exchanges , earlier, under Nontaxable Trades. 1040ez free efile   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. 1040ez free efile However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. 1040ez free efile See Related Party Transactions in chapter 4 of Publication 550 for exceptions. 1040ez free efile Losses on sales or trades of property. 1040ez free efile   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. 1040ez free efile Members of your family. 1040ez free efile This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. 1040ez free efile ), and lineal descendants (children, grandchildren, etc. 1040ez free efile ). 1040ez free efile A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. 1040ez free efile A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. 1040ez free efile (See Constructive ownership of stock , later. 1040ez free efile ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. 1040ez free efile   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. 1040ez free efile A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. 1040ez free efile Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. 1040ez free efile A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. 1040ez free efile A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership. 1040ez free efile Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. 1040ez free efile Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. 1040ez free efile An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). 1040ez free efile Two corporations that are members of the same controlled group. 1040ez free efile (Under certain conditions, however, these losses are not disallowed but must be deferred. 1040ez free efile ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. 1040ez free efile Multiple property sales or trades. 1040ez free efile   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. 1040ez free efile The gain on each item may be taxable. 1040ez free efile However, you cannot deduct the loss on any item. 1040ez free efile Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. 1040ez free efile Indirect transactions. 1040ez free efile   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. 1040ez free efile This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. 1040ez free efile Constructive ownership of stock. 1040ez free efile   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. 1040ez free efile Rule 1. 1040ez free efile   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. 1040ez free efile Rule 2. 1040ez free efile   An individual is considered to own the stock directly or indirectly owned by or for his or her family. 1040ez free efile Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. 1040ez free efile Rule 3. 1040ez free efile   An individual owning, other than by applying rule 2, any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. 1040ez free efile Rule 4. 1040ez free efile   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. 1040ez free efile But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. 1040ez free efile Property received from a related party. 1040ez free efile    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. 1040ez free efile This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. 1040ez free efile This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. 1040ez free efile   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. 1040ez free efile Example 1. 1040ez free efile Your brother sells you stock for $7,600. 1040ez free efile His cost basis is $10,000. 1040ez free efile Your brother cannot deduct the loss of $2,400. 1040ez free efile Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. 1040ez free efile Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). 1040ez free efile Example 2. 1040ez free efile If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). 1040ez free efile You cannot deduct the loss that was not allowed to your brother. 1040ez free efile Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. 1040ez free efile Character of gain or loss. 1040ez free efile   You need to classify your gains and losses as either ordinary or capital gains or losses. 1040ez free efile You then need to classify your capital gains and losses as either short term or long term. 1040ez free efile If you have long-term gains and losses, you must identify your 28% rate gains and losses. 1040ez free efile If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. 1040ez free efile   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. 1040ez free efile Reporting capital gains and losses is explained in chapter 16. 1040ez free efile Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. 1040ez free efile Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. 1040ez free efile A sale or trade of a noncapital asset generally results in ordinary gain or loss. 1040ez free efile Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. 1040ez free efile In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. 1040ez free efile Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. 1040ez free efile Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. 1040ez free efile Any property you own is a capital asset, except the following noncapital assets. 1040ez free efile Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. 1040ez free efile For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. 1040ez free efile Depreciable property used in your trade or business, even if fully depreciated. 1040ez free efile Real property used in your trade or business. 1040ez free efile A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. 1040ez free efile For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. 1040ez free efile Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). 1040ez free efile U. 1040ez free efile S. 1040ez free efile Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. 1040ez free efile Certain commodities derivative financial instruments held by commodities derivatives dealers. 1040ez free efile Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. 1040ez free efile Supplies of a type you regularly use or consume in the ordinary course of your trade or business. 1040ez free efile Investment Property Investment property is a capital asset. 1040ez free efile Any gain or loss from its sale or trade is generally a capital gain or loss. 1040ez free efile Gold, silver, stamps, coins, gems, etc. 1040ez free efile   These are capital assets except when they are held for sale by a dealer. 1040ez free efile Any gain or loss you have from their sale or trade generally is a capital gain or loss. 1040ez free efile Stocks, stock rights, and bonds. 1040ez free efile   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. 1040ez free efile However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. 1040ez free efile Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. 1040ez free efile However, you cannot deduct a loss from selling personal use property. 1040ez free efile Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. 1040ez free efile You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. 1040ez free efile You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. 1040ez free efile You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. 1040ez free efile For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 1040ez free efile See also Schedule D (Form 1040), Form 8949, and their separate instructions. 1040ez free efile You can revoke the election if you have IRS approval. 1040ez free efile To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. 1040ez free efile See, for example, Rev. 1040ez free efile Proc. 1040ez free efile 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. 1040ez free efile Proc. 1040ez free efile 2013–32, available at www. 1040ez free efile irs. 1040ez free efile gov/irb/2013-01_IRB/ar06. 1040ez free efile html. 1040ez free efile Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. 1040ez free efile Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. 1040ez free efile Short-term government obligations. 1040ez free efile   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. 1040ez free efile This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. 1040ez free efile Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. 1040ez free efile   However, do not treat these gains as income to the extent you previously included the discount in income. 1040ez free efile See Discount on Short-Term Obligations in chapter 1 of Publication 550. 1040ez free efile Short-term nongovernment obligations. 1040ez free efile   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). 1040ez free efile This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. 1040ez free efile   However, to the extent you previously included the discount in income, you do not have to include it in income again. 1040ez free efile See Discount on Short-Term Obligations in chapter 1 of Publication 550. 1040ez free efile Tax-exempt state and local government bonds. 1040ez free efile   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. 1040ez free efile To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. 1040ez free efile   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. 1040ez free efile For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. 1040ez free efile   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. 1040ez free efile If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. 1040ez free efile If you bought the bonds after April 30, 1993, the gain is ordinary income. 1040ez free efile   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. 1040ez free efile For more information, see Market Discount Bonds in chapter 1 of Publication 550. 1040ez free efile    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. 1040ez free efile Redeemed before maturity. 1040ez free efile   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. 1040ez free efile   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. 1040ez free efile However, you must report the unearned part of OID as a capital gain. 1040ez free efile Example. 1040ez free efile On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. 1040ez free efile The face amount of the bond was $1,000. 1040ez free efile The $200 discount was OID. 1040ez free efile At the time the bond was issued, the issuer had no intention of redeeming it before it matured. 1040ez free efile The bond was callable at its face amount beginning 10 years after the issue date. 1040ez free efile The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. 1040ez free efile The OID earned during the time you held the bond, $73, is not taxable. 1040ez free efile The $60 accrued annual interest also is not taxable. 1040ez free efile However, you must report the unearned part of OID ($127) as a capital gain. 1040ez free efile Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). 1040ez free efile   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. 1040ez free efile The rest of the gain is capital gain. 1040ez free efile If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. 1040ez free efile This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. 1040ez free efile Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). 1040ez free efile   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. 1040ez free efile Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. 1040ez free efile See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. 1040ez free efile   If you sell or trade the debt instrument before maturity, your gain is a capital gain. 1040ez free efile However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. 1040ez free efile In this case, the rest of the gain is capital gain. 1040ez free efile Market discount bonds. 1040ez free efile   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. 1040ez free efile If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. 1040ez free efile The rest of the gain is capital gain. 1040ez free efile See Market Discount Bonds in chapter 1 of Publication 550. 1040ez free efile   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. 1040ez free efile See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. 1040ez free efile Retirement of debt instrument. 1040ez free efile   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. 1040ez free efile Notes of individuals. 1040ez free efile   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. 1040ez free efile An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. 1040ez free efile The lender is not in the business of lending money. 1040ez free efile The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. 1040ez free efile Avoiding federal tax is not one of the principal purposes of the loan. 1040ez free efile   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. 1040ez free efile When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. 1040ez free efile The rest of the gain, if any, is capital gain. 1040ez free efile Any loss on the sale or redemption is capital loss. 1040ez free efile Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. 1040ez free efile Ordinary loss. 1040ez free efile Casualty loss. 1040ez free efile Nonbusiness bad debt (short-term capital loss). 1040ez free efile  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. 1040ez free efile Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. 1040ez free efile Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. 1040ez free efile Report the loss on Form 4797, line 10. 1040ez free efile Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. 1040ez free efile Report the gain on Form 8949. 1040ez free efile See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. 1040ez free efile For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 1040ez free efile See also Schedule D (Form 1040), Form 8949, and their separate instructions. 1040ez free efile Holding Period If you sold or traded investment property, you must determine your holding period for the property. 1040ez free efile Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. 1040ez free efile Long-term or short-term. 1040ez free efile   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. 1040ez free efile If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. 1040ez free efile   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. 1040ez free efile The day you disposed of the property is part of your holding period. 1040ez free efile Example. 1040ez free efile If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. 1040ez free efile If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. 1040ez free efile Securities traded on established market. 1040ez free efile   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. 1040ez free efile    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. 1040ez free efile Example. 1040ez free efile You are a cash method, calendar year taxpayer. 1040ez free efile You sold stock at a gain on December 30, 2013. 1040ez free efile According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. 1040ez free efile You received payment of the sales price on that same day. 1040ez free efile Report your gain on your 2013 return, even though you received the payment in 2014. 1040ez free efile The gain is long term or short term depending on whether you held the stock more than 1 year. 1040ez free efile Your holding period ended on December 30. 1040ez free efile If you had sold the stock at a loss, you would also report it on your 2013 return. 1040ez free efile U. 1040ez free efile S. 1040ez free efile Treasury notes and bonds. 1040ez free efile   The holding period of U. 1040ez free efile S. 1040ez free efile Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. 1040ez free efile The holding period of U. 1040ez free efile S. 1040ez free efile Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. 1040ez free efile Automatic investment service. 1040ez free efile   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. 1040ez free efile Your holding period starts on the day after the bank's purchase date. 1040ez free efile If a share was bought over more than one purchase date, your holding period for that share is a split holding period. 1040ez free efile A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. 1040ez free efile Nontaxable trades. 1040ez free efile   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. 1040ez free efile Property received as a gift. 1040ez free efile   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. 1040ez free efile   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. 1040ez free efile Inherited property. 1040ez free efile   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. 1040ez free efile This is true regardless of how long you actually held the property. 1040ez free efile However, if you inherited property from someone who died in 2010, see the information below. 1040ez free efile Inherited property from someone who died in 2010. 1040ez free efile   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. 1040ez free efile Real property bought. 1040ez free efile   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. 1040ez free efile However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. 1040ez free efile The holding period cannot start until there is an actual contract of sale. 1040ez free efile The holding period of the seller cannot end before that time. 1040ez free efile Real property repossessed. 1040ez free efile   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. 1040ez free efile Your holding period does not include the time between the original sale and the repossession. 1040ez free efile That is, it does not include the period during which the first buyer held the property. 1040ez free efile Stock dividends. 1040ez free efile   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. 1040ez free efile   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. 1040ez free efile This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. 1040ez free efile Nontaxable stock rights. 1040ez free efile   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. 1040ez free efile The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. 1040ez free efile Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. 1040ez free efile You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. 1040ez free efile Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. 1040ez free efile To be deductible, nonbusiness bad debts must be totally worthless. 1040ez free efile You cannot deduct a partly worthless nonbusiness debt. 1040ez free efile Genuine debt required. 1040ez free efile   A debt must be genuine for you to deduct a loss. 1040ez free efile A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. 1040ez free efile Basis in bad debt required. 1040ez free efile    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. 1040ez free efile For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. 1040ez free efile If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. 1040ez free efile When deductible. 1040ez free efile   You can take a bad debt deduction only in the year the debt becomes worthless. 1040ez free efile You do not have to wait until a debt is due to determine whether it is worthless. 1040ez free efile A debt becomes worthless when there is no longer any chance that the amount owed will be paid. 1040ez free efile   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. 1040ez free efile You must only show that you have taken reasonable steps to collect the debt. 1040ez free efile Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. 1040ez free efile How to report bad debts. 1040ez free efile    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. 1040ez free efile    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. 1040ez free efile    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. 1040ez free efile See also Schedule D (Form 1040), Form 8949, and their separate instructions. 1040ez free efile   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. 1040ez free efile For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. 1040ez free efile Filing a claim for refund. 1040ez free efile    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. 1040ez free efile To do this, use Form 1040X to amend your return for the year the debt became worthless. 1040ez free efile You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. 1040ez free efile For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. 1040ez free efile Additional information. 1040ez free efile   For more information, see Nonbusiness Bad Debts in Publication 550. 1040ez free efile For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. 1040ez free efile Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. 1040ez free efile A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. 1040ez free efile If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). 1040ez free efile The result is your basis in the new stock or securities. 1040ez free efile This adjustment postpones the loss deduction until the disposition of the new stock or securities. 1040ez free efile Your holding period for the new stock or securities includes the holding period of the stock or securities sold. 1040ez free efile For more information, see Wash Sales, in chapter 4 of Publication 550. 1040ez free efile Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. 1040ez free efile This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. 1040ez free efile You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. 1040ez free efile This postpones your gain until the year you dispose of the replacement property. 1040ez free efile You qualify to make this choice if you meet all the following tests. 1040ez free efile You sell publicly traded securities at a gain. 1040ez free efile Publicly traded securities are securities traded on an established securities market. 1040ez free efile Your gain from the sale is a capital gain. 1040ez free efile During the 60-day period beginning on the date of the sale, you buy replacement property. 1040ez free efile This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). 1040ez free efile This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. 1040ez free efile Amount of gain recognized. 1040ez free efile   If you make the choice described in this section, you must recognize gain only up to the following amount. 1040ez free efile The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). 1040ez free efile  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. 1040ez free efile If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. 1040ez free efile Limit on gain postponed. 1040ez free efile   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. 1040ez free efile Basis of replacement property. 1040ez free efile   You must subtract the amount of postponed gain from the basis of your replacement property. 1040ez free efile How to report and postpone gain. 1040ez free efile    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. 1040ez free efile Prev  Up  Next   Home   More Online Publications