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1040x site efile com 9. 1040x site efile com   Dispositions of Property Used in Farming Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Section 1231 Gains and LossesNonrecaptured section 1231 losses. 1040x site efile com Depreciation RecaptureSection 1245 Property Section 1250 Property Installment Sale Other Dispositions Other GainsExceptions. 1040x site efile com Amount to report as ordinary income. 1040x site efile com Applicable percentage. 1040x site efile com Amount to report as ordinary income. 1040x site efile com Applicable percentage. 1040x site efile com Introduction When you dispose of property used in your farm business, your taxable gain or loss is usually treated as ordinary income (which is taxed at the same rates as wages and interest income) or capital gain (which is generally taxed at lower rates) under the rules for section 1231 transactions. 1040x site efile com When you dispose of depreciable property (section 1245 property or section 1250 property) at a gain, you may have to recognize all or part of the gain as ordinary income under the depreciation recapture rules. 1040x site efile com Any gain remaining after applying the depreciation recapture rules is a section 1231 gain, which may be taxed as a capital gain. 1040x site efile com Gains and losses from property used in farming are reported on Form 4797, Sales of Business Property. 1040x site efile com Table 9-1 contains examples of items reported on Form 4797 and refers to the part of that form on which they first should be reported. 1040x site efile com Topics - This chapter discusses: Section 1231 gains and losses Depreciation recapture Other gains Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. 1040x site efile com Section 1231 Gains and Losses Section 1231 gains and losses are the taxable gains and losses from section 1231 transactions (explained below). 1040x site efile com Their treatment as ordinary or capital gains depends on whether you have a net gain or a net loss from all of your section 1231 transactions in the tax year. 1040x site efile com Table 9-1. 1040x site efile com Where to First Report Certain Items on Form 4797 Type of property Held 1 year  or less Held more than  1 year 1 Depreciable trade or business property:       a Sold or exchanged at a gain Part II Part III (1245, 1250)   b Sold or exchanged at a loss Part II Part I 2 Farmland held less than 10 years for which soil, water, or land clearing expenses were deducted:       a Sold at a gain Part II Part III (1252)   b Sold at a loss Part II Part I 3 All other farmland Part II Part I 4 Disposition of cost-sharing payment property described in section 126 Part II Part III (1255) 5 Cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 24 mos. 1040x site efile com Held 24 mos. 1040x site efile com  or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised cattle and horses sold at a gain Part II Part I 6 Livestock other than cattle and horses used in a trade or business for draft, breeding, dairy, or sporting purposes: Held less  than 12 mos. 1040x site efile com Held 12 mos. 1040x site efile com   or more   a Sold at a gain Part II Part III (1245)   b Sold at a loss Part II Part I   c Raised livestock sold at a gain Part II Part I If you have a gain from a section 1231 transaction, first determine whether any of the gain is ordinary income under the depreciation recapture rules (explained later). 1040x site efile com Do not take that gain into account as section 1231 gain. 1040x site efile com Section 1231 transactions. 1040x site efile com   Gain or loss on the following transactions is subject to section 1231 treatment. 1040x site efile com Sale or exchange of cattle and horses. 1040x site efile com The cattle and horses must be held for draft, breeding, dairy, or sporting purposes and held for 24 months or longer. 1040x site efile com Sale or exchange of other livestock. 1040x site efile com This livestock must be held for draft, breeding, dairy, or sporting purposes and held for 12 months or longer. 1040x site efile com Other livestock includes hogs, mules, sheep, goats, donkeys, and other fur-bearing animals. 1040x site efile com Other livestock does not include poultry. 1040x site efile com Sale or exchange of depreciable personal property. 1040x site efile com This property must be used in your business and held longer than 1 year. 1040x site efile com Generally, property held for the production of rents or royalties is considered to be used in a trade or business. 1040x site efile com Examples of depreciable personal property include farm machinery and trucks. 1040x site efile com It also includes amortizable section 197 intangibles. 1040x site efile com Sale or exchange of real estate. 1040x site efile com This property must be used in your business and held longer than 1 year. 1040x site efile com Examples are your farm or ranch (including barns and sheds). 1040x site efile com Sale or exchange of unharvested crops. 1040x site efile com The crop and land must be sold, exchanged, or involuntarily converted at the same time and to the same person, and the land must have been held longer than 1 year. 1040x site efile com You cannot keep any right or option to reacquire the land directly or indirectly (other than a right customarily incident to a mortgage or other security transaction). 1040x site efile com Growing crops sold with a leasehold on the land, even if sold to the same person in a single transaction, are not included. 1040x site efile com Distributive share of partnership gains and losses. 1040x site efile com Your distributive share must be from the sale or exchange of property listed above and held longer than 1 year (or for the required period for certain livestock). 1040x site efile com Cutting or disposal of timber. 1040x site efile com Special rules apply if you owned the timber longer than 1 year and elect to treat timber cutting as a sale or exchange, or you enter into a cutting contract, as described in chapter 8 under Timber . 1040x site efile com Condemnation. 1040x site efile com The condemned property (defined in chapter 11) must have been held longer than 1 year. 1040x site efile com It must be business property or a capital asset held in connection with a trade or business or a transaction entered into for profit, such as investment property. 1040x site efile com It cannot be property held for personal use. 1040x site efile com Casualty or theft. 1040x site efile com The casualty or theft must have affected business property, property held for the production of rents or royalties, or investment property (such as notes and bonds). 1040x site efile com You must have held the property longer than 1 year. 1040x site efile com However, if your casualty or theft losses are more than your casualty or theft gains, neither the gains nor the losses are taken into account in the section 1231 computation. 1040x site efile com Section 1231 does not apply to personal casualty gains and losses. 1040x site efile com See chapter 11 for information on how to treat those gains and losses. 1040x site efile com If the property is not held for the required holding period, the transaction is not subject to section 1231 treatment, and any gain or loss is ordinary income reported in Part II of Form 4797. 1040x site efile com See Table 9-1. 1040x site efile com Property for sale to customers. 1040x site efile com   A sale, exchange, or involuntary conversion of property held mainly for sale to customers is not a section 1231 transaction. 1040x site efile com If you will get back all, or nearly all, of your investment in the property by selling it rather than by using it up in your business, it is property held mainly for sale to customers. 1040x site efile com Treatment as ordinary or capital. 1040x site efile com   To determine the treatment of section 1231 gains and losses, combine all of your section 1231 gains and losses for the year. 1040x site efile com If you have a net section 1231 loss, it is an ordinary loss. 1040x site efile com If you have a net section 1231 gain, it is ordinary income up to your nonrecaptured section 1231 losses from previous years, explained next. 1040x site efile com The rest, if any, is long-term capital gain. 1040x site efile com Nonrecaptured section 1231 losses. 1040x site efile com   Your nonrecaptured section 1231 losses are your net section 1231 losses for the previous 5 years that have not been applied against a net section 1231 gain by treating the gain as ordinary income. 1040x site efile com These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. 1040x site efile com Example. 1040x site efile com In 2013, Ben has a $2,000 net section 1231 gain. 1040x site efile com To figure how much he has to report as ordinary income and long-term capital gain, he must first determine his section 1231 gains and losses from the previous 5-year period. 1040x site efile com From 2008 through 2012 he had the following section 1231 gains and losses. 1040x site efile com Year Amount 2008 -0- 2009 -0- 2010 ($2,500) 2011 -0- 2012 $1,800   Ben uses this information to figure how to report his net section 1231 gain for 2013 as shown below. 1040x site efile com 1) Net section 1231 gain (2013) $2,000 2) Net section 1231 loss (2010) ($2,500)   3) Net section 1231 gain (2012) 1,800   4) Remaining net section 1231 loss from prior 5 years ($700)   5) Gain treated as  ordinary income $700 6) Gain treated as long-term  capital gain $1,300 His remaining net section 1231 loss from 2010 is completely recaptured in 2013. 1040x site efile com Depreciation Recapture If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain (even if it is otherwise nontaxable) as ordinary income. 1040x site efile com To figure any gain that must be reported as ordinary income, you must keep permanent records of the facts necessary to figure the depreciation or amortization allowed or allowable on your property. 1040x site efile com For more information, see chapter 3 of Publication 544. 1040x site efile com Section 1245 Property A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable. 1040x site efile com Any recognized gain that is more than the part that is ordinary income is a section 1231 gain. 1040x site efile com See Treatment as ordinary or capital under Section 1231 Gains and Losses , earlier. 1040x site efile com Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property. 1040x site efile com Personal property (either tangible or intangible). 1040x site efile com Other tangible property (except buildings and their structural components) used as any of the following. 1040x site efile com See Buildings and structural components below. 1040x site efile com An integral part of manufacturing, production, or extraction, or of furnishing certain services. 1040x site efile com A research facility in any of the activities in (a). 1040x site efile com A facility in any of the activities in (a) above, for the bulk storage of fungible commodities (discussed later). 1040x site efile com That part of real property (not included in (2)) with an adjusted basis reduced by (but not limited to) the following. 1040x site efile com Amortization of certified pollution control facilities. 1040x site efile com The section 179 expense deduction. 1040x site efile com Deduction for clean-fuel vehicles and certain refueling property. 1040x site efile com Expenditures to remove architectural and transportation barriers to the handicapped and elderly. 1040x site efile com Certain reforestation expenditures (as described under Reforestation Costs in chapter 7. 1040x site efile com Single purpose agricultural (livestock) or horticultural structures. 1040x site efile com Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. 1040x site efile com Buildings and structural components. 1040x site efile com   Section 1245 property does not include buildings and structural components. 1040x site efile com The term building includes a house, barn, warehouse, or garage. 1040x site efile com The term structural component includes walls, floors, windows, doors, central air conditioning systems, light fixtures, etc. 1040x site efile com   Do not treat a structure that is essentially machinery or equipment as a building or structural component. 1040x site efile com Also, do not treat a structure that houses property used as an integral part of an activity as a building or structural component if the structure's use is so closely related to the property's use that the structure can be expected to be replaced when the property it initially houses is replaced. 1040x site efile com   The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. 1040x site efile com Structures such as oil and gas storage tanks, grain storage bins, and silos are not treated as buildings, but as section 1245 property. 1040x site efile com Facility for bulk storage of fungible commodities. 1040x site efile com   This is a facility used mainly for the bulk storage of fungible commodities. 1040x site efile com Bulk storage means storage of a commodity in a large mass before it is used. 1040x site efile com For example, if a facility is used to store oranges that have been sorted and boxed, it is not used for bulk storage. 1040x site efile com To be fungible, a commodity must be such that one part may be used in place of another. 1040x site efile com Gain Treated as Ordinary Income The gain treated as ordinary income on the sale, exchange, or involuntary conversion of section 1245 property, including a sale and leaseback transaction, is the lesser of the following amounts. 1040x site efile com The depreciation (which includes any section 179 deduction claimed) and amortization allowed or allowable on the property. 1040x site efile com The gain realized on the disposition (the amount realized from the disposition minus the adjusted basis of the property). 1040x site efile com For any other disposition of section 1245 property, ordinary income is the lesser of (1) above or the amount by which its fair market value (FMV) is more than its adjusted basis. 1040x site efile com For details, see chapter 3 of Publication 544. 1040x site efile com Use Part III of Form 4797 to figure the ordinary income part of the gain. 1040x site efile com Depreciation claimed on other property or claimed by other taxpayers. 1040x site efile com   Depreciation and amortization include the amounts you claimed on the section 1245 property as well as the following depreciation and amortization amounts. 1040x site efile com Amounts you claimed on property you exchanged for, or converted to, your section 1245 property in a like-kind exchange or involuntary conversion. 1040x site efile com For details on exchanges of property that are not taxable, see Like-Kind Exchanges in chapter 8. 1040x site efile com Amounts a previous owner of the section 1245 property claimed if your basis is determined with reference to that person's adjusted basis (for example, the donor's depreciation deductions on property you received as a gift and part of the transfer is a sale or exchange). 1040x site efile com Example. 1040x site efile com Jeff Free paid $120,000 for a tractor in 2012. 1040x site efile com On February 23, 2013, he traded it for a chopper and paid an additional $30,000. 1040x site efile com To figure his depreciation deduction on the chopper for the current year, Jeff continues to use the basis of the tractor as he would have before the trade. 1040x site efile com Jeff can also depreciate the additional $30,000 for the chopper. 1040x site efile com Depreciation and amortization. 1040x site efile com   Depreciation and amortization deductions that must be recaptured as ordinary income include (but are not limited to) the following items. 1040x site efile com See Depreciation Recapture in chapter 3 of Publication 544 for more details. 1040x site efile com Ordinary depreciation deductions. 1040x site efile com Section 179 deduction (see chapter 7). 1040x site efile com Any special depreciation allowance. 1040x site efile com Amortization deductions for all the following costs. 1040x site efile com Acquiring a lease. 1040x site efile com Lessee improvements. 1040x site efile com Pollution control facilities. 1040x site efile com Reforestation expenses. 1040x site efile com Section 197 intangibles. 1040x site efile com Qualified disaster expenses. 1040x site efile com Franchises, trademarks, and trade names acquired before August 11, 1993. 1040x site efile com Example. 1040x site efile com You file your returns on a calendar year basis. 1040x site efile com In February 2011, you bought and placed in service for 100% use in your farming business a light-duty truck (5-year property) that cost $10,000. 1040x site efile com You used the half-year convention and your MACRS deductions for the truck were $1,500 in 2011 and $2,550 in 2012. 1040x site efile com You did not claim the section 179 expense deduction for the truck. 1040x site efile com You sold it in May 2013 for $7,000. 1040x site efile com The MACRS deduction in 2013, the year of sale, is $893 (½ of $1,785). 1040x site efile com Figure the gain treated as ordinary income as follows. 1040x site efile com 1) Amount realized $7,000 2) Cost (February 2011) $10,000   3) Depreciation allowed or allowable (MACRS deductions: $1,500 + $2,550 + $893) 4,943   4) Adjusted basis (subtract line 3 from line 2) $5,057 5) Gain realized (subtract line 4 from line 1) 1,943 6) Gain treated as ordinary income (lesser of line 3 or line 5) $1,943 Depreciation allowed or allowable. 1040x site efile com   You generally use the greater of the depreciation allowed or allowable when figuring the part of gain to report as ordinary income. 1040x site efile com If, in prior years, you have consistently taken proper deductions under one method, the amount allowed for your prior years will not be increased even though a greater amount would have been allowed under another proper method. 1040x site efile com If you did not take any deduction at all for depreciation, your adjustments to basis for depreciation allowable are figured by using the straight line method. 1040x site efile com This treatment applies only when figuring what part of the gain is treated as ordinary income under the rules for section 1245 depreciation recapture. 1040x site efile com Disposition of plants and animals. 1040x site efile com   If you elect not to use the uniform capitalization rules (see chapter 6), you must treat any plant you produce as section 1245 property. 1040x site efile com If you have a gain on the property's disposition, you must recapture the pre-productive expenses you would have capitalized if you had not made the election by treating the gain, up to the amount of these expenses, as ordinary income. 1040x site efile com For section 1231 transactions, show these expenses as depreciation on Form 4797, Part III, line 22. 1040x site efile com For plant sales that are reported on Schedule F (1040), Profit or Loss From Farming, this recapture rule does not change the reporting of income because the gain is already ordinary income. 1040x site efile com You can use the farm-price method or the unit-livestock-price method discussed in  chapter 2 to figure these expenses. 1040x site efile com Example. 1040x site efile com Janet Maple sold her apple orchard in 2013 for $80,000. 1040x site efile com Her adjusted basis at the time of sale was $60,000. 1040x site efile com She bought the orchard in 2006, but the trees did not produce a crop until 2009. 1040x site efile com Her pre-productive expenses were $6,000. 1040x site efile com She elected not to use the uniform capitalization rules. 1040x site efile com Janet must treat $6,000 of the gain as ordinary income. 1040x site efile com Section 1250 Property Section 1250 property includes all real property subject to an allowance for depreciation that is not and never has been section 1245 property. 1040x site efile com It includes buildings and structural components that are not section 1245 property (discussed earlier). 1040x site efile com It includes a leasehold of land or section 1250 property subject to an allowance for depreciation. 1040x site efile com A fee simple interest in land is not section 1250 property because, like land, it is not depreciable. 1040x site efile com Gain on the disposition of section 1250 property is treated as ordinary income to the extent of additional depreciation allowed or allowable. 1040x site efile com To determine the additional depreciation on section 1250 property, see Depreciation Recapture in chapter 3 of Publication 544. 1040x site efile com You will not have additional depreciation if any of the following apply to the property disposed of. 1040x site efile com You figured depreciation for the property using the straight line method or any other method that does not result in depreciation that is more than the amount figured by the straight line method and you have held the property longer than 1 year. 1040x site efile com You chose the alternate ACRS (straight line) method for the property, which was a type of 15-, 18-, or 19-year real property covered by the section 1250 rules. 1040x site efile com The property was nonresidential real property placed in service after 1986 (or after July 31, 1986, if the choice to use MACRS was made) and you held it longer than 1 year. 1040x site efile com These properties are depreciated using the straight line method. 1040x site efile com Installment Sale If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. 1040x site efile com This applies even if no payments are received in that year. 1040x site efile com If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. 1040x site efile com For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale. 1040x site efile com If you dispose of more than one asset in a single transaction, you must separately figure the gain on each asset so that it may be properly reported. 1040x site efile com To do this, allocate the selling price and the payments you receive in the year of sale to each asset. 1040x site efile com Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain. 1040x site efile com For more information on installment sales, see chapter 10. 1040x site efile com Other Dispositions Chapter 3 of Publication 544 discusses the tax treatment of the following transfers of depreciable property. 1040x site efile com By gift. 1040x site efile com At death. 1040x site efile com In like-kind exchanges. 1040x site efile com In involuntary conversions. 1040x site efile com Publication 544 also explains how to handle a single transaction involving multiple properties. 1040x site efile com Other Gains This section discusses gain on the disposition of farmland for which you were allowed either of the following. 1040x site efile com Deductions for soil and water conservation expenditures (section 1252 property). 1040x site efile com Exclusions from income for certain cost sharing payments (section 1255 property). 1040x site efile com Section 1252 property. 1040x site efile com   If you disposed of farmland you held more than 1 year and less than 10 years at a gain and you were allowed deductions for soil and water conservation expenses for the land, as discussed in chapter 5, you must treat part of the gain as ordinary income and treat the balance as section 1231 gain. 1040x site efile com Exceptions. 1040x site efile com   Do not treat gain on the following transactions as gain on section 1252 property. 1040x site efile com Disposition of farmland by gift. 1040x site efile com Transfer of farm property at death (except for income in respect of a decedent). 1040x site efile com For more information, see Regulations section 1. 1040x site efile com 1252-2. 1040x site efile com Amount to report as ordinary income. 1040x site efile com   You report as ordinary income the lesser of the following amounts. 1040x site efile com Your gain (determined by subtracting the adjusted basis from the amount realized from a sale, exchange, or involuntary conversion, or the FMV for all other dispositions). 1040x site efile com The total deductions allowed for soil and water conservation expenses multiplied by the applicable percentage, discussed next. 1040x site efile com Applicable percentage. 1040x site efile com   The applicable percentage is based on the length of time you held the land. 1040x site efile com If you dispose of your farmland within 5 years after the date you acquired it, the percentage is 100%. 1040x site efile com If you dispose of the land within the 6th through 9th year after you acquired it, the applicable percentage is reduced by 20% a year for each year or part of a year you hold the land after the 5th year. 1040x site efile com If you dispose of the land 10 or more years after you acquired it, the percentage is 0%, and the entire gain is a section 1231 gain. 1040x site efile com Example. 1040x site efile com You acquired farmland on January 19, 2005. 1040x site efile com On October 3, 2013, you sold the land at a $30,000 gain. 1040x site efile com Between January 1 and October 3, 2013, you incur soil and water conservation expenditures of $15,000 for the land that are fully deductible in 2013. 1040x site efile com The applicable percentage is 40% since you sold the land within the 8th year after you acquired it. 1040x site efile com You treat $6,000 (40% of $15,000) of the $30,000 gain as ordinary income and the $24,000 balance as a section 1231 gain. 1040x site efile com Section 1255 property. 1040x site efile com   If you receive certain cost-sharing payments on property and you exclude those payments from income (as discussed in chapter 3), you may have to treat part of any gain as ordinary income and treat the balance as a section 1231 gain. 1040x site efile com If you chose not to exclude these payments, you will not have to recognize ordinary income under this provision. 1040x site efile com Amount to report as ordinary income. 1040x site efile com   You report as ordinary income the lesser of the following amounts. 1040x site efile com The applicable percentage of the total excluded cost-sharing payments. 1040x site efile com The gain on the disposition of the property. 1040x site efile com You do not report ordinary income under this rule to the extent the gain is recognized as ordinary income under sections 1231 through 1254, 1256, and 1257. 1040x site efile com However, if applicable, gain reported under this rule must be reported regardless of any contrary provisions (including nonrecognition provisions) under any other section. 1040x site efile com Applicable percentage. 1040x site efile com   The applicable percentage of the excluded cost-sharing payments to be reported as ordinary income is based on the length of time you hold the property after receiving the payments. 1040x site efile com If the property is held less than 10 years after you receive the payments, the percentage is 100%. 1040x site efile com After 10 years, the percentage is reduced by 10% a year, or part of a year, until the rate is 0%. 1040x site efile com Form 4797, Part III. 1040x site efile com   Use Form 4797, Part III, to figure the ordinary income part of a gain from the sale, exchange, or involuntary conversion of section 1252 property and section 1255 property. 1040x site efile com Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Consumer Protection Division
Government Center South, 5th Floor
302 W. Washington St.

Indianapolis, IN 46204

Phone Number: 317-232-6330

Toll-free: 1-800-382-5516 (Consumer Hotline)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
30 S. Meridian St., Suite 300
Indianapolis, IN 46204

Phone Number: 317-232-3955

Toll-free: 1-800-382-4880 (IN)

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Services Division
311 W. Washington St., Suite 300
Indianapolis, IN 46204-2787

Phone Number: 317-232-2395

Toll-free: 1-800-622-4461 (IN)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Secretary of State

Website: Office of the Secretary of State

Address: Office of the Secretary of State
Securities Division
302 W. Washington St., Room E111
Indianapolis, IN 46204

Phone Number: 317-232-6681

Toll-free: 1-800-223-8791 (IN)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Utility Regulatory Commission

Website: Utility Regulatory Commission

Address: Utility Regulatory Commission
Consumer Assistance Section
101 W. Washington St., Suite 1500E
Indianapolis, IN 46204

Phone Number: 317-232-2712

Toll-free: 1-800-851-4268 (IN)

TTY: 317-232-8556

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The 1040x Site Efile Com

1040x site efile com 1. 1040x site efile com   Gain or Loss Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Sales and ExchangesGain or Loss From Sales and Exchanges Abandonments Foreclosures and RepossessionsAmount realized on a nonrecourse debt. 1040x site efile com Amount realized on a recourse debt. 1040x site efile com Involuntary ConversionsCondemnations Nontaxable ExchangesLike-Kind Exchanges Other Nontaxable Exchanges Transfers to Spouse Rollover of Gain From Publicly Traded Securities Gains on Sales of Qualified Small Business Stock Exclusion of Gain From Sale of DC Zone Assets Topics - This chapter discusses: Sales and exchanges Abandonments Foreclosures and repossessions Involuntary conversions Nontaxable exchanges Transfers to spouse Rollovers and exclusions for certain capital gains Useful Items - You may want to see: Publication 523 Selling Your Home 537 Installment Sales 547 Casualties, Disasters, and Thefts 550 Investment Income and Expenses 551 Basis of Assets 908 Bankruptcy Tax Guide 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1040 U. 1040x site efile com S. 1040x site efile com Individual Income Tax Return 1040X Amended U. 1040x site efile com S. 1040x site efile com Individual Income Tax Return 1099-A Acquisition or Abandonment of Secured Property 1099-C Cancellation of Debt 4797 Sales of Business Property 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets Although the discussions in this chapter may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. 1040x site efile com However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. 1040x site efile com See chapter 5 for information about getting publications and forms. 1040x site efile com Sales and Exchanges A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. 1040x site efile com An exchange is a transfer of property for other property or services. 1040x site efile com The following discussions describe the kinds of transactions that are treated as sales or exchanges and explain how to figure gain or loss. 1040x site efile com Sale or lease. 1040x site efile com    Some agreements that seem to be leases may really be conditional sales contracts. 1040x site efile com The intention of the parties to the agreement can help you distinguish between a sale and a lease. 1040x site efile com   There is no test or group of tests to prove what the parties intended when they made the agreement. 1040x site efile com You should consider each agreement based on its own facts and circumstances. 1040x site efile com For more information, see chapter 3 in Publication 535, Business Expenses. 1040x site efile com Cancellation of a lease. 1040x site efile com    Payments received by a tenant for the cancellation of a lease are treated as an amount realized from the sale of property. 1040x site efile com Payments received by a landlord (lessor) for the cancellation of a lease are essentially a substitute for rental payments and are taxed as ordinary income in the year in which they are received. 1040x site efile com Copyright. 1040x site efile com    Payments you receive for granting the exclusive use of (or right to exploit) a copyright throughout its life in a particular medium are treated as received from the sale of property. 1040x site efile com It does not matter if the payments are a fixed amount or a percentage of receipts from the sale, performance, exhibition, or publication of the copyrighted work, or an amount based on the number of copies sold, performances given, or exhibitions made. 1040x site efile com Nor does it matter if the payments are made over the same period as that covering the grantee's use of the copyrighted work. 1040x site efile com   If the copyright was used in your trade or business and you held it longer than a year, the gain or loss may be a section 1231 gain or loss. 1040x site efile com For more information, see Section 1231 Gains and Losses in chapter 3. 1040x site efile com Easement. 1040x site efile com   The amount received for granting an easement is subtracted from the basis of the property. 1040x site efile com If only a specific part of the entire tract of property is affected by the easement, only the basis of that part is reduced by the amount received. 1040x site efile com If it is impossible or impractical to separate the basis of the part of the property on which the easement is granted, the basis of the whole property is reduced by the amount received. 1040x site efile com   Any amount received that is more than the basis to be reduced is a taxable gain. 1040x site efile com The transaction is reported as a sale of property. 1040x site efile com   If you transfer a perpetual easement for consideration and do not keep any beneficial interest in the part of the property affected by the easement, the transaction will be treated as a sale of property. 1040x site efile com However, if you make a qualified conservation contribution of a restriction or easement granted in perpetuity, it is treated as a charitable contribution and not a sale or exchange, even though you keep a beneficial interest in the property affected by the easement. 1040x site efile com   If you grant an easement on your property (for example, a right-of-way over it) under condemnation or threat of condemnation, you are considered to have made a forced sale, even though you keep the legal title. 1040x site efile com Although you figure gain or loss on the easement in the same way as a sale of property, the gain or loss is treated as a gain or loss from a condemnation. 1040x site efile com See Gain or Loss From Condemnations, later. 1040x site efile com Property transferred to satisfy debt. 1040x site efile com   A transfer of property to satisfy a debt is an exchange. 1040x site efile com Note's maturity date extended. 1040x site efile com   The extension of a note's maturity date is not treated as an exchange of an outstanding note for a new and different note. 1040x site efile com Also, it is not considered a closed and completed transaction that would result in a gain or loss. 1040x site efile com However, an extension will be treated as a taxable exchange of the outstanding note for a new and materially different note if the changes in the terms of the note are significant. 1040x site efile com Each case must be determined by its own facts. 1040x site efile com For more information, see Regulations section 1. 1040x site efile com 1001-3. 1040x site efile com Transfer on death. 1040x site efile com   The transfer of property of a decedent to an executor or administrator of the estate, or to the heirs or beneficiaries, is not a sale or exchange or other disposition. 1040x site efile com No taxable gain or deductible loss results from the transfer. 1040x site efile com Bankruptcy. 1040x site efile com   Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. 1040x site efile com Consequently, the transfer generally does not result in gain or loss. 1040x site efile com For more information, see Publication 908, Bankruptcy Tax Guide. 1040x site efile com Gain or Loss From Sales and Exchanges You usually realize gain or loss when property is sold or exchanged. 1040x site efile com A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. 1040x site efile com A loss is the adjusted basis of the property that is more than the amount you realize. 1040x site efile com   Table 1-1. 1040x site efile com How To Figure Whether You Have a Gain or Loss IF your. 1040x site efile com . 1040x site efile com . 1040x site efile com THEN you have a. 1040x site efile com . 1040x site efile com . 1040x site efile com Adjusted basis is more than the amount realized, Loss. 1040x site efile com Amount realized is more than the adjusted basis, Gain. 1040x site efile com Basis. 1040x site efile com   You must know the basis of your property to determine whether you have a gain or loss from its sale or other disposition. 1040x site efile com The basis of property you buy is usually its cost. 1040x site efile com However, if you acquired the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. 1040x site efile com See Basis Other Than Cost in Publication 551, Basis of Assets. 1040x site efile com Special rules apply to property acquired from a decedent who died in 2010 and the executor made the election to file Form 8939, Allocation of Increase in Basis for Property Received From a Decedent. 1040x site efile com See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for details. 1040x site efile com Adjusted basis. 1040x site efile com   The adjusted basis of property is your original cost or other basis plus (increased by) certain additions and minus (decreased by) certain deductions. 1040x site efile com Increases include costs of any improvements having a useful life of more than 1 year. 1040x site efile com Decreases include depreciation and casualty losses. 1040x site efile com For more details and additional examples, see Adjusted Basis in Publication 551. 1040x site efile com Amount realized. 1040x site efile com   The amount you realize from a sale or exchange is the total of all money you receive plus the fair market value (defined below) of all property or services you receive. 1040x site efile com The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage. 1040x site efile com Fair market value. 1040x site efile com   Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. 1040x site efile com If parties with adverse interests place a value on property in an arm's-length transaction, that is strong evidence of FMV. 1040x site efile com If there is a stated price for services, this price is treated as the FMV unless there is evidence to the contrary. 1040x site efile com Example. 1040x site efile com You used a building in your business that cost you $70,000. 1040x site efile com You made certain permanent improvements at a cost of $20,000 and deducted depreciation totaling $10,000. 1040x site efile com You sold the building for $100,000 plus property having an FMV of $20,000. 1040x site efile com The buyer assumed your real estate taxes of $3,000 and a mortgage of $17,000 on the building. 1040x site efile com The selling expenses were $4,000. 1040x site efile com Your gain on the sale is figured as follows. 1040x site efile com Amount realized:     Cash $100,000   FMV of property received 20,000   Real estate taxes assumed by buyer 3,000   Mortgage assumed by  buyer 17,000   Total 140,000   Minus: Selling expenses 4,000 $136,000 Adjusted basis:     Cost of building $70,000   Improvements 20,000   Total $90,000   Minus: Depreciation 10,000   Adjusted basis   $80,000 Gain on sale $56,000 Amount recognized. 1040x site efile com   Your gain or loss realized from a sale or exchange of property is usually a recognized gain or loss for tax purposes. 1040x site efile com Recognized gains must be included in gross income. 1040x site efile com Recognized losses are deductible from gross income. 1040x site efile com However, your gain or loss realized from certain exchanges of property is not recognized for tax purposes. 1040x site efile com See Nontaxable Exchanges, later. 1040x site efile com Also, a loss from the sale or other disposition of property held for personal use is not deductible, except in the case of a casualty or theft. 1040x site efile com Interest in property. 1040x site efile com   The amount you realize from the disposition of a life interest in property, an interest in property for a set number of years, or an income interest in a trust is a recognized gain under certain circumstances. 1040x site efile com If you received the interest as a gift, inheritance, or in a transfer from a spouse or former spouse incident to a divorce, the amount realized is a recognized gain. 1040x site efile com Your basis in the property is disregarded. 1040x site efile com This rule does not apply if all interests in the property are disposed of at the same time. 1040x site efile com Example 1. 1040x site efile com Your father dies and leaves his farm to you for life with a remainder interest to your younger brother. 1040x site efile com You decide to sell your life interest in the farm. 1040x site efile com The entire amount you receive is a recognized gain. 1040x site efile com Your basis in the farm is disregarded. 1040x site efile com Example 2. 1040x site efile com The facts are the same as in Example 1, except that your brother joins you in selling the farm. 1040x site efile com The entire interest in the property is sold, so your basis in the farm is not disregarded. 1040x site efile com Your gain or loss is the difference between your share of the sales price and your adjusted basis in the farm. 1040x site efile com Canceling a sale of real property. 1040x site efile com   If you sell real property under a sales contract that allows the buyer to return the property for a full refund and the buyer does so, you may not have to recognize gain or loss on the sale. 1040x site efile com If the buyer returns the property in the year of sale, no gain or loss is recognized. 1040x site efile com This cancellation of the sale in the same year it occurred places both you and the buyer in the same positions you were in before the sale. 1040x site efile com If the buyer returns the property in a later tax year, you must recognize gain (or loss, if allowed) in the year of the sale. 1040x site efile com When the property is returned in a later year, you acquire a new basis in the property. 1040x site efile com That basis is equal to the amount you pay to the buyer. 1040x site efile com Bargain Sale If you sell or exchange property for less than fair market value with the intent of making a gift, the transaction is partly a sale or exchange and partly a gift. 1040x site efile com You have a gain if the amount realized is more than your adjusted basis in the property. 1040x site efile com However, you do not have a loss if the amount realized is less than the adjusted basis of the property. 1040x site efile com Bargain sales to charity. 1040x site efile com   A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. 1040x site efile com If a charitable deduction for the contribution is allowable, you must allocate your adjusted basis in the property between the part sold and the part contributed based on the fair market value of each. 1040x site efile com The adjusted basis of the part sold is figured as follows. 1040x site efile com Adjusted basis of entire property × Amount realized (fair market value of part sold)   Fair market value of entire property   Based on this allocation rule, you will have a gain even if the amount realized is not more than your adjusted basis in the property. 1040x site efile com This allocation rule does not apply if a charitable contribution deduction is not allowable. 1040x site efile com   See Publication 526, Charitable Contributions, for information on figuring your charitable contribution. 1040x site efile com Example. 1040x site efile com You sold property with a fair market value of $10,000 to a charitable organization for $2,000 and are allowed a deduction for your contribution. 1040x site efile com Your adjusted basis in the property is $4,000. 1040x site efile com Your gain on the sale is $1,200, figured as follows. 1040x site efile com Sales price $2,000 Minus: Adjusted basis of part sold ($4,000 × ($2,000 ÷ $10,000)) 800 Gain on the sale $1,200 Property Used Partly for Business or Rental Generally, if you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as though you had sold two separate pieces of property. 1040x site efile com You must subtract depreciation you took or could have taken from the basis of the business or rental part. 1040x site efile com However, see the special rule below for a home used partly for business or rental. 1040x site efile com You must allocate the selling price, selling expenses, and the basis of the property between the business or rental part and the personal part. 1040x site efile com Gain or loss on the business or rental part of the property may be a capital gain or loss or an ordinary gain or loss, as discussed in chapter 3 under Section 1231 Gains and Losses. 1040x site efile com Any gain on the personal part of the property is a capital gain. 1040x site efile com You cannot deduct a loss on the personal part. 1040x site efile com Home used partly for business or rental. 1040x site efile com    If you use property partly as a home and partly for business or to produce rental income, the computation and treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. 1040x site efile com See Property Used Partly for Business or Rental, in Publication 523. 1040x site efile com Property Changed to Business or Rental Use You cannot deduct a loss on the sale of property you purchased or constructed for use as your home and used as your home until the time of sale. 1040x site efile com You can deduct a loss on the sale of property you acquired for use as your home but changed to business or rental property and used as business or rental property at the time of sale. 1040x site efile com However, if the adjusted basis of the property at the time of the change was more than its fair market value, the loss you can deduct is limited. 1040x site efile com Figure the loss you can deduct as follows. 1040x site efile com Use the lesser of the property's adjusted basis or fair market value at the time of the change. 1040x site efile com Add to (1) the cost of any improvements and other increases to basis since the change. 1040x site efile com Subtract from (2) depreciation and any other decreases to basis since the change. 1040x site efile com Subtract the amount you realized on the sale from the result in (3). 1040x site efile com If the amount you realized is more than the result in (3), treat this result as zero. 1040x site efile com The result in (4) is the loss you can deduct. 1040x site efile com Example. 1040x site efile com You changed your main home to rental property 5 years ago. 1040x site efile com At the time of the change, the adjusted basis of your home was $75,000 and the fair market value was $70,000. 1040x site efile com This year, you sold the property for $55,000. 1040x site efile com You made no improvements to the property but you have depreciation expense of $12,620 over the 5 prior years. 1040x site efile com Although your loss on the sale is $7,380 [($75,000 − $12,620) − $55,000], the amount you can deduct as a loss is limited to $2,380, figured as follows. 1040x site efile com Lesser of adjusted basis or fair market value at time of the change $70,000 Plus: Cost of any improvements and any other additions to basis after the change -0-   70,000 Minus: Depreciation and any other decreases to basis after the change 12,620   57,380 Minus: Amount you realized from the sale 55,000 Deductible loss $2,380 Gain. 1040x site efile com   If you have a gain on the sale, you generally must recognize the full amount of the gain. 1040x site efile com You figure the gain by subtracting your adjusted basis from your amount realized, as described earlier. 1040x site efile com   You may be able to exclude all or part of the gain if you owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 1040x site efile com However, you may not be able to exclude the part of the gain allocated to any period of nonqualified use. 1040x site efile com   For more information, see Business Use or Rental of Home in Publication 523. 1040x site efile com In addition, special rules apply if the home sold was acquired in a like-kind exchange. 1040x site efile com See Special Situations in Publication 523. 1040x site efile com Also see Like-Kind Exchanges, later. 1040x site efile com Abandonments The abandonment of property is a disposition of property. 1040x site efile com You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. 1040x site efile com Generally, abandonment is not treated as a sale or exchange of the property. 1040x site efile com If the amount you realize (if any) is more than your adjusted basis, then you have a gain. 1040x site efile com If your adjusted basis is more than the amount you realize (if any), then you have a loss. 1040x site efile com Loss from abandonment of business or investment property is deductible as a loss. 1040x site efile com A loss from an abandonment of business or investment property that is not treated as a sale or exchange generally is an ordinary loss. 1040x site efile com This rule also applies to leasehold improvements the lessor made for the lessee that were abandoned. 1040x site efile com If the property is foreclosed on or repossessed in lieu of abandonment, gain or loss is figured as discussed later under Foreclosure and Repossessions. 1040x site efile com The abandonment loss is deducted in the tax year in which the loss is sustained. 1040x site efile com If the abandoned property is secured by debt, special rules apply. 1040x site efile com The tax consequences of abandonment of property that is secured by debt depend on whether you are personally liable for the debt (recourse debt) or you are not personally liable for the debt (nonrecourse debt). 1040x site efile com For more information, including examples, see chapter 3 of Publication 4681. 1040x site efile com You cannot deduct any loss from abandonment of your home or other property held for personal use only. 1040x site efile com Cancellation of debt. 1040x site efile com   If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you may realize ordinary income equal to the canceled debt. 1040x site efile com This income is separate from any loss realized from abandonment of the property. 1040x site efile com   You must report this income on your tax return unless one of the following applies. 1040x site efile com The cancellation is intended as a gift. 1040x site efile com The debt is qualified farm debt. 1040x site efile com The debt is qualified real property business debt. 1040x site efile com You are insolvent or bankrupt. 1040x site efile com The debt is qualified principal residence indebtedness. 1040x site efile com File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the income exclusion. 1040x site efile com For more information, including other exceptions and exclusion, see Publication 4681. 1040x site efile com Forms 1099-A and 1099-C. 1040x site efile com   If you abandon property that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your loss from the abandonment. 1040x site efile com However, if your debt is canceled and the lender must file Form 1099-C, the lender may include the information about the abandonment on that form instead of on Form 1099-A, and send you Form 1099-C only. 1040x site efile com The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 1040x site efile com For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. 1040x site efile com Foreclosures and Repossessions If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 1040x site efile com The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. 1040x site efile com This is true even if you voluntarily return the property to the lender. 1040x site efile com You also may realize ordinary income from cancellation of debt if the loan balance is more than the fair market value of the property. 1040x site efile com Buyer's (borrower's) gain or loss. 1040x site efile com   You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. 1040x site efile com The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized. 1040x site efile com See Gain or Loss From Sales and Exchanges, earlier. 1040x site efile com You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession. 1040x site efile com Amount realized on a nonrecourse debt. 1040x site efile com   If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer. 1040x site efile com The full canceled debt is included even if the fair market value of the property is less than the canceled debt. 1040x site efile com Example 1. 1040x site efile com Chris bought a new car for $15,000. 1040x site efile com He paid $2,000 down and borrowed the remaining $13,000 from the dealer's credit company. 1040x site efile com Chris is not personally liable for the loan (nonrecourse debt), but pledges the new car as security. 1040x site efile com The credit company repossessed the car because he stopped making loan payments. 1040x site efile com The balance due after taking into account the payments Chris made was $10,000. 1040x site efile com The fair market value of the car when repossessed was $9,000. 1040x site efile com The amount Chris realized on the repossession is $10,000. 1040x site efile com That is the outstanding amount of the debt canceled by the repossession, even though the car's fair market value is less than $10,000. 1040x site efile com Chris figures his gain or loss on the repossession by comparing the amount realized ($10,000) with his adjusted basis ($15,000). 1040x site efile com He has a $5,000 nondeductible loss. 1040x site efile com Example 2. 1040x site efile com Abena paid $200,000 for her home. 1040x site efile com She paid $15,000 down and borrowed the remaining $185,000 from a bank. 1040x site efile com Abena is not personally liable for the loan (nonrecourse debt), but pledges the house as security. 1040x site efile com The bank foreclosed on the loan because Abena stopped making payments. 1040x site efile com When the bank foreclosed on the loan, the balance due was $180,000, the fair market value of the house was $170,000, and Abena's adjusted basis was $175,000 due to a casualty loss she had deducted. 1040x site efile com The amount Abena realized on the foreclosure is $180,000, the balance due and debt canceled by the foreclosure. 1040x site efile com She figures her gain or loss by comparing the amount realized ($180,000) with her adjusted basis ($175,000). 1040x site efile com She has a $5,000 realized gain. 1040x site efile com Amount realized on a recourse debt. 1040x site efile com   If you are personally liable for the debt (recourse debt), the amount realized on the foreclosure or repossession includes the lesser of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The fair market value of the transferred property. 1040x site efile com You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the fair market value. 1040x site efile com The amount realized does not include the canceled debt that is your income from cancellation of debt. 1040x site efile com See Cancellation of debt, below. 1040x site efile com Seller's (lender's) gain or loss on repossession. 1040x site efile com   If you finance a buyer's purchase of property and later acquire an interest in it through foreclosure or repossession, you may have a gain or loss on the acquisition. 1040x site efile com For more information, see Repossession in Publication 537. 1040x site efile com    Table 1-2. 1040x site efile com Worksheet for Foreclosures and Repossessions Part 1. 1040x site efile com Use Part 1 to figure your ordinary income from the cancellation of debt upon foreclosure or repossession. 1040x site efile com Complete this part only  if you were personally liable for the debt. 1040x site efile com Otherwise,  go to Part 2. 1040x site efile com   1. 1040x site efile com Enter the amount of outstanding debt immediately before the transfer of   property reduced by any amount for which you remain personally liable after   the transfer of property   2. 1040x site efile com Enter the fair market value of the transferred property   3. 1040x site efile com Ordinary income from cancellation of debt upon foreclosure or    repossession. 1040x site efile com * Subtract line 2 from line 1. 1040x site efile com   If less than zero, enter zero   Part 2. 1040x site efile com Figure your gain or loss from foreclosure or repossession. 1040x site efile com   4. 1040x site efile com If you completed Part 1, enter the smaller of line 1 or line 2. 1040x site efile com   If you did not complete Part 1, enter the outstanding debt immediately before   the transfer of property   5. 1040x site efile com Enter any proceeds you received from the foreclosure sale   6. 1040x site efile com Add lines 4 and 5   7. 1040x site efile com Enter the adjusted basis of the transferred property   8. 1040x site efile com Gain or loss from foreclosure or repossession. 1040x site efile com Subtract line 7  from line 6   * The income may not be taxable. 1040x site efile com See Cancellation of debt. 1040x site efile com Cancellation of debt. 1040x site efile com   If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the canceled debt is more than the fair market value of the property. 1040x site efile com This income is separate from any gain or loss realized from the foreclosure or repossession. 1040x site efile com Report the income from cancellation of a debt related to a business or rental activity as business or rental income. 1040x site efile com    You can use Table 1-2 to figure your income from cancellation of debt. 1040x site efile com   You must report this income on your tax return unless one of the following applies. 1040x site efile com The cancellation is intended as a gift. 1040x site efile com The debt is qualified farm debt. 1040x site efile com The debt is qualified real property business debt. 1040x site efile com You are insolvent or bankrupt. 1040x site efile com The debt is qualified principal residence indebtedness. 1040x site efile com File Form 982 to report the income exclusion. 1040x site efile com Example 1. 1040x site efile com Assume the same facts as in Example 1 under Amount realized on a nonrecourse debt, earlier, except Chris is personally liable for the car loan (recourse debt). 1040x site efile com In this case, the amount he realizes is $9,000. 1040x site efile com This is the lesser of the canceled debt ($10,000) or the car's fair market value ($9,000). 1040x site efile com Chris figures his gain or loss on the repossession by comparing the amount realized ($9,000) with his adjusted basis ($15,000). 1040x site efile com He has a $6,000 nondeductible loss. 1040x site efile com He also is treated as receiving ordinary income from cancellation of debt. 1040x site efile com That income is $1,000 ($10,000 − $9,000). 1040x site efile com This is the part of the canceled debt not included in the amount realized. 1040x site efile com Example 2. 1040x site efile com Assume the same facts as in Example 2 under Amount realized on a nonrecourse debt, earlier, except Abena is personally liable for the loan (recourse debt). 1040x site efile com In this case, the amount she realizes is $170,000. 1040x site efile com This is the lesser of the canceled debt ($180,000) or the fair market value of the house ($170,000). 1040x site efile com Abena figures her gain or loss on the foreclosure by comparing the amount realized ($170,000) with her adjusted basis ($175,000). 1040x site efile com She has a $5,000 nondeductible loss. 1040x site efile com She also is treated as receiving ordinary income from cancellation of debt. 1040x site efile com (The debt is not exempt from tax as discussed under Cancellation of debt, above. 1040x site efile com ) That income is $10,000 ($180,000 − $170,000). 1040x site efile com This is the part of the canceled debt not included in the amount realized. 1040x site efile com Forms 1099-A and 1099-C. 1040x site efile com   A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A showing the information you need to figure your gain or loss. 1040x site efile com However, if the lender also cancels part of your debt and must file Form 1099-C, the lender may include the information about the foreclosure or repossession on that form instead of on Form 1099-A and send you Form 1099-C only. 1040x site efile com The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 1040x site efile com For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 1040x site efile com Involuntary Conversions An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. 1040x site efile com Involuntary conversions are also called involuntary exchanges. 1040x site efile com Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. 1040x site efile com You report the gain or deduct the loss on your tax return for the year you realize it. 1040x site efile com You cannot deduct a loss from an involuntary conversion of property you held for personal use unless the loss resulted from a casualty or theft. 1040x site efile com However, depending on the type of property you receive, you may not have to report a gain on an involuntary conversion. 1040x site efile com Generally, you do not report the gain if you receive property that is similar or related in service or use to the converted property. 1040x site efile com Your basis for the new property is the same as your basis for the converted property. 1040x site efile com This means that the gain is deferred until a taxable sale or exchange occurs. 1040x site efile com If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can elect to postpone reporting the gain on the property purchased. 1040x site efile com This publication explains the treatment of a gain or loss from a condemnation or disposition under the threat of condemnation. 1040x site efile com If you have a gain or loss from the destruction or theft of property, see Publication 547. 1040x site efile com Condemnations A condemnation is the process by which private property is legally taken for public use without the owner's consent. 1040x site efile com The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. 1040x site efile com The owner receives a condemnation award (money or property) in exchange for the property taken. 1040x site efile com A condemnation is like a forced sale, the owner being the seller and the condemning authority being the buyer. 1040x site efile com Example. 1040x site efile com A local government authorized to acquire land for public parks informed you that it wished to acquire your property. 1040x site efile com After the local government took action to condemn your property, you went to court to keep it. 1040x site efile com But, the court decided in favor of the local government, which took your property and paid you an amount fixed by the court. 1040x site efile com This is a condemnation of private property for public use. 1040x site efile com Threat of condemnation. 1040x site efile com   A threat of condemnation exists if a representative of a government body or a public official authorized to acquire property for public use informs you that the government body or official has decided to acquire your property. 1040x site efile com You must have reasonable grounds to believe that, if you do not sell voluntarily, your property will be condemned. 1040x site efile com   The sale of your property to someone other than the condemning authority will also qualify as an involuntary conversion, provided you have reasonable grounds to believe that your property will be condemned. 1040x site efile com If the buyer of this property knows at the time of purchase that it will be condemned and sells it to the condemning authority, this sale also qualifies as an involuntary conversion. 1040x site efile com Reports of condemnation. 1040x site efile com   A threat of condemnation exists if you learn of a decision to acquire your property for public use through a report in a newspaper or other news medium, and this report is confirmed by a representative of the government body or public official involved. 1040x site efile com You must have reasonable grounds to believe that they will take necessary steps to condemn your property if you do not sell voluntarily. 1040x site efile com If you relied on oral statements made by a government representative or public official, the Internal Revenue Service (IRS) may ask you to get written confirmation of the statements. 1040x site efile com Example. 1040x site efile com Your property lies along public utility lines. 1040x site efile com The utility company has the authority to condemn your property. 1040x site efile com The company informs you that it intends to acquire your property by negotiation or condemnation. 1040x site efile com A threat of condemnation exists when you receive the notice. 1040x site efile com Related property voluntarily sold. 1040x site efile com   A voluntary sale of your property may be treated as a forced sale that qualifies as an involuntary conversion if the property had a substantial economic relationship to property of yours that was condemned. 1040x site efile com A substantial economic relationship exists if together the properties were one economic unit. 1040x site efile com You also must show that the condemned property could not reasonably or adequately be replaced. 1040x site efile com You can elect to postpone reporting the gain by buying replacement property. 1040x site efile com See Postponement of Gain, later. 1040x site efile com Gain or Loss From Condemnations If your property was condemned or disposed of under the threat of condemnation, figure your gain or loss by comparing the adjusted basis of your condemned property with your net condemnation award. 1040x site efile com If your net condemnation award is more than the adjusted basis of the condemned property, you have a gain. 1040x site efile com You can postpone reporting gain from a condemnation if you buy replacement property. 1040x site efile com If only part of your property is condemned, you can treat the cost of restoring the remaining part to its former usefulness as the cost of replacement property. 1040x site efile com See Postponement of Gain, later. 1040x site efile com If your net condemnation award is less than your adjusted basis, you have a loss. 1040x site efile com If your loss is from property you held for personal use, you cannot deduct it. 1040x site efile com You must report any deductible loss in the tax year it happened. 1040x site efile com You can use Part 2 of Table 1-3 to figure your gain or loss from a condemnation award. 1040x site efile com Main home condemned. 1040x site efile com   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. 1040x site efile com You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). 1040x site efile com For information on this exclusion, see Publication 523. 1040x site efile com If your gain is more than you can exclude but you buy replacement property, you may be able to postpone reporting the rest of the gain. 1040x site efile com See Postponement of Gain, later. 1040x site efile com Table 1-3. 1040x site efile com Worksheet for Condemnations Part 1. 1040x site efile com Gain from severance damages. 1040x site efile com  If you did not receive severance damages, skip Part 1 and go to Part 2. 1040x site efile com   1. 1040x site efile com Enter gross severance damages received   2. 1040x site efile com Enter your expenses in getting severance damages   3. 1040x site efile com Subtract line 2 from line 1. 1040x site efile com If less than zero, enter -0-   4. 1040x site efile com Enter any special assessment on remaining property taken out of your award   5. 1040x site efile com Net severance damages. 1040x site efile com Subtract line 4 from line 3. 1040x site efile com If less than zero, enter -0-   6. 1040x site efile com Enter the adjusted basis of the remaining property   7. 1040x site efile com Gain from severance damages. 1040x site efile com Subtract line 6 from line 5. 1040x site efile com If less than zero, enter -0-   8. 1040x site efile com Refigured adjusted basis of the remaining property. 1040x site efile com Subtract line 5 from line 6. 1040x site efile com If less than zero, enter -0-   Part 2. 1040x site efile com Gain or loss from condemnation award. 1040x site efile com   9. 1040x site efile com Enter the gross condemnation award received   10. 1040x site efile com Enter your expenses in getting the condemnation award   11. 1040x site efile com If you completed Part 1, and line 4 is more than line 3, subtract line 3 from line 4. 1040x site efile com If you did not complete Part 1, but a special assessment was taken out of your award, enter that amount. 1040x site efile com Otherwise, enter -0-   12. 1040x site efile com Add lines 10 and 11   13. 1040x site efile com Net condemnation award. 1040x site efile com Subtract line 12 from line 9   14. 1040x site efile com Enter the adjusted basis of the condemned property   15. 1040x site efile com Gain from condemnation award. 1040x site efile com If line 14 is more than line 13, enter -0-. 1040x site efile com Otherwise, subtract line 14 from  line 13 and skip line 16   16. 1040x site efile com Loss from condemnation award. 1040x site efile com Subtract line 13 from line 14     (Note: You cannot deduct the amount on line 16 if the condemned property was held for personal use. 1040x site efile com )   Part 3. 1040x site efile com Postponed gain from condemnation. 1040x site efile com  (Complete only if line 7 or line 15 is more than zero and you bought qualifying replacement property or made expenditures to restore the usefulness of your remaining property. 1040x site efile com )   17. 1040x site efile com If you completed Part 1, and line 7 is more than zero, enter the amount from line 5. 1040x site efile com Otherwise, enter -0-   18. 1040x site efile com If line 15 is more than zero, enter the amount from line 13. 1040x site efile com Otherwise, enter -0-   19. 1040x site efile com Add lines 17 and 18. 1040x site efile com If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   20. 1040x site efile com Enter the total cost of replacement property and any expenses to restore the usefulness of your remaining property   21. 1040x site efile com Subtract line 20 from line 19. 1040x site efile com If less than zero, enter -0-   22. 1040x site efile com If you completed Part 1, add lines 7 and 15. 1040x site efile com Otherwise, enter the amount from line 15. 1040x site efile com If the condemned property was your main home, subtract from this total the gain you excluded from your income and enter the result   23. 1040x site efile com Recognized gain. 1040x site efile com Enter the smaller of line 21 or line 22. 1040x site efile com   24. 1040x site efile com Postponed gain. 1040x site efile com Subtract line 23 from line 22. 1040x site efile com If less than zero, enter -0-   Condemnation award. 1040x site efile com   A condemnation award is the money you are paid or the value of other property you receive for your condemned property. 1040x site efile com The award is also the amount you are paid for the sale of your property under threat of condemnation. 1040x site efile com Payment of your debts. 1040x site efile com   Amounts taken out of the award to pay your debts are considered paid to you. 1040x site efile com Amounts the government pays directly to the holder of a mortgage or lien against your property are part of your award, even if the debt attaches to the property and is not your personal liability. 1040x site efile com Example. 1040x site efile com The state condemned your property for public use. 1040x site efile com The award was set at $200,000. 1040x site efile com The state paid you only $148,000 because it paid $50,000 to your mortgage holder and $2,000 accrued real estate taxes. 1040x site efile com You are considered to have received the entire $200,000 as a condemnation award. 1040x site efile com Interest on award. 1040x site efile com   If the condemning authority pays you interest for its delay in paying your award, it is not part of the condemnation award. 1040x site efile com You must report the interest separately as ordinary income. 1040x site efile com Payments to relocate. 1040x site efile com   Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of federal or federally assisted programs are not part of the condemnation award. 1040x site efile com Do not include them in your income. 1040x site efile com Replacement housing payments used to buy new property are included in the property's basis as part of your cost. 1040x site efile com Net condemnation award. 1040x site efile com   A net condemnation award is the total award you received, or are considered to have received, for the condemned property minus your expenses of obtaining the award. 1040x site efile com If only a part of your property was condemned, you also must reduce the award by any special assessment levied against the part of the property you retain. 1040x site efile com This is discussed later under Special assessment taken out of award. 1040x site efile com Severance damages. 1040x site efile com    Severance damages are not part of the award paid for the property condemned. 1040x site efile com They are paid to you if part of your property is condemned and the value of the part you keep is decreased because of the condemnation. 1040x site efile com   For example, you may receive severance damages if your property is subject to flooding because you sell flowage easement rights (the condemned property) under threat of condemnation. 1040x site efile com Severance damages also may be given to you if, because part of your property is condemned for a highway, you must replace fences, dig new wells or ditches, or plant trees to restore your remaining property to the same usefulness it had before the condemnation. 1040x site efile com   The contracting parties should agree on the specific amount of severance damages in writing. 1040x site efile com If this is not done, all proceeds from the condemning authority are considered awarded for your condemned property. 1040x site efile com   You cannot make a completely new allocation of the total award after the transaction is completed. 1040x site efile com However, you can show how much of the award both parties intended for severance damages. 1040x site efile com The severance damages part of the award is determined from all the facts and circumstances. 1040x site efile com Example. 1040x site efile com You sold part of your property to the state under threat of condemnation. 1040x site efile com The contract you and the condemning authority signed showed only the total purchase price. 1040x site efile com It did not specify a fixed sum for severance damages. 1040x site efile com However, at settlement, the condemning authority gave you closing papers showing clearly the part of the purchase price that was for severance damages. 1040x site efile com You may treat this part as severance damages. 1040x site efile com Treatment of severance damages. 1040x site efile com   Your net severance damages are treated as the amount realized from an involuntary conversion of the remaining part of your property. 1040x site efile com Use them to reduce the basis of the remaining property. 1040x site efile com If the amount of severance damages is based on damage to a specific part of the property you kept, reduce the basis of only that part by the net severance damages. 1040x site efile com   If your net severance damages are more than the basis of your retained property, you have a gain. 1040x site efile com You may be able to postpone reporting the gain. 1040x site efile com See Postponement of Gain, later. 1040x site efile com    You can use Part 1 of Table 1-3 to figure any gain from severance damages and to refigure the adjusted basis of the remaining part of your property. 1040x site efile com Net severance damages. 1040x site efile com   To figure your net severance damages, you first must reduce your severance damages by your expenses in obtaining the damages. 1040x site efile com You then reduce them by any special assessment (described later) levied against the remaining part of the property and retained out of the award by the condemning authority. 1040x site efile com The balance is your net severance damages. 1040x site efile com Expenses of obtaining a condemnation award and severance damages. 1040x site efile com   Subtract the expenses of obtaining a condemnation award, such as legal, engineering, and appraisal fees, from the total award. 1040x site efile com Also, subtract the expenses of obtaining severance damages, which may include similar expenses, from the severance damages paid to you. 1040x site efile com If you cannot determine which part of your expenses is for each part of the condemnation proceeds, you must make a proportionate allocation. 1040x site efile com Example. 1040x site efile com You receive a condemnation award and severance damages. 1040x site efile com One-fourth of the total was designated as severance damages in your agreement with the condemning authority. 1040x site efile com You had legal expenses for the entire condemnation proceeding. 1040x site efile com You cannot determine how much of your legal expenses is for each part of the condemnation proceeds. 1040x site efile com You must allocate one-fourth of your legal expenses to the severance damages and the other three-fourths to the condemnation award. 1040x site efile com Special assessment retained out of award. 1040x site efile com   When only part of your property is condemned, a special assessment levied against the remaining property may be retained by the governing body out of your condemnation award. 1040x site efile com An assessment may be levied if the remaining part of your property benefited by the improvement resulting from the condemnation. 1040x site efile com Examples of improvements that may cause a special assessment are widening a street and installing a sewer. 1040x site efile com   To figure your net condemnation award, you must reduce the amount of the award by the assessment retained out of the award. 1040x site efile com Example. 1040x site efile com To widen the street in front of your home, the city condemned a 25-foot deep strip of your land. 1040x site efile com You were awarded $5,000 for this and spent $300 to get the award. 1040x site efile com Before paying the award, the city levied a special assessment of $700 for the street improvement against your remaining property. 1040x site efile com The city then paid you only $4,300. 1040x site efile com Your net award is $4,000 ($5,000 total award minus $300 expenses in obtaining the award and $700 for the special assessment retained). 1040x site efile com If the $700 special assessment was not retained out of the award and you were paid $5,000, your net award would be $4,700 ($5,000 − $300). 1040x site efile com The net award would not change, even if you later paid the assessment from the amount you received. 1040x site efile com Severance damages received. 1040x site efile com   If severance damages are included in the condemnation proceeds, the special assessment retained out of the severance damages is first used to reduce the severance damages. 1040x site efile com Any balance of the special assessment is used to reduce the condemnation award. 1040x site efile com Example. 1040x site efile com You were awarded $4,000 for the condemnation of your property and $1,000 for severance damages. 1040x site efile com You spent $300 to obtain the severance damages. 1040x site efile com A special assessment of $800 was retained out of the award. 1040x site efile com The $1,000 severance damages are reduced to zero by first subtracting the $300 expenses and then $700 of the special assessment. 1040x site efile com Your $4,000 condemnation award is reduced by the $100 balance of the special assessment, leaving a $3,900 net condemnation award. 1040x site efile com Part business or rental. 1040x site efile com   If you used part of your condemned property as your home and part as business or rental property, treat each part as a separate property. 1040x site efile com Figure your gain or loss separately because gain or loss on each part may be treated differently. 1040x site efile com   Some examples of this type of property are a building in which you live and operate a grocery, and a building in which you live on the first floor and rent out the second floor. 1040x site efile com Example. 1040x site efile com You sold your building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. 1040x site efile com You rented half the building and lived in the other half. 1040x site efile com You paid $25,000 for the building and spent an additional $1,000 for a new roof. 1040x site efile com You claimed allowable depreciation of $4,600 on the rental half. 1040x site efile com You spent $200 in legal expenses to obtain the condemnation award. 1040x site efile com Figure your gain or loss as follows. 1040x site efile com     Resi- dential Part Busi- ness Part 1) Condemnation award received $12,000 $12,000 2) Minus: Legal expenses, $200 100 100 3) Net condemnation award $11,900 $11,900 4) Adjusted basis:       ½ of original cost, $25,000 $12,500 $12,500   Plus: ½ of cost of roof, $1,000 500 500   Total $13,000 $13,000 5) Minus: Depreciation   4,600 6) Adjusted basis, business part   $8,400 7) (Loss) on residential property ($1,100)   8) Gain on business property $3,500 The loss on the residential part of the property is not deductible. 1040x site efile com Postponement of Gain Do not report the gain on condemned property if you receive only property that is similar or related in service or use to the condemned property. 1040x site efile com Your basis for the new property is the same as your basis for the old. 1040x site efile com Money or unlike property received. 1040x site efile com   You ordinarily must report the gain if you receive money or unlike property. 1040x site efile com You can elect to postpone reporting the gain if you buy property that is similar or related in service or use to the condemned property within the replacement period, discussed later. 1040x site efile com You also can elect to postpone reporting the gain if you buy a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the condemned property. 1040x site efile com See Controlling interest in a corporation, later. 1040x site efile com   To postpone reporting all the gain, you must buy replacement property costing at least as much as the amount realized for the condemned property. 1040x site efile com If the cost of the replacement property is less than the amount realized, you must report the gain up to the unspent part of the amount realized. 1040x site efile com   The basis of the replacement property is its cost, reduced by the postponed gain. 1040x site efile com Also, if your replacement property is stock in a corporation that owns property similar or related in service or use, the corporation generally will reduce its basis in its assets by the amount by which you reduce your basis in the stock. 1040x site efile com See Controlling interest in a corporation, later. 1040x site efile com You can use Part 3 of Table 1-3 to figure the gain you must report and your postponed gain. 1040x site efile com Postponing gain on severance damages. 1040x site efile com   If you received severance damages for part of your property because another part was condemned and you buy replacement property, you can elect to postpone reporting gain. 1040x site efile com See Treatment of severance damages, earlier. 1040x site efile com You can postpone reporting all your gain if the replacement property costs at least as much as your net severance damages plus your net condemnation award (if resulting in gain). 1040x site efile com   You also can make this election if you spend the severance damages, together with other money you received for the condemned property (if resulting in gain), to acquire nearby property that will allow you to continue your business. 1040x site efile com If suitable nearby property is not available and you are forced to sell the remaining property and relocate in order to continue your business, see Postponing gain on the sale of related property, next. 1040x site efile com   If you restore the remaining property to its former usefulness, you can treat the cost of restoring it as the cost of replacement property. 1040x site efile com Postponing gain on the sale of related property. 1040x site efile com   If you sell property that is related to the condemned property and then buy replacement property, you can elect to postpone reporting gain on the sale. 1040x site efile com You must meet the requirements explained earlier under Related property voluntarily sold. 1040x site efile com You can postpone reporting all your gain if the replacement property costs at least as much as the amount realized from the sale plus your net condemnation award (if resulting in gain) plus your net severance damages, if any (if resulting in gain). 1040x site efile com Buying replacement property from a related person. 1040x site efile com   Certain taxpayers cannot postpone reporting gain from a condemnation if they buy the replacement property from a related person. 1040x site efile com For information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2. 1040x site efile com   This rule applies to the following taxpayers. 1040x site efile com C corporations. 1040x site efile com Partnerships in which more than 50% of the capital or profits interest is owned by  C corporations. 1040x site efile com All others (including individuals, partnerships (other than those in (2)), and S corporations) if the total realized gain for the tax year on all involuntarily converted properties on which there is realized gain of more than $100,000. 1040x site efile com   For taxpayers described in (3) above, gains cannot be offset with any losses when determining whether the total gain is more than $100,000. 1040x site efile com If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. 1040x site efile com If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. 1040x site efile com Exception. 1040x site efile com   This rule does not apply if the related person acquired the property from an unrelated person within the replacement period. 1040x site efile com Advance payment. 1040x site efile com   If you pay a contractor in advance to build your replacement property, you have not bought replacement property unless it is finished before the end of the replacement period (discussed later). 1040x site efile com Replacement property. 1040x site efile com   To postpone reporting gain, you must buy replacement property for the specific purpose of replacing your condemned property. 1040x site efile com You do not have to use the actual funds from the condemnation award to acquire the replacement property. 1040x site efile com Property you acquire by gift or inheritance does not qualify as replacement property. 1040x site efile com Similar or related in service or use. 1040x site efile com   Your replacement property must be similar or related in service or use to the property it replaces. 1040x site efile com   If the condemned property is real property you held for productive use in your trade or business or for investment (other than property held mainly for sale), like-kind property to be held either for productive use in trade or business or for investment will be treated as property similar or related in service or use. 1040x site efile com For a discussion of like-kind property, see Like-Kind Property under Like-Kind Exchanges, later. 1040x site efile com Owner-user. 1040x site efile com   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. 1040x site efile com Example. 1040x site efile com Your home was condemned and you invested the proceeds from the condemnation in a grocery store. 1040x site efile com Your replacement property is not similar or related in service or use to the condemned property. 1040x site efile com To be similar or related in service or use, your replacement property must also be used by you as your home. 1040x site efile com Owner-investor. 1040x site efile com   If you are an owner-investor, similar or related in service or use means that any replacement property must have the same relationship of services or uses to you as the property it replaces. 1040x site efile com You decide this by determining all the following information. 1040x site efile com Whether the properties are of similar service to you. 1040x site efile com The nature of the business risks connected with the properties. 1040x site efile com What the properties demand of you in the way of management, service, and relations to your tenants. 1040x site efile com Example. 1040x site efile com You owned land and a building you rented to a manufacturing company. 1040x site efile com The building was condemned. 1040x site efile com During the replacement period, you had a new building built on other land you already owned. 1040x site efile com You rented out the new building for use as a wholesale grocery warehouse. 1040x site efile com The replacement property is also rental property, so the two properties are considered similar or related in service or use if there is a similarity in all the following areas. 1040x site efile com Your management activities. 1040x site efile com The amount and kind of services you provide to your tenants. 1040x site efile com The nature of your business risks connected with the properties. 1040x site efile com Leasehold replaced with fee simple property. 1040x site efile com   Fee simple property you will use in your trade or business or for investment can qualify as replacement property that is similar or related in service or use to a condemned leasehold if you use it in the same business and for the identical purpose as the condemned leasehold. 1040x site efile com   A fee simple property interest generally is a property interest that entitles the owner to the entire property with unconditional power to dispose of it during his or her lifetime. 1040x site efile com A leasehold is property held under a lease, usually for a term of years. 1040x site efile com Outdoor advertising display replaced with real property. 1040x site efile com   You can elect to treat an outdoor advertising display as real property. 1040x site efile com If you make this election and you replace the display with real property in which you hold a different kind of interest, your replacement property can qualify as like-kind property. 1040x site efile com For example, real property bought to replace a destroyed billboard and leased property on which the billboard was located qualify as property of a like-kind. 1040x site efile com   You can make this election only if you did not claim a section 179 deduction for the display. 1040x site efile com You cannot cancel this election unless you get the consent of the IRS. 1040x site efile com   An outdoor advertising display is a sign or device rigidly assembled and permanently attached to the ground, a building, or any other permanent structure used to display a commercial or other advertisement to the public. 1040x site efile com Substituting replacement property. 1040x site efile com   Once you designate certain property as replacement property on your tax return, you cannot substitute other qualified property. 1040x site efile com But, if your previously designated replacement property does not qualify, you can substitute qualified property if you acquire it within the replacement period. 1040x site efile com Controlling interest in a corporation. 1040x site efile com   You can replace property by acquiring a controlling interest in a corporation that owns property similar or related in service or use to your condemned property. 1040x site efile com You have controlling interest if you own stock having at least 80% of the combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation. 1040x site efile com Basis adjustment to corporation's property. 1040x site efile com   The basis of property held by the corporation at the time you acquired control must be reduced by your postponed gain, if any. 1040x site efile com You are not required to reduce the adjusted basis of the corporation's properties below your adjusted basis in the corporation's stock (determined after reduction by your postponed gain). 1040x site efile com   Allocate this reduction to the following classes of property in the order shown below. 1040x site efile com Property that is similar or related in service or use to the condemned property. 1040x site efile com Depreciable property not reduced in (1). 1040x site efile com All other property. 1040x site efile com If two or more properties fall in the same class, allocate the reduction to each property in proportion to the adjusted basis of all the properties in that class. 1040x site efile com The reduced basis of any single property cannot be less than zero. 1040x site efile com Main home replaced. 1040x site efile com   If your gain from a condemnation of your main home is more than you can exclude from your income (see Main home condemned under Gain or Loss From Condemnations, earlier), you can postpone reporting the rest of the gain by buying replacement property that is similar or related in service or use. 1040x site efile com The replacement property must cost at least as much as the amount realized from the condemnation minus the excluded gain. 1040x site efile com   You must reduce the basis of your replacement property by the postponed gain. 1040x site efile com Also, if you postpone reporting any part of your gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the condemned property as your main home. 1040x site efile com Example. 1040x site efile com City authorities condemned your home that you had used as a personal residence for 5 years prior to the condemnation. 1040x site efile com The city paid you a condemnation award of $400,000. 1040x site efile com Your adjusted basis in the property was $80,000. 1040x site efile com You realize a gain of $320,000 ($400,000 − $80,000). 1040x site efile com You purchased a new home for $100,000. 1040x site efile com You can exclude $250,000 of the realized gain from your gross income. 1040x site efile com The amount realized is then treated as being $150,000 ($400,000 − $250,000) and the gain realized is $70,000 ($150,000 amount realized − $80,000 adjusted basis). 1040x site efile com You must recognize $50,000 of the gain ($150,000 amount realized − $100,000 cost of new home). 1040x site efile com The remaining $20,000 of realized gain is postponed. 1040x site efile com Your basis in the new home is $80,000 ($100,000 cost − $20,000 gain postponed). 1040x site efile com Replacement period. 1040x site efile com   To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. 1040x site efile com This is the replacement period. 1040x site efile com   The replacement period for a condemnation begins on the earlier of the following dates. 1040x site efile com The date on which you disposed of the condemned property. 1040x site efile com The date on which the threat of condemnation began. 1040x site efile com   The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 1040x site efile com However, see the exceptions below. 1040x site efile com Three-year replacement period for certain property. 1040x site efile com   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. 1040x site efile com However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use. 1040x site efile com Five-year replacement period for certain property. 1040x site efile com   The replacement period ends 5 years after the end of the first tax year in which any part of the gain is realized on the compulsory or involuntary conversion of the following qualified property. 1040x site efile com Property in any Midwestern disaster area compulsorily or involuntarily converted on or after the applicable disaster date as a result of severe storms, tornadoes, or flooding, but only if substantially all of the use of the replacement property is in a Midwestern disaster area. 1040x site efile com Property in the Kansas disaster area compulsorily or involuntarily converted after May 3, 2007, but only if substantially all of the use of the replacement property is in the Kansas disaster area. 1040x site efile com Property in the Hurricane Katrina disaster area compulsorily or involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, but only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 1040x site efile com Extended replacement period for taxpayers affected by other federally declared disasters. 1040x site efile com    If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2013, including the replacement period, by up to one year. 1040x site efile com For more information visit www. 1040x site efile com irs. 1040x site efile com gov/uac/Tax-Relief-in-Disaster-Situations. 1040x site efile com Weather-related sales of livestock in an area eligible for federal assistance. 1040x site efile com   Generally, if the sale or exchange of livestock is due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. 1040x site efile com    If the weather-related conditions continue for longer than 3 years, the replacement period may be extended on a regional basis until the end of your first drought-free year for the applicable region. 1040x site efile com See Notice 2006-82. 1040x site efile com You can find Notice 2006-82 on page 529 of Internal Revenue Bulletin 2006-39 at www. 1040x site efile com irs. 1040x site efile com gov/irb/2006-39_IRB/ar13. 1040x site efile com html. 1040x site efile com    Each year, the IRS publishes a list of counties, districts, cities, or parishes for which exceptional, extreme, or severe drought was reported during the preceding 12 months. 1040x site efile com If you qualified for a 4-year replacement period for livestock sold or exchanged on account of drought and your replacement period is scheduled to expire at the end of 2013 (or at the end of the tax year that includes August 31, 2013), see Notice 2013-62. 1040x site efile com You can find Notice 2013-62 on page 466 of Internal Revenue Bulletin 2013-45 at www. 1040x site efile com irs. 1040x site efile com gov/irb/2013-45_IRB/ar04. 1040x site efile com html. 1040x site efile com The replacement period will be extended under Notice 2006-82 if the applicable region is on the list included in Notice 2013-62. 1040x site efile com Determining when gain is realized. 1040x site efile com   If you are a cash basis taxpayer, you realize gain when you receive payments that are more than your basis in the property. 1040x site efile com If the condemning authority makes deposits with the court, you realize gain when you withdraw (or have the right to withdraw) amounts that are more than your basis. 1040x site efile com   This applies even if the amounts received are only partial or advance payments and the full award has not yet been determined. 1040x site efile com A replacement will be too late if you wait for a final determination that does not take place in the applicable replacement period after you first realize gain. 1040x site efile com   For accrual basis taxpayers, gain (if any) accrues in the earlier year when either of the following occurs. 1040x site efile com All events have occurred that fix the right to the condemnation award and the amount can be determined with reasonable accuracy. 1040x site efile com All or part of the award is actually or constructively received. 1040x site efile com For example, if you have an absolute right to a part of a condemnation award when it is deposited with the court, the amount deposited accrues in the year the deposit is made even though the full amount of the award is still contested. 1040x site efile com Replacement property bought before the condemnation. 1040x site efile com   If you buy your replacement property after there is a threat of condemnation but before the actual condemnation and you still hold the replacement property at the time of the condemnation, you have bought your replacement property within the replacement period. 1040x site efile com Property you acquire before there is a threat of condemnation does not qualify as replacement property acquired within the replacement period. 1040x site efile com Example. 1040x site efile com On April 3, 2012, city authorities notified you that your property would be condemned. 1040x site efile com On June 5, 2012, you acquired property to replace the property to be condemned. 1040x site efile com You still had the new property when the city took possession of your old property on September 4, 2013. 1040x site efile com You have made a replacement within the replacement period. 1040x site efile com Extension. 1040x site efile com   You can request an extension of the replacement period from the IRS director for your area. 1040x site efile com You should apply before the end of the replacement period. 1040x site efile com Your request should explain in detail why you need an extension. 1040x site efile com The IRS will consider a request filed within a reasonable time after the replacement period if you can show reasonable cause for the delay. 1040x site efile com An extension of the replacement period will be granted if you can show reasonable cause for not making the replacement within the regular period. 1040x site efile com   Ordinarily, requests for extensions are granted near the end of the replacement period or the extended replacement period. 1040x site efile com Extensions are usually limited to a period of 1 year or less. 1040x site efile com The high market value or scarcity of replacement property is not a sufficient reason for granting an extension. 1040x site efile com If your replacement property is being built and you clearly show that the replacement or restoration cannot be made within the replacement peri