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2011 Income Tax Returns

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2011 Income Tax Returns

2011 income tax returns Index A Adjusted basis defined, Adjusted basis defined. 2011 income tax returns Administrative or management activities, Administrative or management activities. 2011 income tax returns Assistance (see Tax help) Attorneys, Place To Meet Patients, Clients, or Customers B Business expenses not for use of home, Business expenses not for use of your home. 2011 income tax returns Business furniture and equipment, Business Furniture and Equipment Business percentage, Business Percentage Business use of the home requirements (see Qualifying for a deduction) C Carryover of expenses, Carryover of unallowed expenses. 2011 income tax returns Casualty losses, Casualty losses. 2011 income tax returns Child and Adult Care Food Program reimbursements, Meals. 2011 income tax returns Computer Listed property, Listed Property D Daycare facilities, Daycare Facility, Standard meal and snack rates. 2011 income tax returns (see also Family daycare providers) Eligible children for standard meal and snack rates, Standard meal and snack rates. 2011 income tax returns Exceptions for regular use requirement, Daycare Facility Family daycare, Standard meal and snack rates. 2011 income tax returns Family daycare provider, Standard meal and snack rates. 2011 income tax returns Meals, Meals. 2011 income tax returns , Standard meal and snack rates. 2011 income tax returns Regular use, Daycare Facility Standard meal and snack rates, Meals. 2011 income tax returns , Standard meal and snack rates. 2011 income tax returns Deduction limit, Deduction Limit Deduction requirements Employee use, Additional tests for employee use. 2011 income tax returns Exceptions to exclusive use, Exceptions to Exclusive Use Exclusive use, Exclusive Use More than one trade or business, More Than One Trade or Business Place to meet clients, Place To Meet Patients, Clients, or Customers Principal place of business, Principal Place of Business Regular use, Regular Use Separate structure, Separate Structure Storage of inventory or product samples, Storage of inventory or product samples. 2011 income tax returns Trade or business use, Trade or Business Use Deductions Figuring, Figuring the Deduction, Part 2—Figure Your Allowable Deduction Limit, Deduction Limit Part-year use, Part-year use. 2011 income tax returns Qualifying for, Qualifying for a Deduction, Separate Structure Rental to employer, Rental to employer. 2011 income tax returns Unreimbursed partnership expenses, Deducting unreimbursed partnership expenses. 2011 income tax returns Using Actual Expenses, Using Actual Expenses Dentists, Place To Meet Patients, Clients, or Customers Depreciation, Property Bought for Business Use 5-year property, Depreciation 7-year property, Depreciation Adjusted basis, Adjusted basis defined. 2011 income tax returns Fair market value, Fair market value defined. 2011 income tax returns Figuring depreciation for the current year, Figuring the depreciation deduction for the current year. 2011 income tax returns Furniture and equipment, Business Furniture and Equipment, Depreciation Home, Depreciating Your Home Nonresidential real property, Figuring the depreciation deduction for the current year. 2011 income tax returns Percentage table for 39-year nonresidential real property, Depreciation table. 2011 income tax returns Permanent improvements, Permanent improvements. 2011 income tax returns , Depreciating permanent improvements. 2011 income tax returns Depreciation of home, Depreciating Your Home Basis adjustment, Basis Adjustment MACRS (Table 2), Depreciation table. 2011 income tax returns Property bought for business use, Depreciation Sale or exchange of home, Depreciation Doctors, Place To Meet Patients, Clients, or Customers E Employee use of home, Additional tests for employee use. 2011 income tax returns Employees Adequately accounting to employer, Adequately accounting to employer. 2011 income tax returns Casualty losses, Casualty losses. 2011 income tax returns Mortgage interest, Deductible mortgage interest. 2011 income tax returns Other expenses, Other expenses. 2011 income tax returns Real estate taxes, Real estate taxes. 2011 income tax returns Exclusive use, Exclusive Use Expenses Casualty losses, Casualty losses. 2011 income tax returns Direct, Actual Expenses Indirect, Actual Expenses Insurance, Insurance. 2011 income tax returns Mortgage interest, Deductible mortgage interest. 2011 income tax returns , Qualified mortgage insurance premiums. 2011 income tax returns Real estate taxes, Real estate taxes. 2011 income tax returns Related to tax-exempt income, Expenses related to tax-exempt income. 2011 income tax returns Rent, Rent. 2011 income tax returns Repairs, Repairs. 2011 income tax returns Security system, Security system. 2011 income tax returns Telephone, Telephone. 2011 income tax returns Types of, Actual Expenses Unrelated, Actual Expenses Utilities and services, Utilities and services. 2011 income tax returns Where to deduct, Where To Deduct F Fair market value, Fair market value defined. 2011 income tax returns Family daycare providers Meal and snack log (Exhibit A), Standard meal and snack rates. 2011 income tax returns Standard meal and snack rates, Standard meal and snack rates. 2011 income tax returns Standard meal and snack rates (Table 3), Standard meal and snack rates. 2011 income tax returns Figuring the deduction Business percentage, Business Percentage Deduction limit, Deduction Limit Form, Useful Items - You may want to see:, Self-Employed Persons, Real estate taxes. 2011 income tax returns 1040, Schedule F, Casualty losses. 2011 income tax returns 2106, Employees 4562, Reporting and recordkeeping requirements. 2011 income tax returns 4684, Casualty losses. 2011 income tax returns 8829, Actual Expenses, Casualty losses. 2011 income tax returns , Business Percentage, Daycare Facility W-2 Reimbursed expenses, Employees Free tax services, Free help with your tax return. 2011 income tax returns Furniture and equipment, Business Furniture and Equipment H Help (see Tax help) Home Business percentage, Business Percentage Depreciation, Depreciating Your Home Sale of, Sale or Exchange of Your Home Home expenses, Can you deduct business use of, Figure A, , Principal Place of Business I Improvements (see Permanent improvements) Insurance, Insurance. 2011 income tax returns Inventory, storage of, Storage of inventory or product samples. 2011 income tax returns L Listed property Computers, Listed Property Defined, Listed Property Employee requirements, Employee. 2011 income tax returns Reporting and recordkeeping requirements, Reporting and recordkeeping requirements. 2011 income tax returns Years following the year placed in service, Years following the year placed in service. 2011 income tax returns M MACRS percentage table 39-year nonresidential real property, Depreciation table. 2011 income tax returns Meals, Meals. 2011 income tax returns Meeting with patients, clients, or customers on premises, Place To Meet Patients, Clients, or Customers More than one place of business, More than one place of business. 2011 income tax returns More than one trade or business, More Than One Trade or Business More-than-50%-use test, More-than-50%-use test. 2011 income tax returns Mortgage interest, Deductible mortgage interest. 2011 income tax returns , Qualified mortgage insurance premiums. 2011 income tax returns P Partners, Partners Partnership expenses, unreimbursed, Deducting unreimbursed partnership expenses. 2011 income tax returns Permanent improvements, Permanent improvements. 2011 income tax returns , Depreciating permanent improvements. 2011 income tax returns Personal property converted to business use, Personal Property Converted to Business Use Place of business, more than one, More than one place of business. 2011 income tax returns Principal place of business, Principal Place of Business Product samples, Storage of inventory or product samples. 2011 income tax returns Property bought for business use Depreciation, Depreciation Section 179 deduction, Property Bought for Business Use, Section 179 Deduction Property converted to business use, Personal, Personal Property Converted to Business Use Publications, Useful Items - You may want to see: (see Tax help) Q Qualifying for a deduction, Qualifying for a Deduction R Real estate taxes, Real estate taxes. 2011 income tax returns Recordkeeping, Recordkeeping Recordkeeping requirements Business furniture and equipment, Reporting and recordkeeping requirements. 2011 income tax returns Family daycare provider meal and snack log (Exhibit A), Standard meal and snack rates. 2011 income tax returns Regular use, Regular Use Reminders, Reminders Rent, Rent. 2011 income tax returns Repairs, Repairs. 2011 income tax returns Reporting requirements Business furniture and equipment, Reporting and recordkeeping requirements. 2011 income tax returns S Sale or exchange of your home, Sale or Exchange of Your Home Basis adjustment, Basis Adjustment Depreciation taken, Depreciation Ownership and use tests, Ownership and use tests. 2011 income tax returns Section 179, Section 179 Deduction Furniture and equipment, Business Furniture and Equipment, Listed Property Listed property, Business Furniture and Equipment, Listed Property Personal property converted to business use, Personal Property Converted to Business Use Property bought for business use, Property Bought for Business Use Security system, Security system. 2011 income tax returns Self-employed persons Deduction of expenses, Self-Employed Persons Separate structure, Separate Structure Simplified Method Actual expenses and depreciation of your home, Actual expenses and depreciation of your home. 2011 income tax returns Allowable area, Allowable area. 2011 income tax returns Business expenses not related to use of the home, Business expenses not related to use of the home. 2011 income tax returns Electing the simplified method, Electing the Simplified Method More than one home, More than one home. 2011 income tax returns More than one qualified business use, More than one qualified business use. 2011 income tax returns Shared use, Shared use. 2011 income tax returns Expenses deductible without regard to business use, Expenses deductible without regard to business use. 2011 income tax returns No carryover of unallowed expenses, No deduction of carryover of actual expenses. 2011 income tax returns Simplified amount, Simplified Amount Space used regularly for daycare, Space used regularly for daycare. 2011 income tax returns Using the simplified method, Using the Simplified Method Standard meal and snack rates, Standard meal and snack rates. 2011 income tax returns Storage of inventory, Storage of inventory or product samples. 2011 income tax returns T Tables and figures MACRS Depreciation of home (Table 2), Depreciation table. 2011 income tax returns Qualifying for deduction (Figure A), Standard meal and snack rates (Table 3), Table 3. 2011 income tax returns Standard Meal and Snack Rates1 Types of expenses (Table 1), Actual Expenses Tax help, How To Get Tax Help Telephone, Telephone. 2011 income tax returns Trade or business use, Trade or Business Use TTY/TDD information, How To Get Tax Help Types of expenses, Actual Expenses U Utilities, Utilities and services. 2011 income tax returns W Where to deduct expenses, Where To Deduct Employees, Employees Self-employed, Self-Employed Persons Worksheets Area Adjustment Worksheet (for simplified method), Area Adjustment Worksheet (for simplified method) Worksheets to figure the deduction for business use of your home (simplified method), Worksheets To Figure the Deduction for Business Use of Your Home (Simplified Method) Daycare facility worksheet (for simplified method), Daycare Facility Worksheet (for simplified method) Simplified method worksheet, Simplified Method Worksheet Prev  Up     Home   More Online Publications
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TTY: (202) 272-2074

The 2011 Income Tax Returns

2011 income tax returns 2. 2011 income tax returns   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. 2011 income tax returns Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. 2011 income tax returns S. 2011 income tax returns or foreign source income. 2011 income tax returns This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. 2011 income tax returns S. 2011 income tax returns Virgin Islands (USVI). 2011 income tax returns Generally, the same rules that apply for determining U. 2011 income tax returns S. 2011 income tax returns source income also apply for determining possession source income. 2011 income tax returns However, there are some important exceptions to these rules. 2011 income tax returns Both the general rules and the exceptions are discussed in this chapter. 2011 income tax returns U. 2011 income tax returns S. 2011 income tax returns income rule. 2011 income tax returns   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. 2011 income tax returns Table 2-1 shows the general rules for determining whether income is from sources within the United States. 2011 income tax returns Table 2-1. 2011 income tax returns General Rules for Determining U. 2011 income tax returns S. 2011 income tax returns Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. 2011 income tax returns Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. 2011 income tax returns For more information, see Regulations section 1. 2011 income tax returns 863-1(b). 2011 income tax returns Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. 2011 income tax returns Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. 2011 income tax returns Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. 2011 income tax returns It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. 2011 income tax returns Services performed wholly within a relevant possession. 2011 income tax returns   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. 2011 income tax returns However, there is an exception for income earned as a member of the U. 2011 income tax returns S. 2011 income tax returns Armed Forces or a civilian spouse. 2011 income tax returns U. 2011 income tax returns S. 2011 income tax returns Armed Forces. 2011 income tax returns   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. 2011 income tax returns However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. 2011 income tax returns Civilian spouse of active duty member of the U. 2011 income tax returns S. 2011 income tax returns Armed Forces. 2011 income tax returns   If you are a bona fide resident of a U. 2011 income tax returns S. 2011 income tax returns possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. 2011 income tax returns Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. 2011 income tax returns S. 2011 income tax returns possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. 2011 income tax returns Services performed partly inside and partly outside a relevant possession. 2011 income tax returns   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. 2011 income tax returns Compensation (other than certain fringe benefits) is sourced on a time basis. 2011 income tax returns Certain fringe benefits (such as housing and education) are sourced on a geographical basis. 2011 income tax returns   Or, you may be permitted to use an alternative basis to determine the source of compensation. 2011 income tax returns See Alternative basis , later. 2011 income tax returns   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. 2011 income tax returns In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. 2011 income tax returns Time basis. 2011 income tax returns   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). 2011 income tax returns Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. 2011 income tax returns The time period for which the income is made does not have to be a year. 2011 income tax returns Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. 2011 income tax returns Example. 2011 income tax returns In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. 2011 income tax returns Your Puerto Rico source income is $60,000, figured as follows. 2011 income tax returns       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. 2011 income tax returns   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. 2011 income tax returns Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. 2011 income tax returns You determine the period to which the income is attributable based on the facts and circumstances of your case. 2011 income tax returns For more information on multi-year compensation, see Treasury Decision (T. 2011 income tax returns D. 2011 income tax returns ) 9212 and Regulations section 1. 2011 income tax returns 861-4, 2005-35 I. 2011 income tax returns R. 2011 income tax returns B. 2011 income tax returns 429, available at www. 2011 income tax returns irs. 2011 income tax returns gov/irb/2005-35_IRB/ar14. 2011 income tax returns html. 2011 income tax returns Certain fringe benefits sourced on a geographical basis. 2011 income tax returns   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. 2011 income tax returns Housing. 2011 income tax returns Education. 2011 income tax returns Local transportation. 2011 income tax returns Tax reimbursement. 2011 income tax returns Hazardous or hardship duty pay. 2011 income tax returns Moving expense reimbursement. 2011 income tax returns For information on determining the source of the fringe benefits listed above, see Regulations section 1. 2011 income tax returns 861-4. 2011 income tax returns Alternative basis. 2011 income tax returns   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. 2011 income tax returns If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. 2011 income tax returns De minimis exception. 2011 income tax returns   There is an exception to the rule for determining the source of income earned in a possession. 2011 income tax returns Generally, you will not have income from a possession if during a tax year you: Are a U. 2011 income tax returns S. 2011 income tax returns citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. 2011 income tax returns This exception began with income earned during your 2008 tax year. 2011 income tax returns Pensions. 2011 income tax returns   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. 2011 income tax returns The contribution portion is sourced according to where services were performed that earned the pension. 2011 income tax returns The investment earnings portion is sourced according to the location of the pension trust. 2011 income tax returns Example. 2011 income tax returns You are a U. 2011 income tax returns S. 2011 income tax returns citizen who worked in Puerto Rico for a U. 2011 income tax returns S. 2011 income tax returns company. 2011 income tax returns All services were performed in Puerto Rico. 2011 income tax returns Upon retirement you remained in Puerto Rico and began receiving your pension from the U. 2011 income tax returns S. 2011 income tax returns pension trust of your employer. 2011 income tax returns Distributions from the U. 2011 income tax returns S. 2011 income tax returns pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. 2011 income tax returns S. 2011 income tax returns source income. 2011 income tax returns Investment Income This category includes such income as interest, dividends, rents, and royalties. 2011 income tax returns Interest income. 2011 income tax returns   The source of interest income is generally determined by the residence of the payer. 2011 income tax returns Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. 2011 income tax returns   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. 2011 income tax returns See Regulations section 1. 2011 income tax returns 937-2(i) for more information. 2011 income tax returns Dividends. 2011 income tax returns   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. 2011 income tax returns There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. 2011 income tax returns For more information, see Regulations section 1. 2011 income tax returns 937-2(g). 2011 income tax returns Rental income. 2011 income tax returns   Rents from property located in a relevant possession are treated as income from sources within that possession. 2011 income tax returns Royalties. 2011 income tax returns   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. 2011 income tax returns   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. 2011 income tax returns Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. 2011 income tax returns The most common situations are discussed below. 2011 income tax returns Real property. 2011 income tax returns   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. 2011 income tax returns The location of the property generally determines the source of income from the sale. 2011 income tax returns For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. 2011 income tax returns If, however, the home you sold was located in the United States, the gain is U. 2011 income tax returns S. 2011 income tax returns source income. 2011 income tax returns Personal property. 2011 income tax returns   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. 2011 income tax returns Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. 2011 income tax returns If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. 2011 income tax returns   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. 2011 income tax returns The rules applying to sales of inventory are discussed below. 2011 income tax returns For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. 2011 income tax returns Inventory. 2011 income tax returns   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. 2011 income tax returns The source of income from the sale of inventory depends on whether the inventory was purchased or produced. 2011 income tax returns Purchased. 2011 income tax returns   Income from the sale of inventory that you purchased is sourced where you sell the property. 2011 income tax returns Generally, this is where title to the property passes to the buyer. 2011 income tax returns Produced. 2011 income tax returns   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. 2011 income tax returns For information on making the allocation, see Regulations section 1. 2011 income tax returns 863-3(f). 2011 income tax returns Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. 2011 income tax returns S. 2011 income tax returns citizen or resident alien prior to becoming a bona fide resident of a possession. 2011 income tax returns You are subject to these special rules if you meet both of the following conditions. 2011 income tax returns For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. 2011 income tax returns For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). 2011 income tax returns If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. 2011 income tax returns Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. 2011 income tax returns S. 2011 income tax returns tax return. 2011 income tax returns (See chapter 3 for additional filing information. 2011 income tax returns ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. 2011 income tax returns These rules apply to dispositions after April 11, 2005. 2011 income tax returns For details, see Regulations section 1. 2011 income tax returns 937-2(f)(1) and Examples 1 and 2 of section 1. 2011 income tax returns 937-2(k). 2011 income tax returns Example 1. 2011 income tax returns In 2007, Cheryl Jones, a U. 2011 income tax returns S. 2011 income tax returns citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. 2011 income tax returns S. 2011 income tax returns corporation listed on the New York Stock Exchange. 2011 income tax returns On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. 2011 income tax returns Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. 2011 income tax returns On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. 2011 income tax returns On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. 2011 income tax returns Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. 2011 income tax returns The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. 2011 income tax returns This existing special rule applies if you are a U. 2011 income tax returns S. 2011 income tax returns citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. 2011 income tax returns S. 2011 income tax returns assets during the 10-year period beginning when you became a bona fide resident. 2011 income tax returns The gain is U. 2011 income tax returns S. 2011 income tax returns source income that generally is subject to U. 2011 income tax returns S. 2011 income tax returns tax if the property is either (1) located in the United States; (2) stock issued by a U. 2011 income tax returns S. 2011 income tax returns corporation or a debt obligation of a U. 2011 income tax returns S. 2011 income tax returns person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). 2011 income tax returns See chapter 3 for filing information. 2011 income tax returns Special election. 2011 income tax returns   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. 2011 income tax returns Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. 2011 income tax returns This election overrides both of the special rules discussed earlier. 2011 income tax returns   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. 2011 income tax returns Marketable securities. 2011 income tax returns   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. 2011 income tax returns Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. 2011 income tax returns S. 2011 income tax returns holding periods. 2011 income tax returns   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. 2011 income tax returns The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. 2011 income tax returns This is your gain (or loss) that is treated as being from sources within the relevant possession. 2011 income tax returns If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. 2011 income tax returns Example 2. 2011 income tax returns Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. 2011 income tax returns S. 2011 income tax returns and possession holding periods. 2011 income tax returns Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. 2011 income tax returns Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). 2011 income tax returns By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. 2011 income tax returns Other personal property. 2011 income tax returns   For personal property other than marketable securities, use a time-based allocation. 2011 income tax returns Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. 2011 income tax returns      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. 2011 income tax returns Example 3. 2011 income tax returns In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. 2011 income tax returns On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. 2011 income tax returns On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. 2011 income tax returns She had owned the interest for a total of 1,720 days. 2011 income tax returns Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. 2011 income tax returns The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). 2011 income tax returns By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. 2011 income tax returns Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. 2011 income tax returns Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. 2011 income tax returns These rules do not apply to amounts paid as salary or other compensation for services. 2011 income tax returns See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. 2011 income tax returns Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. 2011 income tax returns These circumstances are listed below. 2011 income tax returns You have an office or other fixed place of business in the relevant possession to which the income can be attributed. 2011 income tax returns That office or place of business is a material factor in producing the income. 2011 income tax returns The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. 2011 income tax returns An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. 2011 income tax returns The three kinds of income from sources outside the relevant possession to which these rules apply are the following. 2011 income tax returns Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. 2011 income tax returns Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. 2011 income tax returns Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. 2011 income tax returns Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. 2011 income tax returns Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. 2011 income tax returns Example. 2011 income tax returns Marcy Jackson is a bona fide resident of American Samoa. 2011 income tax returns Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. 2011 income tax returns A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. 2011 income tax returns Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. 2011 income tax returns The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. 2011 income tax returns However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. 2011 income tax returns Prev  Up  Next   Home   More Online Publications